AJAMI v FC of T

Members:
GD Walker DP

Tribunal:
Administrative Appeals Tribunal

MEDIA NEUTRAL CITATION: [2007] AATA 1231

Decision date: 16 April 2007

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Professor GD Walker (Deputy President)

Summary

1. The applicant, Mr Stephen Ajami, seeks review of a decision by the respondent, the Commissioner of Taxation, imposing and refusing to remit an administrative penalty, applied in respect of the applicant's business activity statement ("BAS") for the quarter ending 31 December 2004.

2. During the relevant period, the applicant was registered for goods and services tax ("GST"). In the BAS in issue, he incorrectly included a claim for input tax credits amounting to $99,452. The respondent imposed a shortfall penalty at the rate of 50 percent making the total penalty $49,726. The penalty was imposed pursuant to s 284-75 of Schedule 1 of the Taxation Administration Act 1953, as amended ("TAA").

Issues

3. Whether the amount of the administrative penalty assessed under Division 284 of Schedule 1 of the TAA is correct.

4. Whether the administrative penalty of $49,726 imposed should be remitted pursuant to s 298-20 of Schedule 1 of the TAA in full or in part.

Facts and background

5. Mr Ajami is currently in recipient of a disability support pension ("DSP"), but previously he carried on business primarily as a buyer, seller and developer of residential and commercial property. He used a number of business names, including Ozy Professionals, Smart Business and Secret Security. He is also a director and public officer of several companies: OZ Professionals (NSW) Pty Limited, OZ Professionals NSW 2 Pty Limited, OZ Professionals NSW 3 Pty Limited, OZ Professionals NSW 4 Pty Limited, IC Property Group International Pty Limited, Steve Maintenance Pty Limited, Steven Property Sales Pty Ltd and NO 1 Construction Pty Ltd. He is also a director of Anubis Holdings Pty Ltd.

6. During the relevant period, the applicant was registered for GST. In the

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October/December quarter 2004, he did not transact business. On 7 January 2005, the applicant lodged his BAS for the quarter ended 31 December 2004. The statement claimed capital purchases to the amount of $1,093,972 and accordingly claimed an input tax credit of $99,452 (T3 pp10-11).

7. The actual BAS form as lodged (T20 pp55-56) is neither signed nor dated. In the box marked "Contact person who completed the form", the name "Frank" is handwritten and the contact phone number given is 02 9554 3671. That appears to be a reference to Mr Frank Dean (also known as Frank Khan and Faruk Khan), whose name had been entered on the respondent's Integrated Accounts System as the applicant's business accountant. Mr Dean's business phone number was recorded as 02 9554 3671 (Exhibit R4), the same number as was given for "Frank" on the BAS form.

8. On 6 December 2004, Ms Kelly Cannalire, a taxation officer at the Australian Taxation Office ("ATO") at Parramatta, New South Wales, received a telephone call from a person who identified himself as Mr Frank Dean stating that all outstanding activity statements had been lodged and asking that the $550 penalty should be deducted from a refund due to his client. Ms Cannalire made a note of the conversation, which contains the statement "POI confirmed". POI is an acronym for "proof of identity" and the phrase "POI confirmed" means that she took steps to identify Mr Dean as being a person authorised to communicate with the ATO on behalf of Mr Stephen Ajami (Exhibit R4).

9. The applicant lodged his BAS for the quarter ended 31 December 2004 on 7 January 2005. On 12 January, Ms Belinda White of the ATO contacted Mr Frank Dean for the purpose of reviewing the applicant's records in relation to GST for that quarter, as the claimed input tax credit of $99,452 greatly exceeded his claims in the two immediately preceding quarters, which were $2,316 and $2,440 respectively. Asked about the large capital purchase reported, Mr Dean stated that it represented the bills for all the companies paid by the applicant. He explained that the applicant is a director of five companies, one of which operates a nightclub, and one of which was in liquidation. Ms White asked Mr Dean why the applicant puts the other companies on his BAS and not on the subsequent BAS of each company. Mr Dean said that the applicant provides his ABN when the tax invoices are issued and accounts for GST using a cashbook. Ms White asked for the cashbook ledger for the December quarter 2004 to be faxed to her, explaining that she could not release the claimed refund of about $20,000 until she had verified the GST claim. Mr Dean said he understood that and agreed to fax the ledger. The conversation also covered other aspects of Mr Ajami's tax affairs (T11 p34).

10. On 1 and 2 February 2005, Ms Celeste Ngo of the ATO contacted Mr Dean at his business Instant Accounting Services (see letterhead T19 p54) to arrange a meeting for the purpose of reviewing the applicant's GST records for the relevant quarter. After a few more calls back and forth about a meeting scheduled for 18 February 2005, Mr Dean telephoned Ms Ngo and said that Mr Ajami had told him he did not have the information ready and wanted Ms Ngo to revise the BAS to nil. She explained to Mr Dean that she would have to conduct a review on the quarter in any event. Mr Dean said Mr Ajami had completed the BAS himself and had made a mistake. He had asked Mr Dean to act as his accountant after CVC (Compliance Verification of Case) had contacted him about the BAS. Mr Dean said that he did not complete the BAS for Mr Ajami (T12 p36).

