KL Beddoe SM
Administrative Appeals Tribunal
KL Beddoe (Senior Member)
The applicant trustee seeks a review of an objection decision disallowing an objection dated 15 April 1991 against the decision by the respondent to impose on the applicant trustee a penalty pursuant to sub-section 223(4) of the Income Tax Assessment Act 1936 (``the Act'') in respect of the year of income ended 30 June 1986.
2. The applicant company, T Nominees Pty Ltd, as trustee for the R Family Trust No 2, was notified of additional tax payable relying on sub-section 223(4) of the Act, which penalty was notified by a notice dated on 12 December 1990 in respect of a misleading statement made in the Trust's return of income for the financial year ended 30 June 1986.
3. The applicant's objection raised the grounds that the claim made in the Trust return
ATC 194was in respect of an allowable loss of $31,912.50 incurred on the sale of a property acquired by the Trust with the intention of a profit making by sale.
4. Sub-section 52(1) of the Act provides for loss on a property acquired before 20 September 1985 for profit making:
``52(1) [Deduction for loss] Any loss incurred by the taxpayer in the year of income upon the sale of any property or from the carrying on or carrying out of any undertaking or scheme, the profit (if any) from which sale, undertaking or scheme would have been included in his assessable income, shall be an allowable deduction:
Provided that, in respect of property acquired by the taxpayer after the date of the commencement of this proviso, no deduction shall be allowable under this section (except where the Commissioner, being satisfied that the property was acquired by the taxpayer for the purpose of profit-making by sale or for the carrying on or carrying out of any profit-making undertaking or scheme, otherwise directs) unless the taxpayer, not later than the date upon which he lodges his first return under this Act after having acquired the property, notifies the Commissioner that the property has been acquired by him for the purpose of profit-making by sale or for the carrying on or carrying out of any profit-making undertaking or scheme.''
5. In the alternative the applicant argues that the loss is an allowable deduction pursuant to sub-section 51(1). That sub-section provides for a deduction of losses incurred in the course of carrying on a business.
6. Sub-section 223(4) which is in Part VII of the Act imposes penalty tax for false or misleading statements in relation to Trusts:
``223(4) [Trustees] Where-
- (a) a trustee of a trust estate-
- (i) makes a statement to a taxation officer, or to a person other than a taxation officer for a purpose in connection with the operation of this Act or the regulations, that is false or misleading in a material particular; or
- (ii) omits from a statement made to a taxation officer, or to a person other than a taxation officer for a purpose in connection with the operation of this Act or the regulations, any matter or thing without which the statement is misleading in a material particular,
being a statement relating to, or to the affairs of, the trust estate; and
- (b) the tax properly payable by a person who is or has been a beneficiary of the trust estate exceeds the tax that would have been payable by the last-mentioned person if it were assessed on the basis that the statement were not false or misleading, as the case may be,
the trustee is personally liable to pay, by way of penalty, additional tax equal to double the amount of the excess.''
Section 227 reads as follows:
``227(1) [Commissioner to assess] The Commissioner shall make an assessment of the additional tax payable by a person under a provision of this Part.
227(2) [Notice of assessment] Nothing in this Act shall be taken to preclude notice of an assessment made in respect of a person under subsection (1) from being incorporated in notice of any other assessment made in respect of the person under this Act.
227(3) [Commissioner's discretion to remit] The Commissioner may, in the Commissioner's discretion, remit the whole or any part of the additional tax payable by a person under a provision of this Part, but, for the purposes of the application of subsection 33(1) of the Acts Interpretation Act 1901 to the power of remission conferred by this subsection, nothing in this Act shall be taken to preclude the exercise of the power at a time before an assessment is made under subsection (1) of the additional tax.''
7. Section 6(1) defines ``assessment'' as:
- ``(a) the ascertainment of the amount of taxable income and of the tax payable thereon; or
- (b) the ascertainment of the amount of additional tax payable under a provision of Part VII;''
8. Section 166 in Part IV of the Act provides for the making of assessments:
``166 From the returns, and from any other information in his possession, or from any one or more of these sources, the
ATC 195Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon.''
9. In proceedings under Part V of the Act on a review before this Tribunal the burden of proving that an assessment is excessive shall be upon the taxpayer: paragraph 6(b) explicitly includes as an ``assessment'' any penalty tax ascertained as payable under Part VII (which includes section 223).
