Case S62

Judges: HP Stevens Ch
TJ McCarthy M

PM Roach M

Court:
No. 1 Board of Review

Judgment date: 19 July 1985.

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P.M. Roach (Member)

The taxpayers in these three references relating to the years of income ended 30 June 1981 and 1982 were a married couple and their adult son. The references were heard together by consent. The taxpayers were the only partners in the business of a supermarket and delicatessen which had commenced business in May 1980. The issues before us flowed out of a departmental investigation of the taxation affairs of the partnership conducted during 1983.

2. Following the departmental investigation assessments, which in all cases but one were

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ATC 452

amended assessments, were raised to reflect the circumstance that the investigation had established that the income of the partnership had been understated by reason of the following factors:

                                                         30 June

                                                 1981                   1982

                                                  $                      $

(a) Understatement of 
"
goods own use
"
             2,080                  2,283

(b) Rates and taxes (private) overclaimed           501                    541

(c) Outstanding cheques (previously claimed)      9,085                    -

                                                 ------                  -----

                                                 11,666                  2,824

Car depreciation and expenses (private)

overclaimed                                         381                    -

                                                -------                 ------

                                                $12,047                 $2,824

                                                -------                 ------
      

3. These undisputed understatements of partnership income were distributed equally resulting in the taxable income of each partner being increased in each year by $4,016 and $943 respectively. Further additional tax was levied against each parent in the sum of $788 and $231 respectively. The taxable income of the son being less than that of his parents, additional tax was levied against him in the sums of $750 and $160 respectively.

4. This factual situation is to be distinguished from that in
F.C. of T. v. Sahhar 85 ATC 4072 . There a partner taxpayer had claimed a deduction for his share of a partnership loss. The Full Federal Court held that sec. 226(2) did not apply in such a situation. But here the facts show that each taxpayer had ``omitted from his return... assessable income'' derived from the partnership. Accordingly, each taxpayer became liable to pay ``as additional tax an amount equal to double the difference between the tax properly payable by him and the tax that would be payable if it were assessed on the basis of the return furnished by him...'' (sec. 226(2)). Although the Commissioner's representative acknowledged that the Commissioner in exercising his discretion pursuant to sec. 226(3) to remit additional tax had based his calculations in relation to the year of income ended 30 June 1981 on the understatement not related to private motor vehicle usage, nonetheless the Commissioner was correct in contending in his reg. 35 statement in relation to the earlier year that the additional tax payable pursuant to sec. 226(2) was $2,570 each for both parents and $2,451 for the son. Additional tax was remitted by approximately 70% in each case.

5. At the hearing the taxpayers abandoned their objection in relation to the 1982 year and did not call for any review by the Board of the failure by the Commissioner to remit more than $636 for each parent and $442 (approximately 73% of sec. 226(2) additional tax) for the son. (In relation to the 1982 year the reg. 35 statement for the son says that additional tax was remitted from $867 to $160 but the former figure is inaccurate. The reduction was from $603 to $160 also approximately 73%.)

6. No concession such as the foregoing was made in relation to the comparable components of the understand income for the 1981 year. Instead the matter was argued almost as if additional tax had only been imposed in relation to an error attributable to the item described as ``outstanding cheques previously claimed'' and, further, as if because that error was alleged to be wholly attributable to the negligence of a former tax agent to the taxpayers, the additional tax should be further remitted, if not wholly remitted.

7. We were urged to treat the issue as one of principle and to lay down ``comprehensive

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ATC 453

guidelines''. In my view this is not an appropriate case to do so. The Boards of Review have the task from time to time of reviewing exercises of discretion by the Commissioner. In doing so each Board Member must exercise his own discretion. It is undersirable that Boards should fetter themselves for the future by unnecessary statements of ``guidelines''.

8. Although only the son gave evidence it was contended for all three taxpayers that they were personally unaware of the errors made in relation to the outstanding cheques. Although we only have the benefit of the evidence of the son I am prepared for the purposes of this decision to accept that that was so, although such a finding in relation to the parents would be difficult to make upon the evidence before us. It was contended that the Board should find that the error in relation to the cheques was wholly attributable to the ``negligence'' of the relevant tax agent. I decline to make any such finding against a person who has been unrepresented before us and who has not had an opportunity to answer the allegations made against him. I also observe that any expression of opinion that he was, or was not, negligent would serve no useful purpose in my view (
Hollington v. Hewthorne (1943) K.B. 587 ). It suffices to fairly deal with the objection of the taxpayers that I have found that there was no conscious error in this regard on the part of any of the taxpayers.

9. Accordingly the fact remains that there has been an omission of assessable income from the returns of the taxpayers which has been contributed to by a number of factors. As to the contributing factors other than the outstanding cheques, no evidence was called to explain those errors or to suggest that none of the taxpayers was responsible for them. On the other hand, no cross-examination and no submissions were directed to establishing that those other errors were more serious than the error relating to the cheques. I find that they were not more serious. I hold that one or more of the taxpayers must have been responsible for those other errors. At the same time I recognise that two of the partners may thereby have become liable to additional tax in that regard only because they relied on the third partner. (The consequences for them are not significantly different from a situation in which they might have relied on a third partner to set shelf prices, only to learn to their detriment that he had under-estimated cost price). But taxpayers are not to be excused from compliance with the requirements of the Act because they have misplaced their confidence. The responsibility to lodge accurate returns is personal to each taxpayer. It cannot be avoided by delegating performance of that responsibility to a spouse; a child; a partner; or a tax agent.

10. The error of understanding partnership income having been made in each return, the taxpayers are each personally answerable for it. The Parliament has determined that each is to be liable to pay 200% of tax avoided, unless the Commissioner in his discretion otherwise determines. The Commissioner has exercised his discretion and remitted approximately 70% of the additional tax in relation to each taxpayer in the first year; and slightly more in the second year. Having found that there is no basis in the evidence before us to remit more liberally by reason of one error than another, and having regard to the fact that it is not contended for the taxpayers that the remissions are inadequate in either year except in relation to the error attributed to a non-partner, I agree with my colleagues and uphold the determinations of the Commissioner.

Claims disallowed