11. For a couple of weeks, Ms Ngo made multiple unsuccessful attempts to contact the applicant, leaving a number of messages and being told by receptionists that the applicant was unavailable. Eventually on 12 March, Mr Ajami left a message saying that he had been hospital for a week and had just received a page to call her. In his oral evidence, Mr Ajami said that he had spent a week in hospital following a nose operation to rectify the effects of an earlier fracture. (On 7 March, however, when Ms Ngo had asked the applicant's receptionist to inform him that she needed to contact him urgently, the receptionist had said the applicant was not available and had not mentioned any operation or hospital stay; but nothing turns on that.)

12. On 15 March 2005, Ms Ngo made contact with the applicant, who asked her again to which period the review related. On being told it was for the October/December 2004

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quarter in which only one amount had been reported ($1,093,972), Mr Ajami said it must be a mistake because he did not buy $1,000,000 worth of capital acquisitions. During that time, he had hired a new accounts clerk to maintain the GST records but had later heard from friends that she did not know what she was doing and he had therefore dismissed her. He said that on hearing those reports about her, the BAS having already been lodged, he contacted the ATO and explained that he might have made a mistake in it. He said that the ATO officer at the time had told him they would look at the BAS and send him a letter notifying him of the mistake, and would call to see if he needed any help in rectifying the error (T12 p37). Ms Ngo confirmed that allegation with him three times but recorded that he did not remember the name or sex of the officer he had spoken to. She asked him what the accounts clerk's name was, and he replied Sinesa or Simesa. She asked him to spell it, but he said he did not know the spelling (T12 pp37-38). He has never supplied her full name or her address, despite being asked.

13. Ms Ngo arranged a meeting with the applicant on 30 March 2005. Her team leader, Mr Richard Jukes, also attended. Ms Ngo asked Mr Ajami what he does as his business. He said he is in the commercial property investment business and had always been doing that. Things had been quiet for the last six months, though. Asked if he had purchased a little over $1,000,000 worth of capital acquisitions, the applicant said yes, he did. He provided numerous documents which he said were contracts for properties he had purchased and invoices or receipts relating to them. He said he had provided those documents to the accounts clerk at the time and that she had used them to complete the BAS.

14. Mr Ajami said he did sign the BAS after the clerk had completed it, and she lodged it herself (it will be recalled that the BAS is unsigned). He repeated the claim that he had spoken to someone, whose name he could not remember, at the ATO and sought to revise the BAS to nil.

15. All the invoices that Mr Ajami furnished were expenses for his residential properties. Mr Jukes explained that the residential properties he purchased are input taxed, and consequently he could not claim input tax credits on their resale.

16. Mr Ajami also said at the meeting that he did not know Mr Frank Dean and that he was not his accountant.

17. At a further meeting on 13 April with Ms Ngo and Mr Lopez of the ATO, Mr Ajami provided a thick purple manilla folder full of documents that he said he had handed to the girl who completed the BAS for him. He said he had handed her the folder and said, "See what you can do with this". The documents had not been organised in any manner and Ms Ngo could not determine which documents related to which property (T12 p39).

18. At a third meeting on 20 April 2005, Ms Ngo explained to the applicant that a penalty would be imposed whether he revised the BAS to nil or not. The shortfall amount in this case was the input tax credits he had claimed, amounting to approximately $99,000. She explained that if he provided her with revised figures and the supporting documentation and it was found that he had creditable acquisitions, the shortfall amount would be reduced, as would the penalty. Mr Ajami asked what would happen if he could provide documents to substantiate more than the amount reported in the BAS. Ms Ngo replied that if on verification they were found to be allowable, there would be no penalty applied. Mr Ajami said he had found more information and would supply it to her at a future meeting. No further information was ever provided (T12 p41).

19. On 16 May 2005, the respondent received a fax from Mr F Khan at Instant Accounting Services (T19 p54) stating that the firm acted for Mr Stephen Ajami. The fax went on:

"…

According to the records the client has provided, we confirm that the December 04 Business Activity Statement was to be lodged as a NIL balance as the client did not trade within the above time frame.

There was a clerical error made in lodgement of the original BAS for the quarter ending December04 [sic]. As per the client, we believe that the accounts lady totalled [sic] the previous quarter ending BAS and taken up the total of Purchases and

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sales into the account for the quarter ending December04 [sic].

The client is aware of the penalty and is prepare [sic] to accept the penalty that will be layed [sic] on him, but this has to be finalized at your earliest convenience.

