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13 Oct 14 Decision Impact Statement - The Taxpayers

The ATO has published a Decision Impact Statement in relation to the decision of the AAT in The Taxpayers and FCT [2014] AATA 572.

The case concerned audit adjustments made in relation to GST payable, superannuation and interest deductions claimed, deemed dividends and undeclared income.

One of the applicants was the sole shareholder and director of the other two applicants, the second of which was incorporated to act as the manager of a low cost government loan program. The applicants argued that the second company served as an agent of the first company. The Commissioner did not accept this proposition. All three applicants were subject to an audit with respect to their Business Activity Statements and Income Tax Returns.

As a result of the audit, the Commissioner: disallowed deductions claimed by the companies for superannuation and interest expenses; increased the remuneration received by the first company from government agencies; included deemed dividends in the income of the individual taxpayer; and imposed penalty at the rate of 75% for intentional disregard (a 20% uplift factor was applied to the penalty for obstructing the Commissioner during course of the audit).

The AAT found for the taxpayer on some but not all of the issues in dispute. However, the AAT reduced all penalties to nil, finding, amongst other things, that the facts did not support a penalty uplift - the taxpayers did not seek to, nor did in fact, prevent or obstruct the audit process in the sense of impeding it taking its course.

The ATO view of the decision is stated to be as follows:

"The ATO accepts that the decision on income tax and GST was reasonably open to the Tribunal on the facts as found.

It is not clear whether the Tribunal's decision to reduce all of the penalties imposed under section 284-75 of Schedule 1 to the Taxation Administration Act 1953 to nil was influenced by the conclusion that there was no loss to the revenue (see paragraph [243]). However, the Commissioner would note that the Full Federal Court in Dixon v FCT (2008) 167 FCR 287, at [19] to [21], made it clear that absence of loss of revenue is not a relevant consideration in relation to the exercise of the discretion to remit a penalty for a false statement.

The Commissioner would also note that the Full Federal Court in Sanctuary Lakes Pty Ltd v FCT [2013] FCAFC 50, at [247] to [249], said that the correct question when remitting a penalty for a false statement is not expressed in terms of 'harshness', but rather as to whether the decision maker is satisfied, having regards to a taxpayer's particular circumstances, that it is appropriate to remit the penalty."


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