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The AAT has set aside the Commissioner's imposition of a failure to take reasonable care penalty of 25% of a taxpayer's tax shortfall (remitted by the Commissioner to 5% because the taxpayer made voluntary disclosures).

The taxpayer participated in two retirement village projects of a kind considered by the Full Federal Court in FCT v Malouf [2009] FCAFC 44; (2009) 174 FCR 581. In that case, the Full Federal Court allowed the Commissioner's appeal from the decision of a single judge of the Federal Court, who had held that the taxpayer concerned (Malouf) was entitled to the deductions claimed.

In the present case, the Commissioner argued that the reasonable care and reasonably arguable position tests are separate tests and that he was entitled to impose a penalty for failure to take reasonable care, notwhithstanding that the taxpayer may have had a reasonably arguable position (based on the finding of the single judge in Malouf). This argument was rejected by the AAT.

The AAT said at paras 19-20 as follows:

"...the conclusion is that:
(a) the reasonably arguable position test is a higher standard to meet than the reasonable care standard; and
(b) if a taxpayer has adopted such a reasonably arguable position the reasonable care standard should be accepted as having been met...

That outcome is consistent with the remarks in the Second Reading Speech referred to above, that if a taxpayer comes to a conclusion that is reasonable then there should not be any penalty. Coming to the same conclusion as a judge of the Federal Court, albeit one reversed on appeal, cannot be said to be an unreasonable conclusion."

Traviati and FCT [2011] AATA 478 (8 July 2011).


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