10. It is the taxpayer which must establish a basis upon which it may be said that the penalty tax imposed is excessive (section 190).
11. R is the controlling mind of the applicant company. On 4 December 1981 R and H (husband and wife) paid a deposit of $21,275.00 on a unit in the C Property Trust [Exhibits A and C]. On 15 January 1982 R and H obtained a unit certificate stamped with the seal of C Pty Ltd as trustee of the C Property Trust [Exhibit D] and which entitled R and H as capital unit holders to Apartment 7C in the C Property Trust. On 21 April 1982 R and H paid the remaining amount of $10,637 as deposit payment due for the future acquisition of unit 7C [Exhibits 1 and C]. The Tribunal is satisfied that the relevant deposit transactions occurred and finds accordingly.
12. In sworn evidence before the Tribunal, it was stated by R, also the public officer of the applicant company, [Transcript 41] that the promoters of the C Property Trust told the potential buyers that the purchase of the unit had to be in the names of living persons and that company names would not be accepted. No explanation was offered for this requirement. Thus R and H purchased the property in their individual names. R stated to the Tribunal that there had always been the intention of transferring the interest to the applicant company as trustee.
13. R further said in evidence that the only property ever purchased in the individual names of R and H previously to the present matter was the matrimonial home; that it was the practice to purchase long-term investment properties in the name of B Nominees Pty Ltd or, if the properties were for trading purposes, in the name of the applicant company. It was further explained to the Tribunal that the applicant company had been formed as a different entity for the sole purpose of carrying out trading activities [Transcript 42]. There was uncertainty expressed as to the date when the applicant company was formed. It was said that when the unit was initially purchased it was intended that ultimate ownership would reside in the applicant company and that the unit would be held for a ``reasonably quick turnover'' [Transcript 42].
14. R said in evidence that he did not understand about a section 52 notice at the time of purchase by the applicant company [Transcript 49]. The witness identified his request to the Commissioner to exercise the discretion to accept the notice pursuant to sub- section 52(1) of the Act though it was submitted subsequent to the lodgment of the 1982 tax return [Exhibit J] and is dated 29 August 1990. The witness believed the notice was lodged after the audit by the respondent in this matter [Transcript 50]. The notice was lodged long after the prescribed time and is a self serving statement of no value in deciding this case.
15. On 19 November 1983 the unit in the C Property Trust was transferred to the applicant company for the deposit price of $31,912.50. On the back of the unit certificate is the statement:
``We, (R and H), transfer our interest in this Unit Certificate to (applicant).''
This statement was signed by both parties and is dated 19 November 1983.
16. Exhibit F is the account book which relates to the applicant company, B Nominees Pty Ltd and R and Associates [Transcript 43]. The record of payment [Exhibit F] by the applicant company to Mr and Mrs R was identified by the witness as entries for $100.00 on 15 November 1983 and a further $31,812.50 on 19 November 1983.
17. Exhibit E is a photocopy of an unpresented cheque dated 19 December 1983 for the amount of $31,812.50. The cheque was drawn by the applicant company and was payable to R and H.
18. The discrepancy in dates in respect of the cheque and the cashbook entry was not explained other than to suggest one was a mistake [Exhibit A]. I am satisfied that the parties intended and did transfer the unit to the applicant. There is no basis before me for saying that the transfer was a sham and the Tribunal so finds.
19. R stated in examination-in-chief that at the time the unit was transferred to the applicant company ``we were certainly of the knowledge
ATC 196and aware that the promoters of (C Property Trust) were in trouble'' [Transcript 44].
20. Soon after November 1983, the C Property Trust went into liquidation with no return to unit holders [Transcript 26]. As a consequence, all monies paid for the unit were lost [Exhibit A]. R testified that it was not until 1986 that the applicant was totally satisfied that there was no chance of any monies being returned from the deposit whereupon it made the claim for the loss [Transcript 56].
21. The applicant asserts that although R and H knew the Trust was having difficulties [Transcript 56] they disregarded the importance of this when the unit was transferred to the applicant company because this was where ownership was intended to be at all times [Exhibit A]. It was further asserted in evidence before the Tribunal that the underlying intention in purchasing the unit was for sale at a profit, unlike holdings in long-term investment properties on the Gold Coast by B Nominees Pty Ltd [Transcript 45].
