Author Archives: chrissievers

Commissioner issues Decision Impact Statement for Qantas

Posted on by

On Friday the Commissioner issued his Decision Impact Statement for the decision of the High Court in Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41.

Some highlights from the Commissioner’s views in the statement include:

  1. The decision does not cause any significant change in the way the Commissioner approaches ‘supply’ or the nexus between supply and consideration.
  2. In cases where a payment is made on entry into a contract which secures rights (whether conditional or not) to a further supply, the Commissioner considers that the payment will be consideration for a supply consisting of at least the provision of those rights (and entry into the corresponding obligations), even if the further contemplated supply is not ultimately made
  3. There is nothing in the Qantas decision that would suggest that supplies need to be ‘dissected’ into their component parts, or that the focus of GST should be on contractual rights and obligations instead of performance.
  4. The Commissioner maintains the view, as recognised in his public rulings, that in many cases, the entry into contractual obligations and corresponding creation of rights should be construed, where relevant, as part of a composite supply that includes the performance of those obligations.

The views of the Commissioner in the Decision Impact Statement will likely cause much discussion.  For my part, I am not sure that matters 2, 3 and 4 sit comfortably together.

Tribunal finds that parties agreed in writing that a sale was of a going concern

Posted on by

On Friday the Tribunal handed down its decision in SDI Group Pty Ltd and Commissioner of Taxation [2012] AATA 763 where it found that the applicant (vendor) and the purchaser of commercial property had satisfied the requirement that the parties agree that the sale was a supply of the going concern, notwithstanding that no such agreement was provided for in the Contract of Sale.

The case is very much restricted to its facts, but the decision arguably conflicts with the Commissioner’s stated view in GSTR 2002/5 that the term “agreed in writing” in s 38-325 means “that the supplier and the recipient have made a mutual declaration in such form that clearly evidences that they agree that the supply…is a supply of a going concern”.  This is because there was nothing actually signed by the purchaser to the effect that the agreement was the supply of a going concern, and the Tribunal found that it in the particular circumstances certain “unilateral documents” under the hand of the vendor were sufficient.

The facts can be summarised as follows:

  • in December 2009 the applicant and the purchaser executed a contract of sale for the sale of commercial property. At the time there was a tenant of the property on a monthly lease – the contract was expressly subject to the lease.  The Contract did not refer to the property being a going concern.
  • After the contract was signed, there was a dispute between the parties as to whether the sale was a going concern due to there being a only a monthly lease only.
  • Prior to, or at settlement, the applicant provided the purchaser with a tax invoice which contained the words “NO GST (SOLD AS A GOING CONCERN)” and a Goods Statutory Declaration in which the Box was ticked “Yes” in answer to the question “Does the contract relate to the sale of a going concern?”

The Commissioner contended that the parties had not “agreed in writing” that the sale was the supply of a going concern, and that the tax invoice and Statutory Declaration were “unilateral documents”.

The Tribunal found in favour of the applicant on the basis that there was sufficient evidence that the applicant and purchaser agreed in writing that the supply involved a going concern – indeed the Tribunal found that the parties had “incorporated an agreement in writing that the supply involved a going concern”.  The requirement for the agreement to be “in writing” was satisfied by a combination of the contract of sale, the tax invoice and the Statutory Declaration.

The Commissioner’s concern appeared to be that the applicant could not point to a document evidencing an agreement in writing which was signed by the purchaser – the Commissioner accepts that such an agreement need not be found exclusively in the Contract of Sale. One way of looking at the Tribunal’s decision is that by the purchaser proceeding with settlement after receiving the tax invoice and the Statutory Declaration, that the purchaser, by conduct, agreed that the sale was of a going concern in accordance with those documents.  Such an agreement is arguably still an agreement “in writing”, as it is evidenced by the written terms of the tax invoice and the Statutory Declaration. It remains to be seen whether the Commissioner appeals the decision on the basis that an agreement will only be “in writing” where a document evidencing the agreement is executed by both parties.

PSLA issued on retaining GST refunds pending verification; Appeals update on “son of holdback” – Commissioner lodges Cross Appeal

Posted on by

In the wake of the Multiflex decision, Tax and Superannuation Laws Amendment Act (2012 Measures No.1) Act 2012 was introduced to amend the Taxation Administration Act 1953 to allow the Commissioner of Taxation to hold refunds for verification prior to payment.  Yesterday, the Commissioner published PSLA 2012/6 ‘Exercise of the Commissioner’s discretion under section 8AAZLGA of the Taxation Administration Act 1953 to retain an amount that would otherwise have to be refunded’.  The purpose of the practice statement is to provide guidance to tax officers on when it is reasonable to exercise the Commissioner’s discretion to delay a refund amount pending verification of the taxpayer’s entitlement to the amount.

An analysis of the practice statement will be posted next week.

Appeals update

In September the Tribunal handed down its decision in in AP Group Limited and Commissioner of Taxation [2012] AATA 617, finding that the taxpayer’s objection was partially allowed, on the basis that certain incentive payments were not consideration for a supply.  The Tribunal handed down its interim decision in July 2012, [2012] AATA 409.

The Federal Court portal shows that on 12 October 2012 the taxpayer lodged an appeal to the Federal Court.  Also, on 19 October 2012 the Commissioner lodged a cross-appeal.  Given both parties have appealed, it would appear that the Federal Court will have an opportunity to consider one of the fundamental planks of GST, namely whether payments are consideration for, or in connection with, a supply.

