Decision impact statement

O'Brien and Commissioner of Taxation

Venue: Administrative Appeals Tribunal
Venue Reference No: 2010/2110-2113
Judge Name: Presiding: Mr S E Frost, Senior Member
Judgment date: 14 March 2011
Appeals on foot: No.
Decision Outcome: Partly Adverse

Impacted Advice

Relevant Rulings/Determinations:

• N/A

Subject References:
grants and benefits
fuel tax credits
record keeping requirements
destruction of records
administrative penalties
failure to take reasonable care

Précis

Outlines the ATO response to the Tribunal's decision about substantiation of claims for energy grants and fuel tax credits.

Brief summary of facts

A partnership carried on a business in the road transport industry. Its enterprise involves collecting and delivering scrap metal and other scrap material for recycling, as well as transporting livestock.

In respect of the period 1 November 2004 to 30 June 2006, the partnership claimed and was paid "EGCS benefits", being energy grants entitlements relevantly governed by the Energy Grants (Credits) Scheme Act 2003 ("EGCS Act") and the Products Grants and Benefits Administration Act 2000 ("PGBA Act") (the earlier scheme).

For the period 1 July 2006 to 31 December 2008, the partnership claimed and was paid "Fuel Tax Credits" under the Fuel Tax Act 2006 ("Fuel Tax Act"). Part of this amount was paid to the partnership in the form of early payments of fuel tax credits under the transitional arrangements set out in Part 4A of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (the later scheme).

The Commissioner conducted an audit in July 2009, requesting documentation substantiating the claims for over $100,000 and requested the documentation again on 31 August 2009. Having had no response from the partnership, in November 2009, the relevant Business Activity Statements (BASs) were amended and notices of amended assessment were issued because, given the lack of records, the Commissioner was not satisfied that the partnership was entitled to make the claims it had made.

On objection, the taxpayer provided certain documents, some of which were acceptable as substantiation to the claims made by the partnership.

The taxpayer had stored the missing records in a shed at his home, where they were destroyed by rodents. The taxpayer had also kept a book in which he noted the purchases of fuel. This fuel book was lost when it was left at a service station.

The taxpayer then applied for, and was granted, an extension of time for lodging an application for review of decision to the Administrative Appeals Tribunal.

During the course of the AAT review, the taxpayer provided additional documents, most of them being original tax invoices/receipts for fuel purchases. The Commissioner accepted most of them as sufficient substantiation for the claims made by the partnership to which those records related. However, there were still claims that were unsubstantiated.

Issues decided by the tribunal

In relation to the claims under the earlier scheme, section 28(3) of the PGBA Act allowed entitlement to a grant or benefit to be unaffected by failing to retain or produce the original record if the record had been lost or destroyed and the Commissioner was satisfied that reasonable precautions to prevent the loss or destruction were taken. The Tribunal decided that: 'To store documents in a place where they are vulnerable to destruction by rodents is not to take reasonable precautions to prevent the loss or destruction.' In relation to the fuel book, the Tribunal decided that as it was not a primary record it was not within the category of records covered by section 28(3).

In relation to the claims under the later scheme, after the Commissioner had accepted the further substantiation from the additional documents, the Tribunal agreed with the Commissioner that the taxpayer failed to substantiate the rest of its claims. The Tribunal considered that it "would be an exercise in guesswork with no evidentiary basis to support it" if the Tribunal were to allow the claims to any greater extent.

The Tribunal also agreed with the Commissioner that there is no ground to remit any penalty, other than reducing it as a consequence of a reduction in shortfall amount arising from the partial substantiation of the claims from the additional documents. Applying the decision of the Full Court of the Federal Court in Dixon v Federal Commissioner of Taxation [2008] FCAFC 54; (2008) 167 FCR 287, the Tribunal had regard to the particular circumstances of the taxpayer and took the view that the application of the penalty here 'is no harsher for this taxpayer than could be expected of the penalty provisions, operating in a routine fashion, and as intended by the Parliament'.

Tax Office view of Decision

The Tribunal's decision confirms the view of the Commissioner that every business should have a system appropriately maintained to keep records as required by legislation.

Failure in keeping proper business records will attract penalty which may not be remitted unless harshness can be demonstrated having regard to the particular circumstances of the taxpayer.

Administrative Treatment

The Tribunal's decision confirms the ATO view of the administration of the record keeping provisions and where a failure to comply with the provisions has resulted, penalties may apply. No further action is necessary.

Implications for ATO precedential documents (Public Rulings & Determinations etc)

None identified.

Implications on Law Administration Practice Statements

None identified.

Court citation:
[2011] AATA 164
82 ATR 734

Legislative References:
Energy Grants (Credits) Scheme Act 2003
42

Fuel Tax Act 2006
41-5

Product Grants and Benefits Administration Act 2000
25
26
27
28(3)

Taxation Administration Act 1953
14ZZK
298-20
382-5
Div 284

Case References:
Dixon v Federal Commissioner of Taxation
[2008] FCAFC 54
(2008) 167 FCR 287
2008 ATC 20-015
69 ATR 627