22. In cross-examination R identified the copy of a letter dated 20 June 1983 which he had written to solicitors at Surfers Paradise [Exhibit 2]. This letter includes the following:
``I understand negotiations to sell the building as a whole have been in progress for some long time and are nearing conclusion, but Settlement has not been achieved.
Recently I have noticed advertisements in the newspapers whereby the whole building is being offered for sale `By Tender' through Colliers.
It appears the promoters do not want to settle individual units and are looking to dispose of the building as a whole. Likewise, individual unit holders probably don't want to settle at the original asking prices.
Could you please let me have some general comment re our rights and obligations on the assumption that we don't want to settle if we don't have to, and would prefer to receive a refund of monies paid, i.e. $31,912.50, plus some form of interest.''
Written on the bottom of the letter in handwriting which R identified as his own, are the words ``Nothing can be done''. R had no recollection of what prompted that comment - but assumed it was written in the light of a verbal communication from the solicitor [Transcript 58].
23. A letter [Exhibit 3] dated 9 January 1984 from R to other unit holders was identified by R and put in evidence on behalf of the respondent. The letter is:
``Thank you for your letter of 29th December 1983, re capital units in C Property Trust.
After much effort, last week I obtained a copy of the Trust Deed and forwarded it to (Solicitors) for perusal and comment as to what action we could take against the Trust and/or its Directors in an attempt to obtain a refund of deposit monies paid.
The initial comment made by (solicitor) was that any action taken might best be taken by a group of unit holders so that the legal fees incurred could be spread between a number of litigants.
I would like to attend any meeting you organise of unit holders, and would appreciate receiving details of same, but may not be able to travel to Queensland at the present time.
Perhaps you could consider inviting the Solicitors mentioned to your meeting, with a view to appointing them to act on behalf of consenting unit holders.
A copy of your letter and this letter is being forwarded to (solicitor).''
24. R was shown and identified two further letters addressed to R and H from the solicitor dated respectively 31 January 1984 [Exhibit 4] and 13 February 1984 [Exhibit 5].
25. Exhibit 4, which is a response to the Trust deed, refers to telephone conversations and confirms the intention to do a company search in respect of the trustee. The second letter [Exhibit 5] is a report on that search to R and H with the solicitor's conclusions on the completion of the company search:
``Re: C PROPERTY TRUST - C PTY. LTD.
We have received a search of the company, including photocopies of the registered office and the details of the charge in favour of G Credits Limited. We enclose a photocopy of the search details.
We note that in our recent telephone conversation you indicated that unless there was a means of obtaining a refund of your monies paid, there was little point in proceeding further in the matter and our advice to you is that the company as Trustee has had the use of your monies which have been lost as a result of the Trustee failing to successfully complete and receive payment for its building.''
26. A letter dated 16 October 1985 [Exhibit 7] addressed to C Pty Ltd by the applicant company stated:
``The holder of Certificate No. 0001 in The C Property Trust, I would be pleased if you would advise what is happening about a refund, in relation to the deposit paid for Unit 7C a C-Class Unit.
I understand the Trust has failed; is this so?''
27. The Tribunal is satisfied and finds that R and H purchased the interest in the C Property Trust in December 1981. The unit certificate evidences that purchase. The Tribunal is also satisfied and finds that the transfer of the interest from R and H to the applicant in November 1983 was an effective transfer of that interest. The endorsement of the transferor on the reverse of the certificate as well as the consideration paid establish that.
28. The nature of the interest that was bought in the C Property Trust was a capital unit in a trust, the object or purpose of which was the acquisition of certain land; the construction of multi-storeyed residential development comprising self-contained apartments on that land; the obtaining of separate titles in respect of those apartments and the distribution in specie of those apartments to the unit holders so entitled thereto [Exhibit 6].
29. It is provided in the Trust deed [Exhibit 6] that upon notification that the relevant Building Units Plan had been registered in the Real Property Office Brisbane, the trustee was to give to each Capital Unit Holder a Cancellation Notice which required the Capital Unit Holder to surrender the Capital Units and forward to the Trustee the relevant Unit Certificate [Exhibit 6; clause 9.1, 9.2]. The Trustee then, on the Day of Distribution, would cancel the Capital Units specified in the Cancellation Notice by distributing in specie or vesting in such Capital Unit Holder the estate in fee simple of the apartment referable to and represented by the Capital Unit [Exhibit 6, clause 9.3].
