Porter v Commissioner of Taxation

[2014] AATA 5

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(Decision by: Mr P W Taylor, SC, Senior Member)

Porter
v Commissioner of Taxation

Tribunal:

Member:
Mr P W Taylor, SC, Senior Member

Subject References:
TAXATION AND REVENUE
income tax
deductions
work related expenses
depreciation
substantiation
administrative penalty
reasonable care
whether penalty should be remitted
decisions set aside

Legislative References:
Income Tax Assessment Act 1997 - s 26-35
Taxation Administration Act 1953 - Sch 1 s 284-75; Sch 1 s 298-20

Other References:
Law Administration Practice Statement PS LA 2001/6 Home Office Expenses; diaries of use and calculation of home office expenses
Law Administration Practice Statement PS LA 2006/2 Administration of shortfall penalty for false or misleading statement
Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard

Hearing date: 14 June 2013
Decision date: 9 January 2014

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Decision by:
Mr P W Taylor, SC, Senior Member

REASONS FOR DECISION

1. Ms Porter works in full time employment as a school counsellor. She also carries on her own business as a psychologist. She describes herself as both an educational and a general psychologist. In September 2008 and October 2009 the Commissioner issued to her notices of assessment for the 2008 and 2009 tax years. The notices assessed Ms Porter's tax liability for each year in an amount less than her PAYG credits. Accordingly, refund cheques - for about $7,000 in relation to the 2008 year, and about $4,500 in relation to the 2009 year - accompanied each notice.

2. Between February and May 2010 the Commissioner's staff conducted a tax audit of Ms Porter's 2008 and 2009 tax returns, specifically in relation to the deductions she had claimed for her car use, her self-education expenses, her work expenses and her business expenses. As a result of the tax audit, the Commissioner issued notices of amended assessment in June 2010. The net effect of the amended assessments was to increase Ms Porter's assessed tax liability - by about $2,400 for the 2008 year, and by approximately $1,600 for the 2009 year. The Commissioner also imposed administrative penalties for each year - $608 for the 2008 tax year, and $287 for the 2009 year.

3. In a document dated 29 June 2010, Ms Porter objected to the Commissioner's amended assessments. In May 2011 the Commissioner's staff wrote to Ms Porter, apologising for the delay in dealing with her objection, and requesting that she more clearly specify the particular items (specifying their nature and amount) that she relied on to substantiate her expense deduction claims. Ms Porter responded to this letter with a phone call, and a short letter which provided some information, but not the detailed reconciliation that had been invited. On 21 June 2011 the Commissioner disallowed the objection. Following Ms Porter's further objection of 21 July 2011, on 17 October 2011, in the decision under review, the Commissioner again disallowed Ms Porter's objections.

4. The Commissioner's amended assessments broadly accepted Ms Porter's claims for car and self-education expenses. The Commissioner also accepted that most of the amounts Ms Porter had claimed as work or business expenses were also properly allowable deductions. The Commissioner did however disallow a small number of these claims, and reclassified others as "business" rather than "work" expenses. As a result of further representations and discussions between Ms Porter and the Commissioner, the position taken by the parties at the hearing was as follows:

(a)

the Commissioner accepts two expense items ($88.84 for the 2008 tax year) and $41.73 (for the 2009 tax year) should be allowed as deductible expenses;

(b)

Ms Porter maintains her objection to the disallowance of three disputed categories of expenses:- Internet usage, computer support and depreciation;

(c)

there is a consequential dispute between the parties in relation to penalties Commissioner has imposed and whether or not the penalty should be remitted to any extent.

5. The amounts involved in the three disputed expense items are as follows:

INTERNET EXPENSES

6. Ms Porter quantifies her internet expenses claim by reference to service provider invoices addressed to her husband. These invoices disclose a monthly fee, which increased during the 2009 tax year. Ms Porter determined the approximate total of the invoiced fees for each year, and has identified her claim as approximately 70% of the total fee. Her justification for claiming internet expenses is that she required email and internet browser access for communication and research, both for her employed work and her business activities as a practising psychologist. Ms Porter's justification for claiming 70% of the total annual fee is that it represents her best estimate of the extent to which her own work activities were involved in the total household internet usage.

