Decision impact statement

Finerty v Deputy Commissioner of Taxation

Venue: Federal Court of Australia
Venue Reference No: QUD 289 of 2007
Judge Name: Spender J
Judgment date: 23 July 2008
Appeals on foot:
No.

Impacted Advice

Relevant Rulings/Determinations:

• None.

Impacted Practice Statements:

• None.

Subject References:
Default Assessments
Onus of Proof
Tax Shortfall Penalty

Précis

Outlines the Tax Office's response to this case which concerns, inter alia, whether tax shortfall penalty under Part VII of the Income Tax Assessment Act 1936 applies in respect of default assessments.

Decision Outcome:

Partly Adverse

Relevant Rulings/Determinations:

Nil

Brief summary of facts

Income tax

The applicant was the sole director and shareholder of two resident Australian companies. During the years ended 30 June 2000 to 30 June 2003 inclusive the applicant failed to lodge taxation returns. On 12 May 2004, the Commissioner requested the applicant to lodge returns but the applicant failed to do so. On 17 November 2004, the Commissioner raised default assessments pursuant to section 167 of the Income Tax Assessment Act 1936 (ITAA 1936).

Penalty

For the years ended 30 June 2001 to 30 June 2003 inclusive, the penalty for failure to lodge was imposed under subsection 284-75(3) of Schedule 1 of the Taxation Administration Act 1953 (TAA 1953).

For the year ended 30 June 2000, penalty was imposed in respect of a tax shortfall pursuant to section 226J of the ITAA 1936.

These penalty notices were raised on 22 November 2004.

Objection Decision

The applicant objected to the assessments on 9 March 2007. The Commissioner made a request to the applicant for information in support of the objection on 17 May 2007 but no response was forthcoming. On 10 July 2007 the Commissioner disallowed the objection.

The applicant filed an application for review on 7 September 2007.

Issues decided by the court or tribunal

The day prior to the hearing the applicant contacted the court and the Commissioner seeking to vacate the hearing dates. The court determined that it would not grant the applicant's request on the basis of the continual failure by the applicant to comply with any court directions and relying on State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146. Further, it was held that on the evidence provided by the applicant "there is nothing to indicate that that aim [provision of evidence] is achievable. Rather, it is the hope or expectation that that would be the result of going through the documents."

The applicant had failed to discharge the onus of proof required pursuant to section 14ZZO of the TAA 1953 that the assessments were excessive.

The Court affirmed the objection decision in respect of the assessments of income tax and penalty pursuant to subsection 284-75(3) of Schedule 1 of the TAA 1953, namely for the years ended 30 June 2001 to 30 June 2003 inclusive. However, the Court set aside the objection decision to the extent it pertained to tax shortfall penalty for the year ended 30 June 2000 which was conceded as improperly imposed by the Commissioner.

Tax Office view of Decision

The tax shortfall penalty was imposed in error for the year ended 30 June 2000. At the hearing, the Commissioner made submissions to this effect and the decision of the Court was consistent with those submissions.

Administrative Treatment

Implications on current Public Rulings & Determinations

Nil

Implications on Law Administration Practice Statements

None

Court citation:
[2008] FCA 1136
73 ATR 319

Legislative References:
Taxation Adminstration Act 1953
14ZZO
284-75(3)

Income Tax Assessment Act 1936
226J

Case References:
State of Queensland v JL Holdings Pty Ltd
[1997] HCA 1
189 CLR 146
141 ALR 353