30. In the event of non distribution and the necessity of discharging any mortgage over the land, the Trustee was to apply proceeds to discharge mortgages and distribute residue to respective Unit Holders [Exhibit 6 - Clause 12.1(a)].
31. As was pointed out in a letter dated 13 February 1984 to R and H from (solicitor) [Exhibit 5]:
``The company will, in due course be entitled to an accounting from the Mortgagee for the proceeds of all sales and if there is excess monies the company will be entitled to the same. We note from your advice that it is very doubtful that there will be excess monies.
We confirm that there is no benefit to you in caveating the Title for your particular lot, as the same would indicate that you are accepting a responsibility to acquire a particular lot, which of course is the exact opposite of your present desire.
We note that there has been a benefit to you in that you do not have an obligation to pay the balance of purchase price which would attach to the particular unit that you were to acquire had the project proceeded successfully.
We leave the matter with you and now enclose memo of our costs and outlays in respect of assisting and advising you.''
32. In fact, the amount of $31,912.50 was lost upon liquidation of the property trust assets which included sale of the real property by the mortgagee. There was no residue for distribution to Capital Unit Holders.
33. The nature of the right which was held by R and H in the C Property Trust was equitable - a right in personam. The certificate represented a right in equity proportional to the share of the unit in the C Property Trust.
34. Despite R's evidence of his belief that applications would not be accepted in company names, clause 4.4 of the C Property Trust Deed [Exhibit 6] clearly does allow for applications from companies:
``4.4 THE trustee shall within 60 days of receipt of any application for Capital Units either accept or reject the application
ATC 198provided however that the Trustee may if the applicant is a corporation demand that the applicant deliver to the Trustee an enforceable guarantee and indemnity for the full observance and performance by the applicant of every obligation and burden of the applicant as a Unit Holder under this Deed duly executed by each and every director of the applicant and/or any other person or corporation as may reasonably be required by the Trustee. Such guarantee and indemnity will be in a form stipulated by the Trustee and will be prepared by or on behalf of the Trustee at the cost of the applicant. If the duly executed guarantee and indemnity is not delivered to the Trustee within seven (7) days of demand therefore the Trustee shall reject the application and refund all application moneys after deducting the reasonable costs of the preparation of such guarantee or indemnity.''
35. The evidence of R, already adverted to (supra), makes it clear that there must have been an awareness of the financial problems of the C Property Trust prior to the transfer of interest to the applicant company. The history of the correspondence placed in evidence by the respondent, in particular Exhibit 2 which is of relevance because of its proximity in time to the transfer, indicates that there was established prior to the transfer the knowledge that individual settlement might not take place. It also indicates it was open for a reasonably prudent investor confronted with such intimations to conclude that the monies already paid were in jeopardy. The letters immediately subsequent to the transfer [Exhibits 3, 4, 5] confirm what was foreseen prior to the transfer - the investors in the C Property Trust would receive no refund of monies.
36. The income tax return lodged by the trust for the year of income ended 30 June 1986 included a claim for loss on sale of assets $35,411. A note included in the return referred to the mortgagor (sic) taking over the assets of the Property Trust. It was not suggested in the return that the unit in the Trust had been sold.
37. Given the above circumstances the Tribunal cannot be satisfied on the evidence that the requirements of section 52 have been met by the applicant. It is open to decide that the applicant company did not acquire property from which it could make a profit upon resale; rather it acquired property which, viewed objectively, was more likely than not to make a loss. The adverse circumstances which were acknowledged by R as being already within his cognisance in June 1983 and which were sufficient to form the subject of a continuum of correspondence proximate to the time of transfer, were such that it was reasonably foreseeable that a profit could not be made by acquisition at the price paid of the capital unit in the C Property Trust. Therefore the applicant company had, at the time of acquisition by transfer from R and H, a very real expectation of incurring a loss and no reasonable expectation of deriving a profit from sale of the unit and I so find.
Burnside v FC of T 77 ATC 4588 at 4594 Mason J (as he then was) observed in connection with sub-section 26(a) that:
``... where the profit in question arises from the purchase and subsequent sale of an asset and it is found that the asset was not acquired for the purpose of profit-making by sale it is very difficult to see how the profit can be said to arise from a profit-making undertaking or scheme.''