…"

20. Ms Ngo telephoned the applicant that day, saying she had received a fax from an F Khan who said his firm was acting as his accountants. She asked if this was Faruk Khan. Mr Ajami said he did not know, adding that there are a few of them working there and it could be any of them. He confirmed that the office was acting as his accountant (T12 p42).

21. On 9 June, the respondent issued to the applicant a notice of assessment of penalty for having a tax shortfall. The amount of the penalty was to be $49,726 (T6 p19). On 31 July 2005, the applicant wrote to the respondent objecting to the penalty imposed (T7 p22; the letter was incorrectly dated 18 February 2005: T9 p25). On 28 June 2005, the respondent disallowed the objection in full (T10 p26).

Mr Ajami's evidence at the hearing

22. Mr Ajami gave oral evidence, adopting his statement of 1 December 2006 (Exhibit A1) and his supplementary statement of 14 March 2007 (Exhibit A2). He said that between 2000 and 2004 he bought and sold six residential properties and one commercial property. He had intended to obtain development approval for them but did not do so, and resold them, usually after renovation. When he spent money on the properties, he thought his expenses were deductible and that the commercial property represented a taxable supply. He incurred expenses of over $1,000,000 in paying architects and builders.

23. In his statement (Exhibit A1), he wrote that "On or about 10 December 2004 I recruited an employee to attend to accounting or administration affairs of my enterprise. The employee was introduced through an acquaintance of mine who said to me that this person as being [sic] a very capable employee accounting and administration matters". At the hearing, he acknowledged that she was not in fact an employee but that he engaged her on a fee-for-service basis. He paid her $150 but did not obtain a receipt.

24. In his written statement he continued:

"…

• 6. In [sic] or about 10 December she commenced employment with me. I assigned the task of updating records and accounting matters. I received the hard copy blank of the BAS statement in late December. I decided to attend to this before year end. I assigned her the task of completing the GST return for the period ending 31 December 2004.
• 7. The completion of tax return took place in late December 2004 and would have been sent to the Commissioner towards the end of the year or in early January 2005. It was a very busy period for us.
• 8. She completed the BAS statement and asked me to signed [sic] it. The BAS statement was send then sent [sic] to Australian Tax Office (Exhibit A1, p2).

…"

25. That passage gives the impression that the accounts clerk was working for the applicant for a period of some weeks, making his payment of only $150 and his inability to recall her name hard to explain. He says that she completed the BAS statement, suggesting that it was she who gave the name and telephone number of "Frank" as the appropriate contact person, and that she told him he would receive a large refund. He said she asked him to sign it, but it was not in fact signed. At the hearing he said that he did not have time to sign the BAS, and that the accounts clerk had told him that he could lodge it without signing it. He said it was a very busy period for the business, but he had earlier told Ms Ngo and Mr Jukes on 30 March 2005 that things had been quiet for the past six months. Further, he did not transact any business during the relevant quarter.

26. In his statement, he asserted that he began to feel some doubts about the method used for calculating the GST claim, and accordingly contacted an accountant from Instant Accounting Services in Bankstown to obtain a second opinion. On being told that the basis adopted was incorrect, he telephoned the ATO and had the return cancelled. He told the ATO officer that the return had been lodged in

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error and asked the person to cancel it. He was told by the officer not to worry about it and it would be cancelled. He then had to go overseas on 28 January 2005 to get married, returning on 15 February 2005. He learned on his return that the ATO wished to audit his BAS statement, although as far as he was concerned, he had cancelled the return and there was no GST claim on foot. He supplied the ATO staff with all the documents he had supporting the GST claim, but in about October 2005, when he was moving house from Bankstown to Ramsgate, his car was stolen and a quantity of documents was lost.

27. In his statement, he declared that he had relied on the staff who he believed to be well qualified. "As I was starting out I could not afford to employ qualified staff, therefore I had to balance the cost for hiring the staff". In fact, as appeared above, he was not "starting out" but had been in the property business since at least 2000 and was a director of several companies. Further, he admitted that he used Mr Khan's services as an accountant for earlier BASs and again in February 2005 and subsequently.

28. In his supplementary statement, Mr Ajami said that he had endeavoured to obtain from the Telstra call centre in Brisbane the details of the first telephone call he said he had made to the ATO to amend the BAS to a nil balance. No such details were forthcoming.

29. He denied that he made the call to the ATO on 11 January 2005 referred to in the statement of Catherine Strong (Exhibit R3), in which Ms Strong recorded that Mr Steven Ajami called to confirm that the December 2004 BAS had been received by the ATO.

30. He claimed at the hearing that at the time he knew nothing about shortfalls and was unaware of the penalties associated with them. He said he had started in business young and knew nothing about tax. He had not asked Mr Dean or Simesa about the input tax credit claim but spoke "to a few people" who said he could not simply claim a sum of $100,000.

