Decision impact statement
O'Brien v Commissioner of Taxation
Venue: Administrative Appeals Tribunal
Venue Reference No: QT2005/364-368
Judge Name: SC Fisher
Judgment date: 1 February 2008
Appeals on foot:
No
Impacted Advice
Relevant Rulings/Determinations:
Subject References:
Penalty tax where Part IVA applies
Remission of scheme penalty tax
Administrative penalty for schemes
Remission of administrative penalty
Précis
Outlines the Tax Office's response to this case which concerned whether scheme penalty tax otherwise payable should be remitted in full on the basis that the applicant's subjective purpose in entering into a Part IVA scheme was not to obtain a tax benefit.
Decision Outcome
Partially adverse
Brief summary of facts
The Commissioner concluded that in the 1997, 1998 and 1999 income years the applicant had obtained tax benefits, for the purposes of Part IVA of the Income Tax Assessment Act 1936 (ITAA 36), in respect of his participation in the Barkworth Olive Groves Project Number 1 and the Barkworth Olive Groves Project Number 2. The Commissioner made Part IVA determinations to cancel the tax benefits and amended the applicant's income tax assessments to give effect to the determinations. The Commissioner assessed penalty tax of 10% under subsection 227(1) of the ITAA 36 by reducing the penalty of 50% otherwise payable under section 226 (on the basis that it was not reasonably arguable that Part IVA did not apply) by 80% under section 226E (on the basis that the applicant had made a voluntary disclosure of the relevant scheme matters before audit).
Issues decided by the court or tribunal
The AAT found that Part IVA applied to cancel the tax benefits obtained by the applicant in connection with his participation in the Projects.
However, the AAT decided that the penalty tax imposed by section 226 and reduced by section 226E should be remitted in full under subsection 227(3). Notwithstanding that Part IVA applied, the AAT found that 'the evidence in this case does not indicate that the applicant participated in the scheme with the avowed purpose of tax avoidance. Subjectively, the applicant did wish to participate in an agricultural scheme that would harvest real products, albeit in a tax effective way.' (paragraph 160).
Tax Office view of Decision
The Commissioner did not appeal to the Federal Court from the penalty remission decision. The Tax Office accepts that the decision was based on the evidence before the AAT and considers that it is confined to the particular facts of the case. The Tax Office recognises that the decision is consistent with paragraph 2 of Taxation Ruling Taxation Ruling TR 94/7 that states that 'Each case should be decided on the basis of its own facts and circumstances.'
Administrative Treatment
Implications on current Public Rulings & Determinations
None
Implications on Law Administration Practice Statements
None
Court citation:
[2008] AATA 86
2008 ATC 10-002
71 ATR 251
Legislative References:
Income Tax Assessment Act 1936
226
226E
227