39. Mutatis mutandis this may be applied where a loss in question arises from the purchase and it is found that the asset was not acquired for the purpose of profit making.
40. Further, so far as the first limb of sub- section 52(1) is concerned a loss is allowable only upon the sale of property. In the circumstances of this matter what was held was an equitable interest in personam which by reason of the liquidation of assets of the trust, rather than being sold, became valueless because there was no residue of funds for the trustee to distribute to capital unit holders.
41. The characteristics of a profit-making undertaking or scheme within the second limb of sub-section 26(a) were described by Gibbs J (as he then was), in
Steinberg & Ors v FC of T 75 ATC 4221 at 4234; (1972-1975) 134 CLR 640 at 699 as:
``... a plan, design or programme of action devised and put into effect for the purpose of making a profit. It must be a scheme carried out by the taxpayer... it should - at least where the transaction is one of acquisition and resale - exhibit features which give it the character of a business deal.''
As Kaye J observed in
Bendix Consolidated Industries Ltd v FC of T 82 ATC 4582 at 4589:
``A transaction from which the profit is derived must result from an undertaking or scheme having some business or commercial flavour, and having as its purpose the making of profit; Steinberg at ATC p. 4228; C.L.R. pp. 687-688 per Barwick C.J. and Whitfords Beach at pp. 4033-4039 per Gibbs C.J. and at pp. 4044-4047 per Mason J.''
42. In a transaction which is contemplated by sub-section 52(1) of the Act, some reasonable foreseeability of profit should exist so that there is genuinely present the commercial or business flavour to which Kaye J referred.
FC of T v Werchon & Anor 82 ATC 4332 in a Full Federal Court decision, Smithers J said at 4336:
``There can be little doubt that despite the width of the natural meaning of language of sec. 52 that section was enacted for the express purpose of permitting the deduction from income of a loss suffered in the course of the sale of property genuinely acquired with a view to profit-making by its sale or from the carrying out of an undertaking or scheme which was genuinely a profit- making undertaking or scheme.''
44. In the light of the evidence I am not satisfied that the present case exhibits acquisition of the unit by the applicant for the purpose of profit-making by sale and I so find.
45. The taxpayer therefore is not entitled to a deduction for the loss as deductible under section 52 because the loss claimed does not meet the criteria as delineated in the provision.
46. In relation to section 51 there was no evidence before the Tribunal that the trustee was carrying on trading with property or other investments. Furthermore there was no evidence that the units in the C Property Trust were acquired in the course or carrying on such a business. In the absence of such evidence there is no basis for establishing a claim for loss under section 51 of the Act.
47. This brings me to a consideration of the application of section 223, which provides for the payment of additional tax where, on or after 14 December 1984, a taxpayer makes a statement that is false or misleading in a material particular. In this matter the misleading statement as alleged by the respondent, was made in the Trust return for the year ended 30 June 1986 [Exhibit 8].
48. Historically sub-section 223(4) was introduced when section 223 was enacted and there was no predecessor in the previous section 226. The Explanatory Memorandum sets out the general purposes and target areas of the provision at page 12 [Taxation Laws of Australia, Volume 13, 1984, Butterworths - Taxation Laws Amendment Bill 1984, p. 584]:
``The new provisions will enable penalties to be imposed in respect of various acts or omissions that were either not previously penalisable or in respect of which there is some doubt as to whether application of the existing penalty provision would be successful. Examples include the misdescription, for the purpose of maximising a tax deduction, of expenditure that was actually incurred, the claiming of a share in a partnership loss where there is false information in the partnership return, and the use of objection procedures to claim a deduction under a tax avoidance scheme that was not claimed at the time of lodgment of the relevant income tax return. In a case where a trustee makes a false or misleading statement that affects the tax payable by a beneficiary the trustee will be personally liable to pay additional tax equal to double the affected amount.''
49. Section 223 was enacted by section 152 of the Taxation Laws Amendment Act 1984. At page 28 of the Explanatory Memorandum (13 Taxation Laws of Australia at 626) is the following explanation:
``Clause 152: Penalty Tax
A new Part VII is to be inserted in the Principal Act by clause 152. The substituted Part VII will impose statutory penalties (or increase them in some cases) where tax is sought to be avoided by a refusal or failure to lodge a return or furnish information required under the Act, by the making of false or misleading statements or by participation in certain tax avoidance arrangements.''