31. When it was put to him in cross-examination that Mr Dean was registered as his accountant for tax purposes in October 2004, he said that Mr Dean was not a party to the preparation of the BAS in question and that Mr Dean and Simesa were professionally involved with each other and were trying to shift the blame for their error on to him. He acknowledged that he had authorised Mr Khan's fax of 18 May 2005 (T19 p54) but when asked about "Frank" being named as contact person in the BAS (T20 p55), he replied that he was "getting stuck" for what Mr Khan and Simesa had done, and she worked for Mr Khan. The matter was going in circles and he did not see the form before it was lodged.

32. Mr Ajami said it was Mr Khan who had told him to send the fax of 31 July 2005 (wrongly dated 18 February) (T7 p22) but that he had signed it himself. The letter is not in fact signed.

33. When it was pointed out to him that the letter of 31 July 2005 does not mention that he had asked the ATO to cancel the relevant BAS, he acknowledged that it had not been put in. He still maintained that he had telephoned the ATO to cancel the BAS but was still unable to remember the name or sex of the officer he spoke to or the day of the week on which he made the call.

34. At the respondent's instance, the tribunal issued a summons to Mr Khan to attend and give evidence at the hearing. On the day of the hearing, he telephoned the respondent to say that he had faxed to the tribunal a medical certificate stating that he was not fit to give evidence. Tribunal staff were unable to locate any such fax. On behalf of the respondent, Ms Gatland applied for an adjournment to enable Mr Khan to be brought to the tribunal to testify. Having formed the view that Mr Khan was seeking to avoid giving evidence, and bearing in mind that the procedures for enforcing the obligation to attend before the tribunal to give evidence are cumbersome and not highly effective, I declined to grant an adjournment. After the hearing concluded, tribunal staff found a medical certificate that had been faxed to the tribunal one day earlier. I asked my associate to inform the parties of that fact.

35. Mr Jukes, the ATO team leader who had attended one of the meetings with Mr Ajami, was available for cross-examination, but the applicant declined to avail himself of that opportunity. Ms Ngo is no longer employed by ATO and as she was on long-term leave from her current employer, she was not available for cross-examination.

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Relevant ATO procedures

36. Mr Colin Williams, a team leader at the ATO client contact call centre in Penrith, stated that the ATO has certain procedures that a taxpayer must follow in order to amend or revise a BAS to nil (Exhibit R2). The ATO makes available to the public a 13-page document titled Correcting GST Mistakes and supplies scripting to its client service representatives who are handling calls in relation to GST error corrections.

37. Error corrections to a BAS cannot, Mr Williams said, be completed on the phone by calling the business information line on 132 866. In some circumstances, it might be necessary to refer the taxpayer to the activity statement exceptions area to correct an error on a BAS that has not been finalised. Further, an entry on a BAS cannot be changed by the client service representatives on the business information line.

38. As regards adding notes to a taxpayer's records, Mr Williams said they only needed to be added when they "add value" and record new information not available elsewhere on ATO's systems. Before 5 December 2005, call recording in the client contact call centres was a random process and not all calls were recorded. From 5 December 2005 and 13 February 2006, equipment and software were upgraded to allow recording of all calls received. All calls recorded before the call recording upgrade were lost in the changeover, except where a specific request had been made to keep the call at the time.

39. Mr Williams's evidence was not challenged.

Applicant's submissions

40. On behalf of the applicant, Mr Kumar submitted that from very early on, the applicant had maintained that he had cancelled the GST return, thereby placing the respondent on notice on the issue of voluntary disclosure, which it had chosen to ignore. The reference to "Frank Dean" (actually just "Frank") in the BAS related to an earlier quarter and was irrelevant. At the lowest, the discussions the applicant had with the respondent were in the nature of a prompted disclosure. Further, the cancellation of the BAS meant that there was no BAS in existence at the time the ATO took steps towards a review.

41. The applicant's background was also relevant in deciding whether the "reckless" criterion should apply to the penalty, rather than some other criterion. There was no evidence that the applicant had a good understanding of tax law or that any aspect of his background would move this matter from being a "failure to exercise reasonable care" to the higher standard of "reckless". His claim for input tax credits on residential properties might simply be an example of his ignorance of tax law and not evidence of recklessness.

42. Proper consideration had not been given to the fact that the BAS was not even signed by the applicant. That, again, could be a sign of carelessness. The applicant was not reckless in relying on his staff.

43. Mr Ajami had come forward before the audit had been initiated and had been very co-operative, thinking that the ATO were going to assist him to correct his BAS. Later in the investigation, he made further voluntary disclosures and was a frank witness at the hearing.

44. The case was on all fours with
Re Dixon Holdsworth Superannuation Fund and Commissioner of Taxation [2006] AATA 130, in which a penalty had been reduced because in the result, no harm had been done to the revenue. The taxpayer had gained no advantage, as the error was detected by the ATO before the payment sought by the taxpayer had been made. Although that decision is under appeal to the Federal Court, it should be applied until overruled, Mr Kumar said.

