LLJL v FC of T
Members:R Reitano M
Tribunal:
Administrative Appeals Tribunal, Sydney
MEDIA NEUTRAL CITATION:
[2020] AATA 3446
R Reitano (Member):
1. One of the single most important features of Australia's income taxation system is that it relies upon each taxpayer's lodgement of income tax returns within stipulated timeframes without any need for the Commissioner of Taxation (Commissioner) or his staff to seek, require or prompt adherence to the legislative scheme underlying that obligation. This case is about the Commissioner's imposition of penalties which the Commissioner is entitled to impose when a taxpayer does not conform to that obligation.
2. On 3 April 2019, the Commissioner imposed penalties of $3839.25 and $3505.50 on LLJL for his failure to lodge his income tax returns for the 2011 and 2012 income tax years. It is important to understand that the Commissioner did not impose fines on LLJL for any failure to pay the income tax which he was required to pay. The penalty was imposed because LLJL had not lodged his income tax returns in time.
3. On 12 April 2019, LLJL objected to the assessments for the 2011 and 2012 income tax years. On 26 August 2019, he withdrew the part of his objection that related to the default assessments for the relevant period, so that the objection was only in relation to the request for the remission of the penalty for failing to lodge his tax returns. The Commissioner disallowed the objection in full on 17 September 2019 (the decision).
4. On 10 December 2019, LLJL filed an application for review of the Commissioner's decision which was 24 days out of time, as well as an application for an extension of time to file the application for review. On 3 January 2020, the Commissioner advised that they did not oppose the granting of an extension of time. On 7 January 2020, the Tribunal made orders extending the time for the making of an application for review to 10 December 2019.
5. I have decided to affirm the Commissioner's decision imposing the penalties and what follows are my reasons for that decision.
FACTS
6. LLJL did not file his 2011 income tax return by 31 October 2011, or his 2012 income tax return by 31 October 2012, or in each case respectively, 31 May 2012 and 31 May 2013. The latter dates are relevant because had LLJL chosen to use a tax agent he would have had the benefit of the extended period of time to file his returns. It does not matter a great deal whether LLJL used a tax agent or not. By April 2019 the obligation had not been met no matter which dates are used. That is, nearly six years after the obligation to lodge the later of the two returns arose, they had still not been lodged.
7. On 16 April 2018, LLJL had a conversation with one of the Commissioner's staff about the requirement for him to lodge his 2015 and 2016 returns. Two penalties, each of $900, had been issued to him, which no doubt prompted the phone call, for not having lodged each of the returns for those years. As a result of that phone call the penalties were remitted, so it would seem, because the explanation that he was not aware of Australian taxation requirements was accepted. He was asked in the same phone call about his returns for the period 2006 to 2012, noting that that includes the 2011 and 2012 years, which he had not lodged and he told the person at the other end of the phone he was 'still obtaining information and gathering finances'.
8. LLJL could not have been under any misapprehension about what was required given the very circumstances and subject matter of the telephone conversation. The phone call must have served to put LLJL on notice that fines could be imposed, not the least of which because they had in fact been imposed on him for a similar failure for two later income years, 2015 and 2016, for a failure to lodge income tax returns, and that the Commissioner was waiting for, amongst other returns, his 2011 and 2012 returns.
9. On 2 November 2018, the Commissioner sent a reminder letter about the outstanding returns which had still not been lodged. The letter which was intended for LLJL did not reach him because it was not sent to his then current address. He had advised the Commissioner of his then current address in the phone call on 16 April 2018, but for reasons which are not clear the address was changed, and the correspondence did not reach him.
10. On 25 January 2019 the Commissioner wrote to LLJL, or I should say tried to write to LLJL, again telling him about the proposed
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default assessment that would happen if he did not lodge his income tax returns for those years, and warning him that a failure to lodge his income tax returns by 11 March 2019 would attract a penalty calculated at 75 per cent of the tax related liability.11. On 3 April 2019, the rather inevitable happened when the Commissioner again wrote two letters to LLJL and told him that the two penalties had been imposed for his failure to lodge documents as required, being his 2011 and 2012 income tax returns. I have already referred to the amount of the penalties and the fact that the default assessments that the Commissioner telegraphed would be made. Those things materialised on 3 April 2019.
