ATO Interpretative Decision

ATO ID 2001/248 (Withdrawn)

Income Tax

• ATO ID 2001/248 is to be withdrawn. Decision not current. Section 170AA of the Income Tax Assessment Act 1936 (ITAA 1936) does not apply to amendments relating to the 2000-01 year of income or a later year of income. The penalty tax provisions under Part VII (ITAA 1936) do not apply to statements made, or schemes entered into, in relation to the 2000-2001 year of income or a later year of income.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

1. Whether the taxpayer, who is misled by the instructions in TaxPack when claiming work related car expenses, is subject to penalty tax under section 226G of the Income Tax Assessment Act 1936 (ITAA 1936) for failing to exercise reasonable care. 2. Whether the General Interest Charge (GIC) imposed under section 170AA (ITAA 1936) should be remitted under section 8AAG of the Taxation Administration Act 1953 (TAA 1953).

Decision

1. The taxpayer is not subject to penalty tax under section 226G (ITAA 1936).

2. The GIC imposed under section 170AA (ITAA 1936) should be remitted.

Facts

The taxpayer lodges their tax return, in which the taxpayer makes substantial claims for work related car expenses, including both depreciation and leasing charges. Subsequently the taxpayer is audited and an adjustment is made to disallow the depreciation claimed. The taxpayer is made liable to pay penalty tax under section 226G (ITAA 1936) that is equal to 25% of the amount of the tax shortfall on the basis that the taxpayer has failed to take reasonable care. The taxpayer is also liable to pay GIC under section 170AA (ITAA 1936).

The taxpayer objects to the penalty tax imposed, claiming to have been misled by the instructions in TaxPack and states that the instructions in TaxPack imply that both leasing charges and depreciation may be claimed. The Australian Taxation Office (ATO) subsequently accepts that the instructions in Tax Pack are misleading.

Reasons for Decision

Under section 226G (ITAA 1936) penalty tax is attracted where a taxpayer has a tax shortfall caused by their failure to take reasonable care. Taxation Ruling TR 94/4 provides guidelines as to what constitutes reasonable care. Paragraph 6 of Taxation Ruling TR 94/4 states that the reasonable care standard requires a taxpayer to take the care that a reasonable person would exercise, in their particular circumstances, to fulfil the taxpayer's tax obligations. Provided that a taxpayer may be judged to have tried his or her best to lodge a correct return, having regard to the taxpayer's experience, education, skill and other relevant circumstances, the taxpayer will not be liable to pay penalty.

Section 8AAG (Taxation Administration Act 1953 (TAA 1953)) allows the Commissioner to remit all or part of any GIC payable.

The taxpayer used TaxPack to prepare the tax return. The Commissioner's guarantee states that where TaxPack is misleading and the taxpayer makes a mistake as a result, the ATO will not charge penalty or GIC on the tax shortfall. The ATO acknowledges that the instructions in TaxPack at the time were misleading and as a result amends the instructions in the following year's TaxPack for clarity.

In the circumstances, the taxpayer took reasonable care but was misled by the instructions in TaxPack. Therefore, the taxpayer is not subject to penalty tax under section 226G (ITAA 1936) for failing to take reasonable care. The GIC imposed under section 170AA (ITAA 1936) should also be remitted in full under section 8AAG (TAA 1953) as the mistake was clearly due to the unclear instructions in TaxPack.

Legislative References:
Income Tax Assessment Act 1936
   section 170AA
   section 226G

Related Public Rulings (including Determinations)
TR 94/4

Other References:
TaxPack

Keywords
Tax administration
General interest charge
Income tax penalties
Income tax shortfall
Remission of penalties

Business Line:  Small Business/Individual Taxpayers

Date of publication:  27 August 2001

ISSN: 1445-2782