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25 Nov 13 Decision Impact Statement - Sanctuary Lakes Pty Ltd

The ATO has published a Decision Impact Statement in relation to the decision of the Full Court of the Federal Court in Sanctuary Lakes Pty Ltd v FCT [2013] FCAFC 50; 2013 ATC 20-395.

On 8 November 2013, the High Court (Crennan and Bell JJ) refused special leave to the taxpayer to appeal to the High Court from the decision of the Full Court - see [2013] HCA Trans 273.

The case concerned whether the taxpayer was entitled to various deductions and whether related penalties were properly imposed and remitted.

Before the AAT, the AAT held that the deductions were not allowable. The AAT also decided that the various tax shortfalls resulted from a failure by the taxpayer or its agent to take reasonable care. However, the AAT decided to fully remit the penalty payable in relation to one of the issues in dispute, on the basis that the taxpayer had a Reasonably Arguable Position ("RAP") on the issue.

Both parties appealed to the Federal Court from the decision of the AAT. In his appeal, the Commissioner argued that the basis of the AAT's decision to remit penalty payable was inconsistent with the decision of the Court in FC of T v Traviati [2012] FCA 546. The Full Federal Court dismissed both appeals.

In relation to the penalty issues, the Full Court (agreeing with Traviati ) rejected the taxpayer's argument that it necessarily follows that the taxpayer and its agent must have taken reasonable care if it had a RAP. As having a RAP and taking reasonable care are independent statutory standards, there is no reason to suppose that the application of the reasonable care test must include a consideration of whether a taxpayer has a RAP.

The Full Court also dismissed the Commissioner's appeal. In disagreeing with the view expressed in Traviati , the Court held that the AAT did not take into account an irrelevant consideration when, in exercising its discretion to remit penalty under s 298-20 of Schedule 1 to the Taxation Administration Act 1953, it took into account the fact that the taxpayer had a RAP on the deduction issue in dispute.
 
The ATO states that it will amend paragraph 17 of PS LA 2011/30 to ensure consistency with the comments of the Full Court on the question to be determined under s 298-20.


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