At page 627 and 628:
``Section 223: Penalty for false or misleading statements
Sub-section 223(1) , which replaces sub- section 226(2), will apply where a taxpayer makes a statement for the purposes of the Principal Act or the regulations that is false or misleading in a material particular or
ATC 200which, by the omission of some matter, is rendered misleading. If, in such a case, the tax properly payable by the taxpayer exceeds the tax that would be payable if the statement were correct, the taxpayer will be liable to penalty tax equal to double the excess.
Sub-section 223(2) ...
Sub-section 223(3) ...
Sub-section 223(4) will impose a personal liability for penalty on the trustee of a trust estate who makes a false or misleading statement relating to the affairs of the trust estate, or omits something from such a statement so as to render it misleading. That penalty will be equal to double the amount of any tax that a beneficiary in the trust estate would have escaped if the beneficiary had been assessed on the basis of the statement being correct.
Sub-section 223(5) ...''
The purpose sought to be achieved by section 223 is to ensure the accuracy and completeness of returns so that the Commissioner can perform the task of assessment.
50. Sub-section 227(1) requires the respondent Commissioner to make an assessment of the additional tax payable by a person under Part VII of the Act. Notice of such an assessment may be incorporated in a notice of any other assessment made in respect of the person concerned. There is nothing in section 227 of the Act, nor in any other provision of the Act that refers to the making of the assessment of additional tax imposed by sub-section 223(4) of the Act on a trustee. Sub-section 227(1) merely provides that the Commissioner shall make an assessment of the additional tax payable.
51. The purported notice of assessment from the respondent said to assess penalty tax is Document T6. It consists of a pro forma with the name of the taxpayer, its file number and the amount of penalty tax - all handwritten.
52. The words of the pro forma which has the heading ``Calculation of Additional Tax'' commence:
``The purpose of this advice is to explain how the additional tax at Label D of the enclosed assessment notice(s) has been calculated...''
There was in fact no enclosed assessment notice. There is a letter dated 12 December 1990 from the respondent which advises the taxpayer of its additional tax liability but there is no form which is ordinarily recognisable as a notice of assessment.
53. In the hearing before the Tribunal, the respondent submitted that in the absence in the Act of a provision which specifies a requisite form, it is a matter of the respondent's discretion as to what form is adopted to convey the information of the assessment [Transcript 10].
54. With respect, the document issued (T6) is such that the Tribunal not only did not recognise it as a notice of assessment but also found it positively uninformative. Viewed objectively and from the viewpoint of the ordinary taxpayer it might be construed as advice as to a future notice of assessment rather than what it purports to be: a present notice of assessment of the additional tax.
55. To attract the additional tax imposed by section 223 the statement must be ``false'' or ``misleading''. ``False'' may encompass within its ordinary meaning the sense of mistaken, inaccurate as well as untrue:
English and Scottish Co-operative Properties Mortgage and Investment Society Ltd v Odhams Press, Ltd & Anor (1940) 1 All ER 1 at 6.
56. The remission of additional tax has been calculated on a basis not explained to the Tribunal except that it is based on a formula of 45% for culpability component and 14.026% for per annum component calculated to 15 August 1990. The amount of tax and the commencing date of the calculations are not in evidence before the Tribunal.
57. It would be an incredible result if a taxpayer were to fail before this Tribunal simply because the respondent has not disclosed the basis for making what purports to be an assessment. The notification to the applicant established the amount of additional tax said to be payable but does not disclose the underlying calculations and the basis for remission of part of the additional tax imposed.
58. Fundamental to the assessment of additional tax is the amount of additional tax imposed by the Act and the amount, if any, remitted by the Commissioner or this Tribunal standing in the shoes of the Commissioner. Neither of those amounts can be gleaned from
ATC 201the evidentiary material before the Tribunal. If I do not know the amount of additional tax imposed by the Act I cannot consider what amount if any, should be remitted. Although extensive calculations are to be found in the respondent's written submissions to this Tribunal, even those submissions do not disclose how the amount of $10,255 said to be the tax avoided was calculated. The overriding problem in this case is well illustrated by one of the respondent's own written submissions which reads as follows:
``Again it is not relevant what rates of tax (R) paid as an individual taxpayer. The reason for this is that he is not personally liable for the penalty, as it was imposed on the trustee.''