7. The Commissioner does not dispute, and Ms Porter's evidence sufficiently established, that internet usage was a necessary part of her income producing activities. However, the Commissioner submitted that the amount Ms Porter had claimed was merely an impressionistic estimate. As such, Ms Porter's evidence was not sufficient to demonstrate the actual extent of her internet usage, nor was it sufficient to substantiate the actual extent to which she had actually incurred expenses attributable to that usage. The Commissioner contended that Ms Porter could not, therefore, discharge the onus of proof that she bore in these proceedings, of establishing that the Commissioner's assessment was excessive.

8. Given the accepted probability that Ms Porter's ordinary income producing activities did require her to have access to internet services, there is an element of apparent unfairness in wholly rejecting this aspect of Ms Porter's expenses claim. However, there are two reasons why I have concluded that is the appropriate result. First, as the Commissioner submits, Ms Porter bears the relevant onus of proof. In my opinion Ms Porter's estimate is merely her subjective opinion, and is not sufficiently shown to be based on reliable factual observations of the comparative internet usage by the household members (that is, Ms Porter and her husband). I note that in her June 2010 objection the basis for her 70% estimate was the proposition that she had two internet email addresses, and her husband only one. I note also (from the June 2008 IT support invoice to which I refer below) that Ms Porter's husband apparently carried on a business of "computer repairs and IT consulting". Finally, I note that information Ms Porter provided to the Commissioner in April 2010 indicated she only used her home office for 12 to 13 hours a week during school terms, and for a larger, but unquantified period during school vacations. These limited periods are unlikely to have exclusively involved Ms Porter in continuous internet usage. The combination of these factors rather tends to preclude satisfaction about what proportion of the cost of the household internet usage was attributable to Ms Porter's income producing or business activities.

9. Secondly, all of the internet invoices were in Ms Porter's husband's name, and presumably reflected his substantial use of the internet facility. In the form in which they were issued the invoices would tend to evidence his principal, if not sole, liability to the service provider. I recognise the possibility that the apparent formality of the contractual arrangements between Ms Porter's husband and the internet service provider may have been a matter of mere expediency between the spouses. But Ms Porter's evidence did not establish, to my satisfaction, that any proportion of the internet expenses were in fact liabilities that she either necessarily incurred or discharged for the purposes of her income producing or business activities.

ICT SUPPORT EXPENSES - $5,912

10. This expenses claim, which concerns only the 2008 tax year, concerns a written agreement Ms Porter says she entered into with her husband in early July 2007 for him to provide her with computer support services at a rate of $70 per hour. The total claim amount of $5,912 comes from a single invoice dated 26 June 2008. The invoice purports to record that her husband spent 84.5 hours providing "IT support and maintenance". There is no other detail providing any degree of specificity, either as to time, duration or nature, about the work to which the invoice relates.

11. Ms Porter explained that her husband had been out of work for a few years, but was doing some computer support work with a former colleague. She had the idea of setting up her own practice website, with a booking calendar facility. She wanted to enlist her husband's support in doing this, and to get him to commit to providing her with a regular time allocation, up to 2 hours per week, to assist her in maintaining, monitoring and developing her computer tools. In her evidence in these proceedings she said he did things like attending to virus protection, establishing databases, doing research for website design, updating software and operating systems, when that was required, and provided her with assistance in using various software applications. She said he kept a tally of the hours he spent assisting her.

12. In the information she provided to the Commissioner in April 2010 Ms Porter said that his work included "building and upgrading computers ... internet searches on psychology issues ... inputting ... data ... also confirming appointments and even cleaning offices". This description is somewhat more extensive than her oral evidence. It is also a little different from the written terms of the asserted July 2007 agreement - to the extent that it includes cleaning and diary management. It is also a somewhat different from the explanation contained in an email Ms Porter wrote in June 2012. In that material Ms Porter rather suggested that the arrangement with her husband was essentially one where he agreed to set up a website for her psychology practice for a fixed cost of $6,000.