Applicable law and policy

45. In proceedings such as these, s 14ZZK of the TAA places on the applicant the burden of proving that the decision under review should not have been made or should have been made differently.

46. It was not disputed that the applicant was not entitled to the input tax credits that he claimed in the BAS. Wrongly claiming input tax credits results in a tax shortfall to which administrative penalties may apply under s 284-20 of Schedule 1 of the TAA. Specifically, s 284-75(1) states that a taxpayer is liable to an administrative penalty if he or she, directly or through an agent, makes a statement to the Commissioner that is false or misleading in a material particular and that a shortfall results. In

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this case, the shortfall amount as calculated pursuant to s 284-80 would be $99,452, being the input tax credit that the applicant incorrectly claimed in the December 2004 quarterly BAS.

47. The amount of the penalty is calculated as a percentage of the shortfall amount. Pursuant to s 284-90, the percentage is determined by the nature of the taxpayer's conduct when the false or misleading statement was made. In this case, the respondent applied Item 2, which operates where "Your shortfall amount or part of it resulted from recklessness by you or your agent as to the operation of a taxation law". The applicant, however, contends that the appropriate standard is that set out in Item 3, "Your shortfall amount or part of it resulted from a failure by you or your agent to take reasonable care to comply with a taxation law".

48. Recklessness is not defined in the TAA, but the respondent's interpretation of it is set out in ATO Practice Statement Law Administration PS LA 2006/2, paras 105 and 106 as follows:

"…

• 105. A person would be acting recklessly if:
  • (a) the person did an act which created a risk of a particular consequence occurring (for example, a tax shortfall), and
  • (b) a reasonable person who, having regard to the particular circumstances of the person , knew or ought to have known the facts and circumstances surrounding the act would have or ought to have been able to foresee the probable consequences of the act, and
  • (c) the risk would have been foreseen by a reasonable person as being great, having regard to the likelihood that the consequences would occur, and the likely extent of those consequences (for example, the size of the tax shortfall), or
  • (d) when the person did the act, he or she either was indifferent to the possibility of there being any such risk, or recognised that there was such risk involved and had, nonetheless, gone on to do it. That is, the person's conduct clearly shows disregard of, or indifference to, consequences foreseeable by a reasonable person.
• 106. A finding of dishonesty is not necessary to a finding of recklessness. It is sufficient that the person's behaviour objectively displayed a high degree of carelessness and indifference to the consequences.

…"

49. Recklessness is usually taken to be a predominantly subjective concept, requiring a conscious disregard of an unjustified risk (see Criminal Code Act 1995 (Cth) s 5.4;
Reed (Albert E) & Co Limited v London and Rochester Trading Co Limited [1954] 2 Lloyds Rep 463 at 475 per Devlin J). In the context of tax law, recklessness may be seen as incorporating substantial objective elements. Thus, Cooper J in
BRK (Bris) Pty Limited v Federal Commissioner of Taxation 2001 ATC 4111; (2001) 46 ATR 347 at 364 defined it in these words:

"…

Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful, risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the prescribed conduct is more than mere negligence and must amount to gross carelessness.

…"

50. That interpretation was adopted by the court in
Hart v Commissioner of Taxation 2003 ATC 4665; (2003) 131 FCR 203 and followed by Deputy President Purvis in
Re Tenvoc Properties Pty Limited and Commissioner of Taxation 2006 ATC 2241; [2006] AATA 529 at para 28. In
Re Jones and Commissioner of Taxation [2003] ATC 2024 at para 26, the tribunal observed that "Recklessness means

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more than mere carelessness. It incorporates an element of rashness or heedlessness".

51. In Hart, Hill and Healy JJ opined that in some contexts, a subjective test is applied in determining recklessness, but in others the test is objective, as in BRK. In their view, recklessness meant "something more than failure to exercise reasonable care …, but less than an intentional disregard of the Act" (at p214). In dissent, however, Spender J disapproved of Cooper J's observations in BRK and took the view that "Recklessness consists in making a claim, not caring whether the claim is true or false" (at pp212-213).

52. This tribunal is bound by the majority opinion in Hart which approves the substantially objective test in BRK. Even that test incorporates significant subjective elements, though, requiring as it does that the statement must have been made "knowing that there is a real, as opposed to a fanciful, risk that the material maybe incorrect, or be grossly indifferent as to whether or not the material is true and correct".

53. The BRK test differs from the ATO practice statement in that it requires the presence of some subjective knowledge, but on the other hand differs from Spender J's view, which depends on the taxpayer not caring whether the claim is true or false.

Was the penalty correctly assessed?

54. Applying that test, I find that the applicant, directly or by his agent, made a statement to the Commissioner that was false or misleading in a material particular and that a shortfall amount resulted. The statement was that the applicant was entitled to input tax credits of $99,452 and the shortfall amount was the same sum.

