Tribunal affirms 75% penalty and 20% uplift where taxpayer failed to report sales of residential apartments

In Subloo’s Investments Pty Ltd and Commissioner of Taxation [2012] AATA 703 the Tribunal affirmed the Commissioner’s decision to impose penalties of 75% plus an uplift of 20% because of the repetition of the conduct of the taxpayer in failing to report the sales of residential apartments.  In this case, the penalties almost equated to the GST shortfall.

For the first three tax periods in question, the applicant lodged activity statements claiming input tax credits but failed to record the sale of apartments during those periods, resulting in refunds being paid to the applicant.  For the remaining tax periods, the applicant failed to record any of the sales made. An audit by the ATO showed a GST shortfall of $534,018 and a shortfall penalty of $460,447.95 was made.  This was based on a base penalty of 75% (intentional disregard) and, except for the first month, the base penalty be increased by 20% because of the repetition of the conduct.

The applicant did not contest the GST shortfall, nor the characterisation of its conduct as intentional disregard.  The only issue was whether the penalties should be remitted.  The essential argument appeared to be that the applicant’s financier, without their consent, applied the GST component of the sales to reduce the mortgage debt rather than paying the GST and the project then got into financial difficulties.  The Tribunal found no basis for remission, essentially because the applicants chose not to account for GST for 18 months and chose not to contact the Commissioner to explain such difficulties that they may have been experiencing.

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