13. This confusion, as to whether the arrangement between Ms Porter and her husband was a fixed price agreement for a specific task, or a more general "do and charge" service agreement, is compounded by other matters. The asserted July 2007 agreement contained a provision that Ms Porter's husband would provide invoices and receipts for the hours he worked. In fact, Ms Porter's husband did not issue regular invoices. Indeed, Ms Porter even asserted (in the material accompanying her June 2012 email) that the June 2008 invoice was mistaken and really should be regarded as a receipt, rather than an invoice - because she claimed to have paid the full $6,000 amount some months before the June invoice.

14. Ms Porter's asserted payments were neither regular nor clearly referrable to the July 2007 agreement. She was never even given any tally of the hours her husband claimed to have worked. The payments she claims to have made were occasional withdrawals, varying in amount from $1,000 to $3,000, from a loan account which Ms Porter and her husband had in joint names. Ms Porter contended that these withdrawals reflected payments she made to her husband in relation to the computer support services. The claim that these were her payments to her husband was based on her assertion that she was the only person who actually paid money into the loan account.

15. I do not accept that Ms Porter's asserted arrangement with her husband truly reflects an expense that she incurred for the purpose of either her employment or her own business. Neither am I satisfied that the payments she alleges she made to her husband were reasonable (for the purposes of the Income Tax Assessment Act 1997 s 26-35(1)). The purported agreement of July 2007 clearly implied that any charges would be calculated on the basis of time spent, and would also be the subject of invoices. In addition, although it identified the suggested services in rather general terms, it referred to the proposed establishment of a website "if possible, or liaising with an outside provider to set up when the time comes". On the other hand, Ms Porter's evidence suggests a different agreement, for a fixed price, in relation to the specific task of establishing a website. Ms Porter's husband's description of the work he performed identified three principal areas of activity: (i) installing and checking satisfactory functioning of operating and application software, (ii) research for a proposed website, and (iii) data entry and general secretarial duties as required. Irrespective of these various descriptions of the work allegedly involved there were, in fact, no regular invoices, and the only invoice that was issued (in June 2008) was unhelpfully general in its description of the work, and certainly did not refer to the establishment of a website.

16. In addition to the vague and varying descriptions of the work assertedly performed, there was no business like formality, regularity or specificity, in the payments Ms Porter asserts she made. Indeed those alleged payments were made before Ms Porter received any invoice, without her husband providing her with even a progressive tally of the hours he claimed to have worked. And the payments not only were made months before the June 2008 invoice date, but also marginally exceeded the eventual invoice amount.

17. The totality of these considerations substantially detracts from any satisfaction that the asserted payments and the agreement between Ms Porter and her husband reflected either the reality of the situation (in the sense of evidencing an agreement that truly related to payment for services that were actually provided) or that the payment amounts were reasonable, having regard to the nature and extent of the services. Accordingly, I find that Ms Porter has not established that the asserted ICT expenditure was a liability actually, and reasonably, incurred by her in gaining or producing assessable income, or in carrying on a business.

DEPRECIATION EXPENSES

18. In each of the 2008 and 2009 tax years Ms Porter claimed, as a work related expense, modest depreciation amounts for a range of items. The Commissioner's original decision was to reject the entire claim, on the basis that Ms Porter had not provided any receipts and had not, therefore, properly substantiated the claim. This response was wrong, at least in relation to two items. In her objection letters of 29 June 2010 and 21 July 2011, Ms Porter pointed out the error. In her 29 June 2010 letter she also included a list of all of the depreciation expense categories and identified those for which she had receipts. In about November 2010 she sent the original receipts by certified mail to the Commissioner.

19. It appears that these documents were either misplaced or overlooked by the Commissioner's staff. In her 21 July 2011 objection letter Ms Porter said that she had sent all of her 2004 to 2009 depreciation item receipts by certified mail. She complained that they had not been provided to the officer who had made the June 2011 decision, but asserted that he had subsequently acknowledged that they had been found and provided to him.