55. The next question is whether the applicant knew that there was a real, as opposed to a fanciful, risk that the material might be incorrect, or was grossly indifferent to whether or not the material was true or correct.

56. As will be recalled, Mr Ajami's version of events is that he relied on his staff to complete the BAS and the claim for input tax credits was made without his knowledge. After he became aware from talking to other people, or to an independent accountant, that an incorrect statement might have been made it, he telephoned the ATO early in January 2005 and asked that the BAS he had just lodged should be revised to nil. He was told that had been done.

57. There are problems with the applicant's account, however. They have been referred to above, but the main ones should perhaps be summarised. First, as regards the bookkeeper who the applicant said completed the BAS:

• • The applicant claims not to know her address or her full name. He is unsure whether her first name is Simesa or Sinesa (in the transcript it is rendered as "Ferliza"). There is little evidence about her except that she was professionally associated with Mr Frank Dean (Faruk Khan) at Instant Accounting Services and had done some work for a friend of the applicant's at a security company (who apparently was also the subject of an ATO review - T12 p37).
• • At the hearing, the applicant was evasive about why the name "Frank" was given as the contact person (transcript p16).
• • Mr Dean had been registered on ATO records since October 2004 as the applicant's accountant. He prepared the applicant's earlier BAS and was dealing with the ATO in relation to the applicant's tax affairs at all relevant stages before and after the December 2004 BAS was lodged. He possessed full information about the applicant's tax affairs, including the December 2004 BAS.
• • Simesa gave no evidence in these proceedings and it does not appear that the applicant made any serious attempt to contact her, though he had her business address (transcript pp6-7). He said he could not locate her or Instant Accounting Services, but the respondent was able to serve a summons on Mr Dean, apparently without difficulty. In addition, her business address was pre-printed by the ATO on the otherwise handwritten BAS (T19 p54; transcript 16 March 2007 pp6-7).
• • He repeatedly described Simesa as an employee in his statement and his statement of facts and contentions, but then subsequently as not an employee but a person who performed services for a fee. He paid her only $150, for which he obtained

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  no receipt, which does not suggest that she played a substantial role in meeting the applicant's bookkeeping needs.
• • The applicant said he appointed Simesa because he was just starting out in business and could not afford professional services. But in 2004 he was not starting out, he had been in the property business since 2000. He had also employed the professional services of Mr Dean for his earlier BASs.
• • The applicant did not mention Simesa in his 31 July 2005 letter to the ATO seeking remission of the penalty (T7 p22).
• • Mr Dean told Ms Ngo that the applicant had completed the BAS himself (T12 p36).

58. Then, as regards the accountant Mr Dean/Khan of Instant Accounting Services:

• • The applicant said on 30 March 2005 that he did not know Mr Dean at all, and on 16 May 2005 said he did not know if Mr Dean was his accountant. At the hearing, however, he admitted that Mr Dean completed his earlier BASs. Mr Dean was registered by the ATO as the applicant's tax accountant on 26 October 2004. On 6 December 2004, he telephoned the ATO to discuss the lodgement of the applicant's outstanding BASs. At the hearing Mr Ajami evaded a question about whether Mr Dean was acting on his instructions when he made that call (transcript p9).
• • He contacted the ATO on 12 January 2005 in relation to the December 2004 BAS, then continued to deal with the ATO in relation to the applicant's tax affairs at all relevant times.
• • Nevertheless, in his letter of 31 July 2005 (T7 p22), the applicant claimed that he did not have an accountant at the time the December 2004 BAS was completed.
• • In his written submissions, by way of an alternative contention, the applicant advanced the proposition that he had relied on Frank Dean as his accountant.

59. Then, in relation to the October/December 2004 BAS:

• • Mr Ajami said at first that he had signed the BAS, but later said he had not signed it and did not even see it before it was lodged. It is not in fact signed.
• • He said he did not sign it because he was too busy to do so at the relevant time, but on other occasions he has said that December 2004/January 2005 was part of a quiet period, and in fact he did not transact any business during the October/December 2004 quarter.
• • Mr Dean told Ms Ngo on 17 February 2005 that Mr Ajami had completed the BAS himself. He said Mr Ajami must have written his (Mr Dean's) name as the contact person, because he had not completed the BAS for Mr Ajami.
• • The applicant said Simesa had told him that he would receive a large refund of about $100,000 (transcript p10), but he apparently made no attempt to enquire as to why that might be so, even though his input tax credits in the two preceding quarters were quite small amounts, $2,316 and $2,440 respectively. The figures on the BAS were simple and required no expertise to interpret them (see Tenvoc at para 39).
• • At first, he said that the large claim for input tax credits was a mistake and should be revised to nil as he had not made $1,000,000 of capital purchases. Later, however, he said he could substantiate those purchases and promised to produce documentary evidence for that purpose, but did not do so. He claimed that some material was lost when his car was stolen. But his assurance that he had such evidence contradicted both his earlier claim that he had called the ATO to cancel the BAS because it was incorrect and his statement that business was quiet during the relevant period.
• • He denied telephoning the ATO on 11 January 2005 to ascertain whether the December 2004 BAS had been received, although the ATO has a written contemporaneous record of the call and its substance.
• • In his statement of facts and contentions (Exhibit A3), the applicant said that after lodging the BAS in question, he contacted "an independent accountant" (unnamed) because of his misgivings over the basis on which it was compiled. In his statement (Exhibit A1), he related how he had contacted an accountant (again unnamed) at

