MD Allen SM

Administrative Appeals Tribunal


Decision date: 7 April 2005

MD Allen (Senior Member)

By application made the 17th day of January 2005 the Applicant's company made application to review the decision by the Respondent not to waive or reduce penalties imposed for the late lodgement of Business Activity Statements (BAS).

2. Subsection 286-75(1) of Schedule 1 of a Taxation Administration Act 1953 (``TAA''), provides that the taxpayer is liable to an administrative penalty if they are required to give a return, notice, statement or other document to the Commissioner by a particular day and failed to do so.

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3. Section 16-150 of Schedule 1 of the TAA states that an entity that must pay an amount under Division 12 (even if it is a nil amount) to the Commissioner and must notify the Commissioner of the amount on or before the day on which the amount is due to be paid (regardless of whether it is paid). This notification must be in the approved form and lodged with the Commissioner.

4. Section 31-5 of the A New Tax System (Goods and Service Tax) Act 1999 states that if an entity is registered or required to be registered, it must give to the Commissioner a GST return for each tax period, whether or not the entity's net amount for the tax period is zero, or it is liable for GST on any taxable supplies that are attributable to the tax period.

5. Section 195-1 of the GST Act defines a GST return as a return that complies with section 388-75 in Schedule 1 to the TAA.

6. Section 388-75 in Schedule 1 to the TAA outlines what is in the ``approved form''. The approved form for both PAYG (Pay As You Go) of capital withholding and GST of capital purposes is the Business Activity Statement (BAS).

7. Section 286-80 of Schedule 1 the TAA outlines how the administrative penalty referred to in section 286-75 of Schedule 1 is to be calculated. As a small withholder, the Applicant is liable to the base penalty amount of one penalty unit for each period of 28 days or part of a period of 28 days that the documents were overdue, up to a maximum of five penalty units. Pursuant to section 4AA of the Crimes Act 1914 the current value of a penalty unit is $110.00.

8. There is no dispute that the Applicant failed to lodge the BASs for the quarters ended 31 December 2003 and 31 March 2004 by their due dates.

9. The BAS for the December quarter was due for lodgement on 2 March 2004 but was not lodged until 18 August 2004.

10. The BAS for the March quarter was due for lodgement on 12 May 2004 but it was also lodged on 18 August 2004.

11. The December quarter BAS was lodged 168 days late and the March quarter BAS was lodged 68 days late. Applying section 286-80 of Schedule 1 TAA the maximum penalty of $550.00 was imposed with respect to the December quarter and a penalty of $440.00 imposed in respect of the March quarter, giving a total penalty amount of $990.00.

12. The evidence of Mr William Vazquez, a Director of the company who appeared for the company was that amount has been paid.

13. As pointed out in the submissions of Ms Su who appeared for the Respondent, the penalty is an administrative penalty which is imposed by operation of law. The Respondent Commissioner of Taxation then has discretion to remit all or part of the penalty imposed.

14. Although the penalty imposed is described as an ``administrative penalty'' it is still a penalty and normal sentencing principles must be kept in mind when exercising the discretion as to whether to mitigate the penalty or not. In particular apart from circumstances peculiar to the individual offending taxpayer the threefold purposes of punishment must be kept in mind. Those purposes are retribution, deterrence and reformation. In particular, see the discussion of sentencing principles in
R v Kane [1974] VR 759 at 764-765.

15. The Applicant's company is a private company with the only directors and shareholders being Mr Vazquez and his wife. It is engaged in providing architectural services and as Mr Vazquez pointed out in his evidence, at times the company has cash flow problems due to the nature of the building industry.

16. At the time the two BASs were due, the company was having cash flow problems and was unable to make payment of the tax due and owing.

17. Mr Vazquez gave evidence that it was the then belief of the officers of the company (ie himself and his wife) that the tax due had to be paid at the time of lodgement of the BAS. This is clearly not the case but I have no reason to doubt the evidence of Mr Vazquez that on all previous occasions the company had paid the calculated tax due at the time of lodgement of the BAS.

18. What I do not understand however is that having difficulty in making payments the company (or its officers) did not contact either the ATO or its tax agent in order to make some arrangements regarding repayment.

19. Obviously had the company approached either the ATO or its tax agent it would have been informed that payment did not have to be made at the same time as lodgement of the BAS.