20. Consistent with what Ms Porter said in her 21 July 2011 letter, the Commissioner's 17 October 2011 reasons for decision made no reference to any absence of receipts. In the 17 October 2011 letter the Commissioner disallowed the whole of the depreciation expenses claims after referring to the Law Administration Practice Statement PS LA 2001/6 - relating to home office expenses. The sole basis for this decision was that it was not possible to make a bona fide assessment of the extent to which the decline in value was attributable to work or business related activities.

21. Understandably puzzled by the shifting basis for the Commissioner's assessment decisions, and suspecting that they indicated a failure to pay proper regard to the information she had provided, Ms Porter sent a fax to the Commissioner requesting the return of the documents she had previously provided. At least some of these were returned to her, and she acknowledged their receipt in a later fax dated 20 November 2011.

22. The evidence about the documents Ms Porter provided, and the Commissioner's apparent disregard of them, is not entirely satisfactory. It is made less satisfactory by the fact that Ms Porter did not tender the relevant documents, and specifically the relevant receipts, in the present review proceedings. However, I accept Ms Porter as a credible witness, and one whose reliability on matters of detail of this kind (that is, as to whether or not she had receipts that substantiated her claims) is corroborated by both the obvious error in the Commissioner's decision (in disregarding relevant receipts that demonstrably were provided by Ms Porter) and by the candour of the information contained in Ms Porter's 29 June 2010 objection letter (where she conceded that there were some items for which she was unable to produce receipts). Accordingly, I propose to proceed on the basis that: (i) Ms Porter did provide the Commissioner with the relevant depreciation item receipts which she claimed, and that (ii) having produced the receipts to the Commissioner on a previous occasion, and the absence of receipts not having been relied on by the Commissioner in the 17 October 2011 reasons for decision, the existence of the relevant receipts (that is, those asserted by Ms Porter) was not a matter genuinely in dispute in the present proceedings.

23. Against this background it is both relevant and useful to summarise the nature and extent of Ms Porter's depreciation item claims. They are summarised in the following table. I have also included details of the evidence relating to the availability of receipts for the individual items.

24. Items 1 & 7 - computer monitors: These items related to the use of a desktop computer that Ms Porter kept in her home office. (Ms Porter explained that the additional monitor for which she claimed in the 2009 year was one she purchased to replace the existing monitor that had failed.) Her husband had his own separate office at home, with his own computer facilities. She used the computer to do online professional courses, professional development courses, manage bookings and print reports. She may have had some private photos on the computer and a small number of games that she used for stress relief. But she did not have a Facebook account, and she did not keep music on this computer. She said its use was almost exclusively devoted to her psychology work. Any private use in the tax years in question was really very minor - partly because she was undertaking an additional course of professional study, and partly because she was spending a great deal of time caring for her ailing mother. Because of those other demands on her time she had really devoted little attention to her own personal, non-professional, activities during the two tax years in question.

25. I accept Ms Porter's evidence and find that these items were wholly used for the purposes of her work and the conduct of her psychology practice. It is consistent with that conclusion that the Commissioner's own assessment accepted as allowable deductions most of the items Ms Porter claimed as computer expenses. These expenses included such items as computer software, toner cartridges and various other computer supplies.

26. I also accept that Ms Porter has demonstrated that the amounts she claimed for these expenses was reasonable and appropriate. In relation to the additional monitor included in the 2009 schedule Ms Porter provided the receipt to the ATO in April 2010 with a bundle of receipts relating to "computer hardware" and included a note indicating that this item, which cost more than $300, had been included in the depreciation schedule. The Commissioner's various deliberations appear to have overlooked this information. In relation to the monitor included in the 2008 schedule, for the reasons I have stated in paragraph 22, I find that Ms Porter provided previously to the ATO a receipt substantiating the amounts she had claimed as the depreciation expense for that item.

27. Items 2 & 11 - professional library and counselling aids: The description of these items suggest their close connection with Ms Porter's psychology practice, and that connection was established by Ms Porter's evidence. The Commissioner did not suggest the contrary. Indeed, the Commissioner's assessment accepted as allowable deductions not only various expenses that Ms Porter claimed for professional membership fees and professional indemnity insurance, but also a large proportion of the expenses that Ms Porter claimed as "counselling aids".