12. On 12 April 2019, LLJL objected to the default assessments of his income tax for those years and objected to both penalties that had been imposed. The objection to the default assessments was later withdrawn. There is no evidence or information about what LLJL's assessments would have been had he in fact lodged income tax returns for those years. It probably does not matter, except for one very minor thing that I will return to.
13. On 17 September 2019, the Commissioner disallowed both objections, in effect refusing to remit either or any of the penalties, and so it was that the application for review and the application to extend time was filed.
ISSUE
14. The only issue is whether the penalties imposed on LLJL by the Commissioner, or any part of them, should be remitted.
LEGISLATION AND POLICY
15. Section 284-75(3) of schedule 1 to the Tax Administration Act 1953 (Cth) (TA Act) provides for the imposition of administrative penalties. Administrative penalties are imposed if all of three requirements are met: firstly, that there is a failure to give a return to the Commissioner by the day that it is required to be given; secondly, that the document is necessary for the Commissioner to determine a tax related liability; and thirdly, that the Commissioner determines the tax related liability without the assistance of the document.
16. It hardly needs to be said that those three things happened in this case. That is, there was a failure to lodge a return; it was necessary for the Commissioner to have the return in order to determine the tax related liability, and the Commissioner needed to rely upon the default assessment, and was not assisted by the provision of the document. It is clear from s.284-75(3) of Schedule 1 of the TA Act that the conditions were met for the imposition of an administrative penalty.
17. Section 284-90(1) of schedule 1 of the TA Act prescribes the penalty as being a precise amount, namely 75 per cent of the tax related liability concerned.
18. Section 298-20 of Schedule 1 to the TA Act gives the Commissioner a discretion to remit all or any parts of the penalty. The test under section 298-20(1) has been held to be:
Simply whether the decision-maker is satisfied having regard to the taxpayer's particular circumstances that it is appropriate to remit a penalty in whole or in part.[1]
Sanctuary Lakes Pty Ltd vCommissioner of Taxation (2013) 212 FCR 483
19. It may be appropriate to remit the penalty, or some of it, because not to do so would be harsh, unjust or unreasonable. There may be other factors in a taxpayer's particular circumstances that warrant the remission of a penalty in whole or in part. The matter is to be determined by the particular facts and circumstances confronting the particular taxpayer in the particular case.
20. The circumstances are to be considered against the background of the legislation intention which underpins the penalty regime and the TA Act, namely to secure both general and specific compliance with the legislation so far as the obligations created by the TA Act are concerned, in this case the obligation to lodge income tax returns within a specified period.
21. The evaluation about remitting part or whole of the penalty imposed by the Commissioner lies in whether there is at least some rational or common-sense basis in the circumstances for doing so, having regard to the policy underlaying the imposition of income tax penalties. To this end the Commissioner has, for the purpose of ensuring the sound, consistent and proper administration of the exercise of the discretion in s.289-20, issued the Practice Statement Law Administration PS LA 2014/4 - Administration of the penalty imposed
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22. Paragraph 28 of the Practice Statement provides that:
The discretion to remit penalties in whole or in part should be approached in a fair and reasonable way. Remission, in full or in part, will generally occur when:
- - an entity has a genuine, yet mistaken, belief that lodgement was not required as opposed to an indifference to, or a rejection of, their obligation;
- - an entity understood their obligation to lodge but circumstances beyond their control affected their ability to lodge;
- - the amount of penalty imposed by law causes an unjust result;
- - there were credits available to offset the amount of the tax related liability payable; or
- - there was extraordinary cooperation during an examination.
23. The overarching obligation to the approach to the remission of penalties is that it be approached in a 'fair and reasonable way'. A 'fair and reasonable way' is not confined by or to the formulated circumstances related in the five dot points. That this is so is confirmed by the phrase, will 'generally occur when'. This signifies that in the designated circumstances remission in whole or in part will 'generally occur' but it does not proscribe other specific or particular circumstances that might enliven the discretion, which is always to be informed by what is fair and reasonable. This also accords with the very nature of the power as being one that is discretionary, and in the view I take, the phrase 'fair and reasonable' accords with 'appropriate in the particular circumstances'.
