Decision impact statement

Kakavas and Commissioner of Taxation

Venue: Administrative Appeals Tribunal
Venue Reference No: 2010/1005
Judge Name: Senior Member Fice
Judgment date: 2 February 2011
Appeals on foot: No.
Decision Outcome: Partly Adverse

Impacted Advice

Impacted Practice Statements:

• N/A

Subject References:
Administrative penalty
Failure to lodge Tax Return
Remission of penalty

Précis

Outlines the ATO's approach to this case which concerned whether an administrative penalty was payable and whether any penalty should be remitted in full.

Brief summary of facts

The Commissioner sent a notice to the taxpayer in January 2007, under section 162 of the Income Tax Assessment Act 1936 (ITAA 1936), requesting the taxpayer to lodge his income tax return for the 2006 income year in February 2007. The taxpayer's tax agent lodged the return on 28 February 2007, recording no taxable income for the 2006 year. A nil taxable income notice issued on 7 March 2007.

Following an audit in 2007, the Commissioner issued income tax and shortfall penalty assessments to the taxpayer. After an objection decision in relation to those assessments was referred to the AAT for review, the taxpayer claimed in July 2009 that the return had been lodged by his agent without his authorisation. On 17 August 2009, the Commissioner advised the taxpayer that he accepted that the return lodged was not authorised by the taxpayer, and then withdrew the shortfall penalty assessment, and issued a new penalty assessment on 19 August 2009 for failure to provide a return. The original AAT proceedings were resolved by consent, but an objection decision in relation to the new penalty assessment was referred to the AAT. Prior to the hearing in this case, the Commissioner agreed to reduce the penalty to 25% of the income tax liability.

The taxpayer contended that the penalty imposed by the Commissioner was not authorised by subsection 284-75(3) of Schedule 1 to the Taxation Administration Act 1953 because section 164 of the ITAA 1936 deemed the return lodged by his tax agent to have been lodged on 28 February 2007, and was not proved to be unauthorised before the penalty assessment issued on 17 August 2009.

Issues decided by the tribunal

The AAT held that the penalty imposed was authorised by subsection 284-75(3). The taxpayer had failed to give a return to the Commissioner by the time that it was required to be given, and the Commissioner had determined the taxpayer's income tax liability without the assistance of any return. Section 164 establishes only a rebuttable presumption that a return has been lodged with authority. The Commissioner accepted that the taxpayer had proved that the return of 28 February 2007 had been lodged without his authority before the assessment issued.

The AAT affirmed the Commissioner's remission of the base penalty rate to 25% as correct in the circumstances. While the taxpayer co-operated in the conduct of the audit, neither he nor his agent took any steps to rectify the deficiencies with the return before the audit commenced.

Tax Office view of Decision

The AAT accepted that the penalty imposed was authorised by subsection 284-75(3), and recognised that the presumption in section 164 of the ITAA 1936 had been rebutted by the taxpayer's own actions. The AAT also accepted that the reduction of penalty to 25% was correct in all the circumstances.

Administrative Treatment

Implications for ATO precedential documents (Public Rulings & Determinations etc)

None

Implications for Law Administration Practice Statements

None

Court citation:
[2011] AATA 48
2011 ATC 10-173
(2011) 82 ATR 234

Legislative References:
Income Tax Assessment Act 1936
162
164

Taxation Administration Act 1953
Schedule 1, s 284-75(3)