28. However, the difficulty with accepting Ms Porter's claims for these items is that they lacked any real substantiating detail. In the case of most of the other items on Ms Porter's depreciation schedules it was possible to identify the particular nature of the item itself. But these "library" and "counselling aids" items were, presumably, merely descriptive categorisations of a range of different expenses. It is not possible to be satisfied of the appropriateness of these items as properly deductible expenses without more specific information. The point may be made by reference to the disparate nature of the "counselling aids" category. If the items included in this category of the depreciation schedules were as disparate in their nature as those which Ms Porter claimed elsewhere as (non-depreciable) expenses it is highly likely that at least some of them would have been disallowed (as indeed some of the other "counselling" expenses were). It is simply not possible to be satisfied as to what items and what amounts would represent properly allowable deductions for these categories of expenses. The Commissioner's 10 May 2011 letter put Ms Porter on notice of the need for specific detail to substantiate the various expense item claims. Irrespective of the unavailability of receipts, or their previous production to the ATO, it was necessary for Ms Porter to have identified the composition of the various expenses that made up the amounts claimed under these headings. And that information should have been available to her, at least from the accountant who prepared the depreciation schedules for her.

29. For these reasons I find that Ms Porter has not demonstrated that the Commissioner's assessment was relevantly excessive in relation to these items. However, because of the apparently unsatisfactory nature of the Commissioner's previous consideration of Ms Porter's depreciation claim, and my impression that it may have contributed to Ms Porter failing to appreciate exactly what was required of her in these review proceedings in relation to the substantiation of her claim, I propose to indicate that in reconsideration of the decision under review (which is the ultimate order I have decided to make) the Commissioner should take into account any additional substantiation that Ms Porter is able to provide in relation to these aspects of her depreciation claim.

30. Item 3 - digital camera: Ms Porter explained that when she purchased the camera she had intended that she would use it for both business and private purposes. But her father had subsequently given her a better camera, which she said had become her exclusively preferred camera for her personal and private activities.

31. Consistent with her original intentions, in the depreciation schedules in her 2008 and 2009 tax returns Ms Porter had allowed for 50% private use. But she attributed this limited claim to the conservative attitude of her accountant. She said that she in fact rarely used this particular camera for anything other than her work. She used it in both her private practice, and her work with schools, principally in connection with what she called "sand tray work". She described "sand play" as a narrative therapy technique she used to get clients to talk about issues. At the end of the individual client sessions she would photograph what they had done, in order to record their work, and provide a basis for follow up consultations.

32. In the light of Ms Porter's explanation, I accept that, at least by the time of the tax years in question, she used the digital camera exclusively for the purpose of her work and the conduct of her psychology practice.

33. I also accept that Ms Porter has demonstrated that the amount she claimed for this item was understated. She originally deducted from the claim an amount representing an assessment of her private use. In the light of her evidence in these proceedings I am satisfied that, in the tax years in question, there was no such relevant private use. Having regard to the fact that Ms Porter acquired the camera in 2004, and bearing in mind that she was not required to provide substantiation of this expense until early 2010, I find that it is reasonable for Ms Porter not to have provided receipts for the acquisition of this camera.

34. Item 4 - PDA (palmtop computer): Ms Porter explained that her PDA device was a portable hand held digital device that was a precursor to the now ubiquitous devices such as iPads, tablets and smart phones. It provided limited functionality as a diary, internet browser and note taking device. It did not contain a camera and it did not have a voice communication ability (it was not a telephone). Ms Porter explained that she had originally used it to take notes when attending professional courses. Later she came to use it as an appointments diary and scheduler, and occasionally to access webmail for work purposes. For these limited purposes it was a far more convenient device to carry around than her laptop computer.

35. In the light of Ms Porter's explanation, I accept that she used the PDA device for the purpose of her work and carrying on her business as a psychologist. I also accept, given her explanations that, she made limited use of the device for her own personal and private purposes, and that any such use was trivial. Its real and substantial purpose was exclusively in the conduct of her work and her psychology practice.

