Tribunal decision on GST and penalties

Yesterday the Tribunal handed down its decision in Hirezi and Ors and Commissioner of Taxation [2012] AATA 688 where it affirmed the Commissioner’s decision to impose penalties in respect of the applicant’s GST shortfall.  The applicant unsuccessfully contended that he was blameless in the management of his affairs and that he was a victim of his tax agent who was incompetent.

The applicant was a member of a partnership which developed an industrial estate for sale.  The partnership did not correctly account for GST on the lots sold and there was no dispute that there was a GST shortfall.  The Commissioner imposed penalties at 50% (on the basis of reckless conduct) but remitted that penalty to 25% because of the applicant’s good compliance record.  The applicant contended that the penalty should have been imposed at a lower rate and also remitted further.

The Tribunal found that the applicant’s argument on the imposition of the penalty could not succeed.  There was clearly a basis for a finding of reckless conduct by the tax agent.

The Tribunal also found that the penalties should not be remitted further. The applicant argued as follows:

  • the applicant was essentially blameless for what occurred and it would be harsh to make them responsible for the consequences of their tax agent’s failings; and
  • even if the Commissioner was not inclined to provide relief for taxpayers from the sins of their agents in the ordinary course, it would be harsh to take that approach in this case because the agent was uninsured and had few assets to satisfy a judgment.

The Tribunal accepted that the applicant was not aware of any of the mismanagement by his tax agent and was not being wilfully blind to what was going on.  However, the Tribunal was not satisfied that the applicant was blameless – this is because he signed whatever was put in front of him without asking some basic questions about what he was signing.  Accordingly, the applicant did contribute, albeit in a small way, to his own misfortune.

Interestingly, the Tribunal found that remittal of penalty might be considered where it served no purpose to visit a penalty on the taxpayer – referring to a recent decision of the Tribunal in Johnson and Commissioner of Taxation [2011] AATA 20. The Commissioner did not concede that it was generally appropriate to remit a penalty where the taxpayer is blameless in the face of an incompetent tax agent. Those considerations did not apply here as the applicant did contribute to events and there would be a purpose in the penalty as it would reflect the applicant’s failure to be more diligent in his dealings with his tax agent.

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