Decision impact statement
Johnston and Commissioner of Taxation
Venue: Administrative Appeals Tribunal
Venue Reference No: 2010/2740
Judge Name: Senior Member Frost
Judgment date: 20 January 2011
Appeals on foot:
No.
Impacted Advice
Relevant Rulings/Determinations:- N/A
Subject References:
Administrative penalty
Valid notice of intention to claim deduction for contribution to superannuation fund
Lack of reasonable care
Remission of penalty
Précis
Whether an administrative penalty for failing to provide a valid notice of intent to claim a superannuation contribution deduction was properly imposed and whether remission of the penalty was warranted.
Decision Outcome:
Partly adverse
Brief summary of facts
The taxpayer sold investment property and deposited the sale proceeds into his superannuation account with the intent that they would be tax-deductible contributions. The taxpayer failed to notify his superannuation fund of his intent to claim personal superannuation deductions in his income tax returns within the time limits prescribed in section 290-170 of the Income Tax Assessment Act 1997. The Commissioner disallowed the deductions and increased the taxpayer's taxable income applying an administrative penalty at the rate of 25% for 'lack of reasonable care'
This case initially concerned the deductibility of personal superannuation contributions in the income years ended 30 June 2007 and 2008, but was narrowed by consent to a dispute about penalty in relation to the 2008 income year.
Issues decided by the court or tribunal
• Whether an administrative penalty of 25% should be imposed for failure to take reasonable care to comply with a taxation law
The Tribunal considered that there was no failure on the part of the taxpayer to take reasonable care as he had acted in the honest but mistaken belief of entitlement to a tax deduction. However, the failure by the taxpayer's agent to make an enquiry as to whether the administrative requirements to support the claims for a deduction had been complied with by the taxpayer constituted a failure by the agent to take reasonable care to comply with a taxation law. The time limit set by s 290-170(1)(b) of the ITAA had been exceeded, because the paperwork had not been properly attended to by the taxpayer or the superannuation fund. Accordingly, the administrative penalty at the rate of 25% was properly imposed.
• Whether the penalty should be remitted
In the circumstances of this case, where the taxpayer's tax liability had increased by almost $40,000 as a result of the disallowed deduction, and the deduction had been denied due to a shortcoming in the paperwork, the Tribunal considered it would be harsh to impose a penalty of almost $10,000, and decided to remit the penalty in full.
The Tribunal commented that, having regard to the particular circumstances of this taxpayer, the penalty imposed does not achieve the purpose of encouraging compliance with the law and deterring non-compliance. Hence, there was no good purpose to be served by leaving the penalty in place.
Tax Office view of Decision
Although it was found that the penalty was correctly imposed, it was open to the Tribunal on the facts of the case to remit the penalty in full having regard to particular circumstances of the case.
Administrative Treatment
Implications on current Public Rulings & Determinations
None
Implications on Law Administration Practice Statements
None
Court citation:
[2011] AATA 20
(2011) 81 ATR 908
Legislative References:
Income Tax Assessment Act 1997
290-170
290-170(1)(b)
Taxation Administration Act 1953
284-75(1)
284-90(1)
298-20
Case References:
Dixon v Federal Commissioner of Taxation
(2008) 167 FCR 287
[2008] FCAFC 54
2008 ATC 20-015
69 ATR 627