36. I also accept that Ms Porter has demonstrated that the amount she claimed for this item was understated. She originally deducted from the claim an amount representing an assessment of her private use. In the light of her evidence in these proceedings I am satisfied that, in the tax years in question, there was no such relevant private use. Having regard to the fact that Ms Porter acquired this device in 2007, and taking into account the matters I set out in paragraph 22, I find that she provided previously to the ATO, a receipt substantiating the amount she had claimed as the depreciation expense for this item.

37. Item 5 - laptop computer : Ms Porter explained that she used her laptop computer solely in connection with work she did, in her school counselling work and in her psychology practice, both away from her home office, and in her private consulting room at home. She worked in different offices, in different schools. One of the schools where she worked did not even have computer facilities, at least not facilities that were available to her. She explained that she had a particular "profiler" software application installed on the laptop, and that the software licence restricted its installation to a single computer. That particular profiling application was the predominant use that she made of the laptop computer. She did not use it to store music or games.

38. I accept that the Ms Porter used the laptop computer exclusively for the purpose of her psychology practice. I note that this conclusion is consistent with the Commissioner's own assessment decision, to the extent that it allowed expense deductions of the kind I referred to in paragraph 25 above.

39. I also accept that Ms Porter has demonstrated that the amount she claimed for this item was reasonable and appropriate. For the reasons I have stated in paragraph 22, I find that she provided previously to the ATO, receipts substantiating the amounts she had claimed as the depreciation expense for this item.

40. Item 8 - office purifier: Ms Porter gave evidence that she purchased this "office purifier" for a room that she had set up, adjacent to the garage at her home, for exclusive use as a private consulting room for her psychology practice clients. She explained that the garage was not totally sealed, and that the purpose of the "purifier" was to make the room smell less like a garage and more like a clinical consulting room. I accept her evidence and find that the exclusive use of this item was in connection with Ms Porter's psychology practice.

41. Ms Porter provided the receipt for this item in the material she sent to the ATO in April 2010. No regard was had to it in any of the Commissioner's subsequent deliberations. Given the amount of the material, and the way it was presented, that omission may be understandable, but it was wrong. Ms Porter has demonstrated that the amount she claimed for this item was reasonable and appropriate.

42. Items 6, 9 & 10 - printers: These items also related to the use of the desktop computer that Ms Porter kept in her home office - and are, therefore, in the same category as the computer monitors comprising Items 1 and 7.

43. Ms Porter gave specific evidence about her use of the bubblejet printer and the printer / scanner / fax. Her evidence was that the bubblejet printer (Item 9) was on its last legs in 2008, and was not included in the 2009 tax year depreciation schedule. She said she used the printers to print programs, reports and counselling intervention aids, and did not use them for any private purposes. I accept her evidence and find that the printer items were wholly used for the purpose of her work and her psychology practice.

44. Ms Porter's use of the printer / scanner / fax was also exclusively for the purpose of her work and her psychology practice. She explained that the principal reason she purchased this piece of office equipment was its fax facility. Her main use of that facility was to send her reports to client's General Practitioners, to receive client health care plans, and to fax material to her professional body. She could not recall any private use of the fax facility.

45. Ms Porter also explained her use of the "scanner" function of this item of equipment. She said it was efficient and helpful to scan professional literature and resources, store it on memory sticks, and take the information with her, wherever she was working. She also used the colour printer facility to prepare advertising material for her practice, and to make the counselling aids she prepared more attractive and interesting.

46. I accept that Ms Porter's use of these three items of equipment was exclusively for the purposes of her work and her psychology practice. I again note that this conclusion is consistent with the Commissioner's own assessment decision, to the extent that it allowed expense deductions of the kind I referred to in paragraph 25 above.

47. I also accept that Ms Porter has demonstrated that the amount she claimed for these items was reasonable and appropriate. Having regard to the fact that she acquired two of the printers before 2005, and was not required to provide substantiation of these expenses until early 2010, I find that it is reasonable for Ms Porter not to have provided receipts for the acquisition of these items. In relation to the printer scanner fax item, for the reasons I have stated in paragraph 22, I find that she provided previously to the ATO, receipts substantiating the amounts she had claimed as the depreciation expense for this item.

