HELBERS v FC of T

Members:
R W Dunne SM

Tribunal:
Administrative Appeals Tribunal, Adelaide

MEDIA NEUTRAL CITATION: [2011] AATA 657

Decision date: 23 September 2011

R W Dunne (Senior Member)

Introduction

1. Mr Lodewijk Helbers ("applicant") comes to this Tribunal seeking review of the objection decisions made by the Commissioner of Taxation ("respondent") in respect of amended assessments and administrative penalty notices issued for the years ended 30 June 2003, 2004, 2005 and 2006 ("Relevant Years").

2. During the Relevant Years, Mr Helbers received special early retirement payments from the Netherlands. No income tax was paid in the Netherlands and the respondent included the payments in his income tax returns for the Relevant Years and issued appropriate assessments or amended assessments. Notices of assessment and liability to pay penalty ("Penalty Assessments") were also issued. Mr Helbers objected against all the assessments and the respondent disallowed the objections in full.

3. At the hearing, Mr Helbers was self-represented and Ms S Loveband (from the ATO Legal Services Branch) represented the respondent. I received into evidence the documents lodged pursuant to s 37(1AB) of the Administrative Appeals Tribunal Act 1975 (Exhibit R1).

Issue Before The Tribunal

4. The main issue before me has resolved itself into whether the tax shortfall penalties imposed in the Penalty Assessments have been correctly imposed or whether the penalties should be remitted, wholly or in part.

Legislation

5. Although the main issue before me relates to the imposition of tax shortfall penalties in the Penalty Assessments, the provisions of the Income Tax Assessment Act 1936 ("1936 Act") and the Income Tax Assessment Act 1997 ("1997 Act") that apply incidentally in relation to the imposition of the penalties are set out below for completeness.

6. Under s 6-5 of the 1997 Act, an Australian resident must include, as assessable income in income tax returns, ordinary income derived directly or indirectly from all sources, whether in or out of Australia. Section 6-5 relevantly reads:

" 6-5 Income according to ordinary concepts (ordinary income)

  • (1) Your assessable income includes income according to ordinary concepts, which is called ordinary income .

    Note: Some of the provisions about assessable income listed in section 10-5 may affect the treatment of ordinary income.

  • (2) If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

    …

  • (4) In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct."

7. Section 27H of the 1936 Act provides for the taxation of an annuity or pension paid from a foreign superannuation fund or source. Under s 27H, a recipient's assessable income in a tax year includes the amount of any annuity or pension received during the year, after excluding in the case of a purchased annuity or pension the amount of the undeducted purchase price, which is excluded each year from assessable income. Section 27H relevantly reads:

" 27H Assessable income to include annuities and superannuation pensions

  • (1) Subject to Division 54 of the Income Tax Assessment Act 1997, the assessable income of a taxpayer of a year of income shall include:
    • (a) the amount of any annuity derived by the taxpayer during the year of income excluding, in the case of an annuity that has been purchased, any amount that, in accordance with the succeeding provisions of this section, is the deductible amount in relation to the annuity in relation to the year of income; and

      …

  • (2) Subject to subsections (3) and (3A), the deductible amount in relation to an annuity derived by a taxpayer during a year of income is the amount (if any) ascertained in accordance with the

    Formula,A(B − C)/D where:

    • A is the relevant share in relation to the annuity in relation to the taxpayer in relation to the year of income.
    • B is the amount of the undeducted purchase price of the annuity.
    • C is:
      • (a) if there is a residual capital value in relation to the annuity and that residual capital value is specified in the agreement by virtue of which the annuity is payable or is capable of being ascertained from the terms of that agreement at the time when the annuity is first derived-that residual capital value; or
      • (b) in any other case-nil; and
    • D is the relevant number in relation to the annuity.

  • (3) Subject to subsection (3A), where the Commissioner is of the opinion that the deductible amount ascertained in accordance with subsection (2) is inappropriate having regard to:
    • (a) the terms and conditions applying to the annuity; and
    • (b) such other matters as the Commissioner considers relevant; the deductible amount in relation to the annuity derived by the taxpayer during the year of income is so much of the annuity as, in the opinion of the Commissioner, represents the undeducted purchase price having regard to:
    • (c) the terms and conditions applying to the annuity;
    • (d) any certificate or certificates of an actuary or actuaries stating the extent to which, in the opinion of the actuary or actuaries, the amount of the annuity derived by the taxpayer during the year of income represents the undeducted purchase price; and
    • (e) such other matters as the Commissioner considers relevant. …"

8. Subdivision 284-B of Schedule 1 of the Taxation Administration Act 1953 ("TA Act") contains an administrative penalty regime that applies to taxpayers for failing to meet their taxation obligations. The provisions of Subdivision 284-B that relevantly apply read:

Background Facts

9. In this section of my reasons, I will set out the facts that I have found. For the most part, there is no dispute between the parties as to those facts. Where there is dispute or uncertainty, I will refer to the evidence on which I have relied to make those findings.