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20. On 31 March 2004 the Respondent wrote to the company reminding it that the BAS for the December quarter was overdue. In particular that letter states:

``Phone 13 11 42 if you:

  • - need to make alternative arrange- ments to pay any amount owing''

I note in passing that that statement might be seen to confirm a belief that payment was due at the time of lodgement of the BAS.

21. A further reminder letter was sent to the company on 6 May 2004 with regard to the December quarter return.

22. Notwithstanding these reminder letters, lodgement was not effected until 18 August 2004. Mr Vazquez said in evidence that funds to pay the tax due were obtained by the company from the directors using an advance on their credit card. The amount provided remains on the books of the company as a loan received from the directors.

23. On 1 September 2004, the company accountants wrote to the Respondent stating inter alia:

``2. Please note that, the abovementioned client is in financial difficulty. They delayed lodgement of their BASs, in order to delay the payment, and to meet them.


4. We explained to the client, that regardless to his ability to make the payment or not, he should lodge the BASs on time, and can then come to an arrangement with the ATO, as to how to make the payment.

5. In the meantime, please take into consideration the financial difficulties of the client, which run his business in significant loss and please also take into account that he really cannot make payment for these penalties, which are extremely large concerning the size of this business and this type of offence.''

24. I was informed from the bar table that previous and subsequent BAS have been lodged on time.

25. Principles to be applied in deciding whether to remit a penalty or not have been set out in the ATO Receivables Policy (the Policy) document. In line with previous decisions of this Tribunal that Policy should be applied so far as is consistent with the Tribunal's duty to make the best or preferable decision in the instant case - see
re Drake and Minister for Immigration and Ethnic Affairs (No. 2) (1978-1980) 2 ALD 634. As was pointed out by Brennan (as he then was) at page 645 ``consistency is not preferable to justice''.

26. At paragraph 98.5.3 of the Receivables Policy document it is stated that in determining penalty the Commissioner will have regard to the lodgement history of the taxpayer and the effort taken by the Tax Office to obtain lodgement.

27. The Policy document continues at paragraph 98.5.18:

``Generally, remission of FTL penalty will only be granted where the delay in lodgement occurred due to circumstances beyond the control of the taxpayer and where it would be fair and reasonable for the Commissioner to remit part or all of the penalty applied...''

Whereas paragraph 98.5.21 states:

``In certain circumstances, it may be appropriate for the Commissioner to consider a partial remission of the FTL penalty applied. In these cases the Commissioner will consider issues such as the length of time the document was overdue, the taxpayer's circumstances, the taxpayer's lodgement history and any contact with the Tax Office prior to the due date of the documents.''

28. In seeking to apply those principles to the individual circumstances of this taxpayer, I do not regard them as either derogating from or adding to general principles regarding mitigation of penalty.

29. Notwithstanding the comments in
re Kowadlo and Anor and Commissioner of Taxation [2004] AATA 786, I do regard any loss or potential loss of revenue as relevant as being part of the matrix of factors affecting a decision whether to remit penalty or not.

30. I accept that the Applicant, by its directors was under a mistaken belief that payment had to accompany lodgement. What detracts from any mitigating factor is that the Applicant made no attempt to contact the ATO and explain its difficulties and seek some arrangement. Further, even when two reminder letters were sent the approach of the directors of the company seems to have been one of ignoring the problem in the hope that it would go away.

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31. On the other hand, there has apparently been no prior or subsequent breach. The company is apparently viable but subject to fluctuations in its income. Although not expanded upon in these proceedings, a letter to the ATO by Mrs Vazquez states:

``The amount of the penalty represents a very big amount for us to pay as we are struggling to keep our head above water with our business, mortgage and 3 teenage sons. I am aware we were sent letters but there again, we were obtaining funds to settle the payment.''

32. Quite clearly, the Applicant has learnt a salutary lesson that time constraints must be obeyed and that difficulties with returns should be negotiated with the Respondent at the outset. This can be classed as reformation.

33. So far as retribution and general deterrence are concerned, no doubt the Applicant and its accountants and directors are now well aware of the late lodgement provisions and will make others aware.

34. The Applicant is a small family company and although its default was clearly within the provision of the Act, and indeed it was relieved by the imposition in section 286-80 of a maximum penalty, I am persuaded that the total amount is excessive. I find that the Applicant's default can properly be remedied by the imposition of a total penalty of $750.00. On my maths this means that the sum of $240.00 should be remitted and this will be the direction of the Tribunal.


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