THE CASE FOR REMISSION
24. The substance of LLJL's complaint is that he did not receive either of the letters dated 2 November 2018 or 25 January 2019. LLJL says that he did not receive those letters concerning his failure to lodge his 2011 and 2012 income tax returns because the letters were sent to the wrong address. The suggestion is the Commissioner changed LLJL's address as well as LLJL's myGov notifications such that he did not receive the correspondence.
25. There is no evidence to support those conclusions, but I will proceed on the basis that something like them can be made good. This, so LLJL says, was predatory behaviour on the Commissioner's part. LLJL says that had he got the Commissioner's letters he would have complied with the Commissioner's request 'instantly'. He says that the purpose of the warning letters was, as the Commissioner's staff told him, to give him an opportunity to avoid a fine, and he was deprived of that opportunity because he did not receive those letters.
26. He says that the Commissioner sends those letters to assist taxpayers in their obligations, and the Commissioner's failure to send him the warning letters had the effect of depriving him of the assistance that was given to others. He says that in accepting the default assessment he has been penalised sufficiently and should not be penalised further because to do so would be unreasonable. He says nowhere in the TA Act does it say, "I should be hit with a fine without fair warning that all other taxpayers get. I'm just asking for the same courtesies that other taxpayers are given." He says it is unjust if the penalty is not remitted.
SHOULD THE DISCRETION BE EXERCISED?
27. The first circumstance is the fact that LLJL had an obligation to file his 2011 and 2012 income tax returns at the very latest by 31 May 2012 and 31 May 2013, respectively. In a period of nearly six or seven years, depending on which return is being addressed, he did not file either of them. That circumstance is material to any consideration of what might be said to be fair and reasonable.
28. Second, that circumstance is in a context where the obligation under s.161 of the Income Tax Assessment Act 1936 (Cth) (IA Act) requires tax returns to be lodged in accordance with the relevant gazettal notice which are issued each year, and which since time immemorial have confirmed 31 October or 31 May deadlines. This not only makes a person answerable to the imposition of penalties under s.284-75(3) of Schedule 1 of the TA Act, but also to the potential commission of an offence against s.8C of the TA Act. To put the matter conservatively, the obligation to provide an
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income tax return to the Commissioner is no trifling matter.29. Third, it is important to recognise that the obligation to furnish income tax returns in no way depends upon or is qualified by the Commissioner's prompting or warning. It is simply inapt to suggest that there is nothing in the TA Act or the IA Act that says the Commissioner cannot 'hit you with a fine without fair warning' because there is nothing in the legislation that requires the Commissioner to provide any warning at all. The obligation is squarely on the taxpayer to lodge a return and not on the Commissioner to remind a taxpayer about their obligation in that regard.
30. True it is that the Commissioner has implemented a system of warnings, but it must be kept steadfastly in mind that whatever the Commissioner's administrative system might be, it does not supersede the legal obligations created by the TA Act or the IA Act. The legislature has laid down legislative prescription for the imposition of penalties, and the creation of offences, where income tax returns are not lodged as required in the relevant time. The legislature has provided no system at all for prompting or warning by the Commissioner in applying those penalties or being answerable to prosecutions.
31. Fourth, to the extent that it matters, LLJL was on notice, that is warned, about the requirement to lodge his 2011 and 2012 returns on 16 April 2018, and he had been on notice for about 12 months when he was fined on 3 April 2019. In fact, on 16 April 2018, LLJL was well aware that the consequence for not lodging returns in time was the imposition of penalties: the very purpose of his call being to have such penalties remitted in relation to his 2015 and 2016 tax returns which he had failed to lodge. It appears that since 16 April 2018 until the day that he received the fines, he did nothing to rectify his failure to lodge his returns for 2006 to 2012, which of course includes the 2011 and 2012 returns. To the extent that it matters, he had an opportunity in April 2018, and for many months after that, to rectify the defaults of 2011 and 2012. He had his warning then in loud and clear terms. He did not act 'instantly', or anything like it, following his phone call to the Commissioner's staff in April 2018.