10. Mr Helbers was born in the Netherlands on 22 November 1941. He was employed by various employers during his working life there. From 1975 and through the 1980s, older workers were encouraged to retire up to 10 years earlier than the usual retirement age of 65. Early retired workers were entitled to a special payment during the pre-retirement age period (the Vervroegde Uittreding or "VUT"). The VUT was funded sometimes by employees and employers and sometimes by employees only. Under his employment conditions, he was required to make contributions to the VUT and fully funded the payments through these contributions, which were not tax deductible.

11. Mr Helbers first came to Australia in 1983. He returned to the Netherlands and then, after early retirement there in 2001 at the age of 61, he returned to live in Australia in October 2001. He received VUT payments, which were directly deposited into his Netherlands bank account, during the Relevant Years.

12. By letter dated 6 November 2004, Mr Helbers wrote to the respondent asking whether overseas income was classed as Australian income. The respondent advised him that his letter was to be treated as a request for a private binding ruling. The respondent requested further information from him about his foreign pension and further information was provided. On 18 January 2005, he lodged his 2003 income tax return. The return included Dutch pension income (assumed to be the VUT) ($40,070) and a tax deduction described as "undeducted purchase price of foreign pension or annuity" ($10,018).

13. Further information was requested and supplied by Mr Helbers in relation to the Dutch pension and, on 11 April 2005, a private binding ruling issued to him. The ruling stated that the early retirement pension allowance received by him from the Netherlands was subject to income tax in Australia. On 15 April 2005, Mr Helbers lodged his 2004 income tax return, which did not include the Dutch pension. At the same time, he amended his 2003 income tax return to delete the Dutch pension and the undeducted purchase price deduction from the return. Subsequently, the 2004 notice of assessment and the 2003 notice of amended assessment issued. Later, Mr Helbers lodged his 2005 and 2006 income tax returns, which did not include the Dutch pension, and notices of assessment for these years issued.

14. Following a letter from the respondent, Mr Helbers provided details of the foreign source income (VUT) that had been omitted from his income tax returns for the Relevant Years. The amounts of omitted foreign source income for the relevant tax years were:

15. On 30 July 2007, the respondent notified Mr Helbers by letter (through his accountant) of the commencement of an income tax audit of his foreign source income, and later notified him (again by letter) that the audit had been completed. The letter (in its reasons for decision) confirmed that the foreign source income was assessable to income tax in Australia and that penalties applied. On 18 July 2008 the respondent issued:

16. By letter dated 17 December 2008, Mr Helbers' legal representative lodged an objection against the amended assessments for the Relevant Years. The objection (Exhibit R1, T34) relevantly reads:

17. Mr Helbers' objection was disallowed in the absence of information being provided to enable an undeducted purchase price deduction to be determined. The respondent's reasons for decision only dealt with the penalties imposed in each of the Relevant Years. Likewise, Mr Helbers' application for review to this Tribunal only addressed the level of the tax shortfall penalty.

Evidence

18. It was Mr Helbers' evidence that he had attended the Australian Taxation Office ("ATO") in February 2002 and was advised by a taxation officer that, as the holder of a "410 class retirement visa", he would only be charged 10 percent tax on his Australian income. He subsequently wrote to the ATO on 6 November 2004 (Exhibit 1, T3) asking:

"Is overseas income classed as Australian income or not?"

19. This question was answered in the private binding ruling that the respondent had issued and Mr Helbers acknowledged that he had received the ruling. The ruling stated that the early retirement pension allowance that he received from the Netherlands was "assessable in Australia". However, Mr Helbers said the ruling differed from the advice he had received from the taxation officer in February 2002. He had paid premiums for his VUT for more than 30 years, his contributions were not tax deductible in the Netherlands, and no tax was paid there when he commenced receiving the VUT payments. He was just getting his "own saved money back".

Consideration

Whether the tax shortfall penalties imposed in respect of the 2003, 2004, 2005 and 2006 amended assessments have been correctly imposed or whether the penalties should be remitted, wholly or in part

20. Mr Helbers settled in Australia on 18 October 2001. There is no doubt that, on the evidence before me, he was a resident of Australia in each of the Relevant Years. As such, he was required to pay income tax in Australia on the ordinary income he derived, directly or indirectly, from all sources, whether in or out of Australia, during those Relevant Years (s 6-5, 1997 Act). He received the VUT (or early retirement pension allowance) deposited directly into his Netherlands bank account. However, his evidence was that he had contributed to the VUT during his working life, but he had received no tax deductions in the Netherlands for the contributions. The payments of the VUT, in turn, were not subject to tax in the Netherlands when he received them.