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  Instant Accounting Services for a "second opinion". At the hearing, however, he said he spoke "to a few people" (also unnamed) about the BAS and denied consulting Mr Dean. But Instant Accounting Services was Mr Dean's firm, Mr Dean was registered with the ATO as his tax accountant and the applicant admitted seeking Mr Dean's help with the ATO review of the BAS after he returned from overseas on 15 February 2007.

60. Finally, as regards the telephone call to the ATO that Mr Ajami claims to have made in early January 2005 to cancel the BAS:

• • Mr Ajami has no note of the conversation and no memory of the date or the day of the week on which it was made, or of the name or sex of the ATO officer to whom he spoke.
• • The ATO has no record of any such call. While at that time, its practice was not to record every call, the alleged call from Mr Ajami would have been of such significance that it would be likely to have been recorded pursuant to the procedures then existing.
• • The ATO's Mr Colin Williams gave uncontradicted evidence that a BAS could not and cannot be amended over the telephone.
• • The claim that such a call was made cannot be reconciled with Mr Ajami's call of 11 January 2005 asking if the BAS had been received but not suggesting there was any error in it, or with Mr Dean's lengthy telephone discussion with the ATO's Ms White on 12 January 2005. That conversation related to the December 2004 BAS and gave considerable detail about Mr Ajami's tax affairs but lacked any suggestion that there had been an error in the BAS or that it had been cancelled.
• • The applicant did not mention the alleged BAS cancellation in his letter of 31 July 2005, even though by his account it was crucial to his claim for a reduction of the penalty. He said at the hearing that he had signed it, but it is unsigned. That letter is also notable for what Mr Ajami called the "clerical error on the date" (T9 p25), but a clerical date error of five and a half months is peculiar in itself.
• • Mr Khan's faxed letter of 16 May 2005 (T19 p54) does not refer to the alleged cancellation of the BAS, saying instead that it was to be lodged as a nil balance as the client did not trade within the relevant period. The applicant admitted at the hearing that he had authorised that letter.
• • On 17 February 2005 in a call to Ms Ngo, Mr Dean said Mr Ajami had told him that he did not have the necessary information ready for the planned meeting with her on 18 February and wanted the ATO to revise the BAS to nil. He did not suggest that Mr Ajami had made an earlier attempt to cancel the BAS.

61. Thus, it will be seen that Mr Ajami's version of events is riddled with internal inconsistencies, omissions, evasions, improbabilities and conflicts with the documentary evidence. At the hearing Mr Ajami complained that the attempt to reconstruct the events was "going in circles". That was quite true, but that stemmed largely from his own continual changing of his story. In the circumstances, it is not possible to accept the applicant's uncorroborated testimony on any controverted matter.

62. On his own evidence, the applicant says that Simesa told him that he would receive a large refund of about $100,000 as a result of the BAS. As he had not traded in that quarter, he must have known that there was a risk that the BAS contained incorrect statements that were likely to result in a shortfall.

63. The preponderance of probabilities, however, favours the view that the figures, the name "Frank" as the contact person and Mr Dean's telephone number were handwritten by Mr Ajami, as Mr Dean claimed. It is unlikely that a professional bookkeeper (as Simesa apparently was), having arranged with the ATO or the applicant for her business address to be pre-printed on the BAS, would then have completed the form in an amateurish way in untidy longhand, leaving it unsigned and undated, and would nominate "Frank" as the contact person for no apparent reason. The failure to sign or date the BAS probably constituted an attempt by the applicant to confuse the issue of authorship and reduce his personal risk of liability, rather than merely

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evidence of negligence as Mr Kumar contended.

64. At all events, I am satisfied that the applicant knew there was a real risk that the BAS might contain incorrect statements that would lead to a tax shortfall. His conduct satisfies the test of recklessness whether a subjective or an objective standard is applied.

65. I am also satisfied that he did not telephone the ATO in early January 2005 to ask that the BAS be revised to nil. There was a BAS before the respondent before the review was initiated.

66. Consequently, the penalty at the rate of 50 percent of the shortfall was correctly imposed pursuant to s 284-90, item 2.

Should the penalty be remitted?

67. Mr Kumar submitted that the applicant's general and educational background should be taken into account, pursuant to PS LA 2006/52, paras 50-52. There was no evidence to show that the applicant had a good understanding of tax law or that any other aspect of his background moved the matter from being a failure to exercise reasonable care into the higher category of recklessness.