32. There is not a great deal in the circumstances of this matter that suggests that there is any sound reason for departing from the penalty regime created by the TA Act, as the relevant income taxation returns were for very many years overdue. No explanation at all, let alone satisfactory explanation, was offered for why that was so. There was no explanation by way of an assertion of any mistake, such that it was thought that there was no obligation at all to lodge returns, or that there was some supervening or extraordinary happening that meant that compliance was not possible, either when the returns should have been lodged, or for so long thereafter until 16 April 2018, and once on notice on 16 April 2018 for almost 12 months after that.
33. LLJL wrongly focuses upon the change of address and the misfiring of the 2 November 2018 and 25 January 2019 letters as being beyond his control, but they have nothing to do with the lodgement of his 2011 and 2012 tax returns, the omission for which he was penalised, which was always within his control. He had every opportunity in 2011 and 2012 and in the aftermath of the 16 April 2018 phone call when the Commissioner's staff brought to his attention his omission to lodge those returns.
34. It is not possible to suggest that the penalty or the amount of it was on some other basis unjust. There was no evidence of financial circumstances that would make good such a claim. One matter that troubles me is that LLJL asserted that paying the deemed assessment was a sufficient penalty, but I have no way at all of telling whether he would have paid more or less tax if he had lodged his returns and had them assessed. There was no examination here so the question of cooperation, let alone extraordinary cooperation, really does not arise.
35. LLJL says that there were other years when he did not file his returns, which would have resulted in refunds, and that should count in his favour. The problem with this argument is that the Commissioner is at liberty to impose fines in respect of those years as well, quite apart from the fact that a refund was due. In any event, there is no evidence before me about whether that circumstance excuses the failure to lodge the 2011 and 2012 returns. He was liable to penalties for all of that conduct, and on one
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view is very lucky to have only been penalised for two of the years.36. These circumstances suggest that there is no sound or rational basis for remitting either of the penalties, in whole or in part, nearly six or seven years after the tax returns should have been lodged. The question is whether the letters of 2 November 2018 and 25 January 2019 that were not received changed any of that at all. I do not think they do. The fact that the Commissioner was prepared to adopt a less strident approach at one time does not make the circumstances of the non-lodgement any less egregious. To the extent that comparisons with other tax payers and the warnings given to them can be said to be relevant, and they are not, I simply note that those other tax payers were not given the benefit of the remission of penalties on 16 April 2018 and the warning LLJL was given at that time to lodge his earlier returns. The fact that LLJL did not file his returns then or shortly after is completely unexplained.
37. The Commissioner was entitled to impose a penalty at the very latest after 31 May 2012 in the case of the 2011 return, and 31 May 2013 in the case of the 2012 return. The suggestion that LLJL has been treated unjustly because others have obtained the benefit of a warning lacks merit. Apart from the fact that it has the eloquence (or lack of it) of the 'Why pick on me' argument so frequently heard and rejected in relation to defences for speeding tickets, it also lacks any real merit in the absence of any information about the particular circumstances that confronted those others who have received warning letters. I do not accept that the letters of 2 November 2018 and 25 January 2019 and their non-receipt does anything to change the fact that the 2011 and 2012 returns were not lodged on time.
38. I should add I do not consider the Commissioner's behaviour was predatory in any sense of the word. By the time the penalties were imposed on 3 April 2019, LLJL had failed to lodge his income tax returns in time over a very long period having been reminded to do so about one year earlier. There is no fair or reasonable basis for remitting any of the penalties imposed. It is not appropriate in the circumstances to do that. It was always in LLJL's control to lodge his tax returns in time or even within weeks, of being reminded of the need to so in April 2018. He did not do so.
DECISION
39. I affirm the Commissioner's decision dated 17 September 2019 refusing to remit the penalties for late lodgement of the 2011 and 2012 tax returns.
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