21. Section 27H of the 1936 Act deals with the taxation of a foreign annuity or pension. However, under s 27H, where the recipient has purchased the foreign pension, the undeducted purchase price will be excluded each year from the assessable amount of the pension. In Mr Helbers' case, his evidence (which I accept) is that he contributed the premiums for the VUT (or early retirement pension allowance) that he received in the Relevant Years and which was included in his income tax returns. However, he has been unable to produce evidence to show the total deductible amount of the contributions he made for the VUT in the Relevant Years. I understand he has produced some evidence of his contributions to enable certain deductible amounts to be allowed in the Relevant Years, and the respondent has allowed (or will allow) deductions for the proportionate amount of the contributions according to the formula set out in s 27H(2) of the 1936 Act.

22. During the hearing, I referred Ms Loveband (representing the respondent) to Taxation Determination TD 2000/46, which was raised in the objection prepared by Mr Helbers' legal representative. TD 2000/46 relevantly reads:

23. It was Ms Loveband's submission that TD 2000/46 did not apply in Mr Helbers' case. Having reviewed the Determination, I am satisfied that it relates to the Sociale Verzekeringbank (SVB) payable under the Netherlands social security system and not to the VUT, which was paid to Mr Helbers. In these circumstances, the standard deductible amount of 25 percent of the SVB which is referred to in the Determination is not available in the present case. In this regard, I note that the deductible amount of the undeducted purchase price of the VUT was sought (and claimed, but later deleted) by Mr Helbers in his original 2003 income tax return.

24. In relation to the issue of the administrative penalties in the Penalty Assessments for the Relevant Years, the respondent imposed a base penalty amount of 25 percent of the tax shortfall in accordance with Item 3 of the Table in s 284-90(1) of the TA Act. The respondent asserted that this base penalty amount resulted from a failure by Mr Helbers to take reasonable care to comply with a taxation law. Miscellaneous Taxation Ruling MT 2008/1 sets out the respondent's interpretation of the concept of "reasonable care" used in Subdivision 284-B of the TA Act. Paragraphs 28 and 29 of the Ruling relevantly read:

In my view, what is said in paragraphs 28 and 29 of MT 2008/1 represents an accurate description of the concept of "reasonable care" as it is referred to in Item 3 of the table in s 284-90(1) of the TA Act.

25. Mr Helbers contended that the tax shortfall amount did not result from a failure by him to take reasonable care to comply with a taxation law. He argued that the shortfall arose because he had received incorrect information from the ATO in relation to his liability to pay income tax on his VUT. He had been advised by a taxation officer in February 2002 that the VUT would only be subject to a 10 percent tax, and he was confused when he received the contrary private binding ruling in April 2005. It was also argued (in the material in Exhibit R1) that Mr Helbers had made an unprompted voluntary disclosure of the relevant facts involving the VUT before the audit commenced on 30 July 2007. In these circumstances, it was asserted that any administrative penalty imposed should be reduced by 80 percent, in accordance with s 284-225(2) and (3) of the TA Act.

26. Ms Loveband contended that there had been a false or misleading statement made by Mr Helbers resulting from the failure to include his early retirement pension allowance (VUT) in his income tax returns for the Relevant Years. He did this after having received a private binding ruling in writing from the respondent advising him that his pension allowance was assessable to income tax in Australia. By ignoring the private binding ruling and omitting this assessable income, a tax shortfall had arisen and this had been caused by Mr Helbers' failure to take reasonable care to comply with a taxation law.

27. As was said by the respondent in paragraph 29 of MT 2008/1, in determining whether Mr Helbers took reasonable care, it is necessary to evaluate all of the circumstances surrounding the making of the false or misleading statement. It seems to me that the relevant circumstances are the following:

28. In MT 2008/1, the respondent commented (at paragraph 42):

"There is no presumption that the existence of a shortfall amount caused by a false or misleading statement necessarily or automatically points to a failure to take reasonable care. The evidence must support the conclusion that the standard of care shown has fallen short of what would be reasonably expected in the circumstances. As noted by Hill and Hely JJ in
Hart v Federal Commissioner of Taxation 2003 ATC 4665(2003) 131 FCR 203; [2003] FCAFC 105; ; (2003) 53 ATR 371 at paragraph 44:

'… in the ordinary case, the mere fact that a tax return includes a deduction which is not allowable is not of itself sufficient to expose the taxpayer to a penalty. Negligence, at least must be established…'. "

29. In my view, the evidence does not support the conclusion that the standard of care shown by Mr Helbers in (or in relation to) the Relevant Years fell short of what would be reasonably expected in the circumstances. I conclude, therefore, that there was no failure to take reasonable care on the part of Mr Helbers and thus Item 3 in the Table in s 284-90(1) in Schedule 1 to the TA Act does not apply. As a result, Mr Helbers is not liable to an administrative penalty in the Relevant Years.

Decision

30. For the reasons above, the objection decisions under review are set aside.

 

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