68. The applicant was educated to Year 12 level and labours under no language difficulties. He apparently conducted business with some degree of success in the property development industry and is a director of several other companies. He has worked part-time with a security company. To function successfully in property development, he would need to possess at least average intelligence and probably more in the high average range. In the witness box, his general demeanour and manner of expression were consistent with that hypothesis. The evidence suggests that he does not have a detailed understanding of tax law and in particular that he might not have been aware that expenses in relation to the sale of residential property are input taxed. I do not, however, accept his assertion that before the audit in 2005, he was unaware of the existence of tax penalties. He also knew enough about tax law to engage Mr Khan as his tax accountant and perhaps to engage the services of Simesa on the basis that she was recommended to him as someone who understood how to prepare documents for tax purposes. The evidence thus does not establish that the applicant was handicapped by his background in the manner contemplated by the practice statement.

69. Nor would it avail the applicant that he relied on the expertise of Simesa or Frank Dean. Liability under s 284-75(1) is strict and it attaches whether it was the applicant or his agent who made the incorrect statement in the BAS: see
Re The Taxpayer and Commissioner of Taxation 2006 ATC 137; [2006] AATA 424 at pp2-3;
Re Halim and Commissioner of Taxation [2005] AATA 1274, paras 22, 36. In contrast to the position under the former s 226H, the concept of agent in Schedule 1 is general and not confined to a registered agent.

70. There is no credible evidence to show that the applicant made voluntary disclosure to the respondent before the ATO review commenced. For the reasons given above, I do not accept his claim that he telephoned the ATO early in January to cancel the BAS. Although he later said that the input tax credit claim was a mistake, he subsequently reversed his position and promised to substantiate his claims, but did not do so. He said his records had been lost when his car was stolen, but all the receipts he produced before then related to residential property and could thus not give rise to input tax credits. In my view, he was not attempting to make full disclosure but rather temporising. To the extent that the applicant made any disclosure, it was not unprompted within the meaning of ATO PS LA 2002-8 para 16 or PS LA 2006/2 para 120.

71. Nor did he make a prompted disclosure within PS LA 2006/2 para 125. His contradictory explanations could not have saved the respondent any significant time or resources as para 125 requires, and indeed must have further complicated the review.

72. In his statement of facts and contentions, the applicant raised hardship as a ground for reduction of the penalty, but that contention was not elaborated or pursued.

73. The evidence does not disclose any other factors justifying remission. As was noted above, the applicant carries the burden of proving any circumstances justifying a reduction of the penalty. In my view, he has not discharged it.

74. Mr Kumar submitted that the present case is on all fours with Dixon Holdsworth, in which the tribunal reduced a shortfall penalty

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by half on the ground that the error in the relevant BAS was detected before any refund was made. It thought it would be a harsh result if the Commissioner became entitled to collect a penalty of $85,681 even though he had not actually made the payment sought by the taxpayer. On behalf of the Commissioner, Ms Gatland submitted that the better view was that expressed in
Re Kowadlo and Commissioner of Taxation [2004] AATA 786, para 10 in which the tribunal noted that "the penalty regime is to penalise non-compliance with the requirements of the legislation. Loss of revenue is not the issue. Further, the Commissioner has appealed to the Federal Court against the relevant aspect of the decision in Dixon Holdsworth. Mr Kumar countered that unless and until it was overruled, Dixon Holdsworth should be applied.

75. Assuming that Dixon Holdsworth, which is a more recent case than Kowadlo, correctly states the law, the facts in that case were materially different from those presented in this application. Like the present applicant, Mr Dixon had made an incorrect and substantial claim for input tax credits on property. But he had done a great deal more than Mr Ajami to comply with the law. He engaged a tax accountant to administer his tax affairs, and changed to another accountant when it appeared that the first one was planning to retire. When the second accountant said that input tax credits could be claimed, whereas the first accountant had said the opposite, the applicant had repeatedly questioned the advice and discussed it with the accountant, but the BAS was lodged without his knowledge before his earlier questions over the sale had been satisfactorily answered. Although health problems had impaired the applicant's memory, his credibility was not otherwise damaged. The fact that the applicant might have been blameless in the affair was not a basis for remittal, but it does appear to have influenced the tribunal's view that not remitting the penalty would produce a harsh result.

76. In this case, Mr Ajami's level of recklessness was of a markedly higher order than that in Dixon Holdsworth. He did not have a good compliance history, having previously incurred a penalty for late BAS lodgement. He has still not lodged his 2002 income tax return. He did not make full and unprompted or prompted voluntary disclosure and he repeatedly changed his story in the manner outlined above. In this case, the penalty could not be regarded as harsh.

77. If follows that the decision not to remit all or any part of the penalty pursuant to s 298-20 is affirmed.