That is a submission which appears to totally overlook the operation of paragraph 223(4)(b). It is of the essence of the operation of sub- section 223(4) that it is the tax paid and the tax properly payable by the beneficiaries that is relevant. The rate of tax, if any, paid by the trustee personally has nothing to do with the calculation required to be made by sub-section 223(4).
59. Because the submissions made on behalf of the respondent Commissioner do not address the operation of sub-section 223(4) and because the respondent has consistently refused to disclose the basis for the assessment of additional tax, can I be satisfied, on the applicant's evidence and submissions that the assessment of the additional tax made but not disclosed by the Commissioner is excessive?
60. It cannot be the case that the Parliament intended that the assessment of additional tax to a trustee is, in effect, incontestable. But, if the Commissioner is required to not disclose the basis of the assessment because it is based on the tax payable by the beneficiaries rather than the trustee then it would be almost impossible in some cases for the trustee to contest the assessment.
61. As it happens in this case R, as controlling mind of the applicant, is one of the relevant beneficiaries and his ex-wife is the other. Whether the basis of the calculation set out in the respondent's written submission to this Tribunal (which is the first time that the basis has been disclosed) is in fact correct is a question I cannot answer. The applicant did not attempt to do so but has made submissions in writing which include assessment details.
62. It is not appropriate for this Tribunal to consider whether sub-section 223(4) is, in effect, an incontestable tax (cf.
DFC of T v Brown (1958) 100 CLR 32, (1958) 11 ATD 374). I do note, however, that it is not clear from the legislation as to how the trustee goes about contesting the amount assessed. The only remedy under the Act would appear to be that the respondent must disclose the facts underlying the basis of assessment. Whether the situation has been corrected by Act No 101 of 1992 is a question which does not arise in these proceedings and I should not comment.
63. On the Commissioner's submission the amount incorrectly claimed as a deduction under section 52 is $31,912 (although described in the respondent's submission as omitted income).
64. It is then incorrectly said that the ``amount of tax avoided by the trust that would have been paid if not for a misleading statement made was $10,255'' but the calculation of this amount is not set out in the submission. What is said is that section 223 provided for the imposition of culpability and per annum components of penalty but the per annum component was calculated pursuant to section 170AA of the Act at 14.026%. That submission overlooks the operation of sub-section 170AA(2) as it applied prior to Act No 101 of 1992 and is not correct in law.
65. Contrary to the respondent's submissions the only additional tax imposed by the Act in the circumstances of this case is the 200% tax imposed by section 223 of the Act.
66. The amount of $8,612 additional tax assessed by the respondent is 83.9% of the tax said to have been avoided ($10,255).
67. In considering whether there are mitigating circumstances in this case I have concluded that there are none except the fact that if the transfer of the unit to the Trust had not been effected then it may have been open to R and H to claim a loss on sale of the unit in their personal income tax returns. I am unable to say whether such an amount would be an allowable deduction because the matter is hypothetical. After taking all the material before me into account including the fact that a false representation was made to the respondent, I will further remit the additional tax to an amount equal to 60% of the tax said to have been avoided. That is, in my view, an appropriate remission and an appropriate
ATC 202penalty in the circumstances of this case, it having been established that the respondent proceeded on an incorrect basis of assessment because of a false statement by the applicant, and I so find. I am unable to quantify the amount of additional tax because of the lack of evidence before the Tribunal.
68. For these reasons the objection decision under review will be set aside and there will be substituted therefor a decision that the additional tax imposed on the trustee in accordance with sub-section 223(4) be remitted as to 70% of the amount imposed by section 223 of the Act in accordance with sub-section 227(3) of the Act.
69. In the event of the parties being unable to agree on the amount of additional tax to be assessed, liberty to apply will be reserved to both parties.
THE TRIBUNAL DECIDES THAT:
(a) the objection decision under review be set aside;
(b) there be substituted therefor a decision that the additional tax imposed on the trustee in accordance with sub-section 223(4) be remitted as to 70% of the amount so imposed in accordance with sub-section 227(3) of the Income Tax Assessment Act 1936; and
(c) liberty to apply on two days' notice in writing to the other party is reserved to both parties.