SUMMARY OF THE DEPRECIATION CLAIM FINDINGS

48. I summarise my findings about the depreciation schedule items as follows:

PENALTIES

49. I have found that Ms Porter has established that the Commissioner's assessment was excessive in relation to most of the depreciation items she claimed, but not in relation to her asserted ICT expenditure, or the estimated amount of her asserted internet service costs.

50. Under s 284-75(1) and (5) of Schedule 1 to the Taxation Administration Act 1953, a person is liable to an administrative penalty if they make false or misleading statements to the Commissioner in connection with the administration of a taxation law, and have not taken reasonable care in connection with making the statement. The Commissioner contends that Ms Porter's claims in relation to the disallowed expense claims were "false" and not consistent with the exercise of reasonable care. The concept of reasonable care, as elaborated upon in Miscellaneous Taxation Ruling MT 2008/1 Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard, requires regard to a taxpayer's particular circumstances, including their knowledge, education, experience and skill.

51. Even where a taxpayer is liable to an administrative penalty, section 298-20 of Schedule 1 to the Taxation Administration Act 1953 gives the Commissioner a general discretion to remit the penalty, either wholly or in part. Guidelines for the exercise of that discretion were set out in Law Administration Practice Statement PS LA 2006/2 Administration of shortfall penalty for false or misleading statement. The guidelines emphasised that the purpose of the penalty regime is to encourage taxpayers to take reasonable care in complying with their tax obligations. (Perhaps it would be more accurate to say that the purpose of the penalty regime is to deter taxpayers from failing to take reasonable care.) It went on to say that the discretion to remit penalties should be administered in a fashion that ensures the purpose of the legislation, and the objective of the penalty regime in particular, is achieved, without causing unintended or unjust results. The statement contains an explicit exegesis that recognises lenience in favour of taxpayers who have a good compliance history.

52. In the present case, I have been struck by the conscientiousness, and the comprehensiveness of Ms Porter's response to the Commissioner's 2010 audit request. It is quite clear, in my opinion, that she has generally been responsible, careful and thorough in the management of her tax affairs. Indeed, that inference is readily justified by the small number of items in dispute, and the Commissioner's substantial acceptance of the preponderance of Ms Porter's expense claims.

53. Three of the matters on which Ms Porter has failed in the present proceedings relate to items in relation to which it is likely Ms Porter could have substantiated a valid claim, but failed to provide acceptable evidence to quantify the amount of the claim. (In this category are her claims for internet expenses, and depreciation for her professional library and counselling aids.) Ms Porter's failure in that regard, on what were comparatively minor parts of her expense claims, and for reasons that went to the requirement for detailed substantiation, rather than the general, and apparently genuine nature of the expense categories, cannot, in my opinion, properly be regarded as a failure to take reasonable care. Even if it could, I am satisfied that the discretion should be exercised to remit any penalty on those aspects of Ms Porter's shortfall. I am of that opinion for substantially the same reasons - that Ms Porter has been apparently conscientious and thorough in her tax affairs and has failed to comply only in relation to a comparatively minor aspect of those affairs.

54. In relation to Ms Porter's claim for "ICT support expenses" that were invoiced by her husband, I am of the opinion that Ms Porter did fail to exercise reasonable care, and that the shortfall penalty should stand. The kinds of expenses to which the asserted agreement between Ms Porter and her husband related might have been properly claimable expenses. But they would only satisfy that character to the extent that they were demonstrably necessary and reasonably incurred. That demonstration required much more care, formality and detail than was included in any of the material that Ms Porter provided to the ATO or relied on in the present proceedings.

DECISION

55. Ms Porter has succeeded on some assessment items, and failed on others. The appropriate decision is to set aside the decisions under review and remit Ms Porter's objections to the Commissioner, to be reconsidered in accordance with these reasons. As I indicated earlier, that reconsideration should also be in accordance with such further information as Ms Porter provides in relation to her claims for the depreciation items relating to her professional library and counselling aids.