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A taxpayer who claimed credits for tax withheld in income years when there was in fact no tax withheld has had his penalty reduced on the basis that the shortfall amounts resulted from recklessness but not from intentional disregard of a taxation law.

In February 1996 the taxpayer’s employer purported to terminate his employment, although the taxpayer maintained at the time, and continued to maintain, that there was no lawful termination of his employment in 1996. Nevertheless, in March 1996 the employer made a termination payment from which tax was withheld, and in August 1998 the taxpayer received an amount from his superannuation fund, calculated as a gross amount less tax withheld.

The taxpayer took the view that the payments, although received in 1996 and 1998, did not need to be declared as assessable income in the corresponding tax years. They were, in his view, properly characterised as compensation receipts, capable of apportionment over later income years and assessable to him only in those years. He also chose to claim the amounts withheld from the payments made in 1996 and 1998 as credits towards the tax that would be calculated as payable on the income that he would declare in the later years.

The Tribunal decided that statements made in the taxpayer’s tax returns in later years, in which he claimed credits for amounts allegedly withheld in those years, were false and misleading in a material particular. However, although the shortfall amounts resulted from recklessness on the taxpayer’s part, they did not result from intentional disregard of a taxation law. The penalty imposed by the Commissioner should be reduced accordingly.

Re the Research Scientist and FCT [2014] AATA 242 (S E Frost DP, 28 April 2014).

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