The matter has been set down for directions on 6 November 2012.  Because the decision was by two Deputy Presidents, the appeal can be heard by the Full Federal Court (rather than a single Judge) if considered appropriate. One would expect that this would likely be the case.

My post discussing the Tribunal’s decision can be accessed here.

International cases update – October 2012: analysis of three decisions with Australian implications

Posted on by

In October the following decisions dealing with VAT and GST were handed down in the UK and Canada.  From my research no decisions were handed down in New Zealand.

This month I have analysed three decisions, each of which has potential interest in the Australian context:

  • Whether a payment received under a Settlement Agreement in respect of the breach/termination of an agreement is taxable in Canada: Surrey City Centre Mall Ltd v The Queen 2012 TCC 346.  The Canadian legislation has a specific deeming provision which treats payments for the breach of an agreement to make a taxable supply to be consideration for that taxable supply.  Australia contains no such provision and whether such a payment is taxable depends on whether it is consideration “in connection with” a supply. Under the current view of the Commissioner in GSTR 2001/4, the payment would not appear to be subject to GST as it is in the nature of damages.  However, the recent decision of the High Court in Qantas gives cause to revisit the issue.  My analysis of the decision can be accessed here.
  • Whether the supply of “hot food” in UK is taxable or zero-rated: Sub One Limited T/A Subway v HMRC [2012] UKUT 34.  The Upper Tribunal found that the subjective test applied by the Courts since 1988 was contrary to EU law, which required that an objective test be applied.  This raises the question of whether the test to be applied in Australia is subjective or objective.  My analysis of the decision can be accessed here.
  • Whether the sale of goods sold online where a charge was imposed for postage involved the single supply of delivered goods (all taxable) or two supplies: Orchardcrown Ltd v Revenue & Customs [2012] UKFTT 608. The Tribunal applied the established principles in Card Protection Plan and found there was a single supply.  In light of the recent decision of the High Court in Qantas, this raises the question of whether that test will continue to be applied here.  My analysis of the decision can be accessed here.

United Kingdom

Upper Taxation Tribunal

  • HMRC v The Rank Group Plc [2012] 347 – whether imposing VAT on gaming machines a breach of the principle of fiscal neutrality
  • Sub One Limited T/A Subway v HMRC [2012] UKUT 34 – Value Added Tax – zero-rating – Value Added Tax Act 1994 Schedule 8 Part II Group 1 Note (3)(b)(i) – food – toasted sandwiches and meatball marinara – whether heated for the purposes of enabling it to be consumed at temperature above ambient air temperature – whether legislation and/or interpretation and/or application thereof infringed principle of fiscal neutrality – whether FTT findings irrational – application to adduce further evidence – for my case analysis click here

Tax Tribunal

  • Damazda International UK Ltd v Revenue & Customs [2012] UKFTT 615 – Value Added Tax Act 1994 sec 84(7B) &  Sch 11 para 6A – Directive 2006/112 Art 273 – Direction to keep records – scope of appeal jurisdiction – proportionality – risk of tax loss – appeal allowed
  • Isle of Wight Council v Revenue & Customs [2012] UKFTT 648 – Value Added Tax – Taxable person – Local authority – Provision of off-street car parking – Impact of exemption on relevant market – Distortion of competition – Whether local authorities taxable persons in respect of provision of such parking – Questions referred to ECJ for determination – Application of ruling of ECJ (Case C-288/07) – EC Council Directive 77/388, art 4(5) (now art 13 of Directive 2006/114)
  • Kandiah Skandamoorthy v Revenue & Customs [2012] UKFTT 638 – VATA 1994 s73 – incomplete records – assessment to ‘best of their judgment’ – whether all relevant evidence taken into account – prolonged delays by taxpayer – appeal dismissed
  • Orchardcrown Ltd v Revenue & Customs [2012] UKFTT 608 – VAT – output tax – supply of goods with charge for postage – whether a single supply – whether supplier acts as agent for customer in contracting with Royal Mail – Customs & Excise Commissioners v Plantiflor Ltd considered – single supply by appellant – no agency established – appeal dismissed
  • Pinevale Ltd v Revenue & Customs [2012] UKFTT 606 – Value Added Tax – Reduced rate supply – Energy saving materials – Insulation for roofs – Polycarbonate panels for conservatories – Panels supplied to create new roof – Panels supplied to replace existing panels – Radiation reflector strips installed in  existing panels – Whether energy saving materials comprising insulation for roofs – Appeal allowed

Canada

Tax Court

Commissioner outlines administrative treatment of GST refunds pending amendment of existing law

Posted on by

On 17 August 2012 the Assistant Treasurer released draft legislation for public consultation dealing with refunds of overpaid GST.  The amendments are intended to apply to tax periods commencing on or after the date of the announcement. Today the ATO published its proposed administrative treatment for GST refunds pending the enactment of the new legislation – the page of the ATO website can be accessed here.

The legislation repeals the discretion in s 105-65 of Schedule 1 to the TAA and introduces Division 36 into the GST Act which does not provide any discretion but simply provides when refunds will (and will not) be payable, which will allow taxpayers to self-assess their entitlements to refunds. My analysis of the proposed amendments can be accessed here.

The administrative procedure is as follows:

The ATO will apply the existing law and follow current procedure until the proposed law is enacted where taxpayers:

  • are required to write to the Commissioner to claim a refund of overpaid GST as a result of a mischaracterisation of a supply (for example a supply is treated as taxable but is actually GST-free), and
  • are not required to write to the Commissioner to claim a refund of overpaid GST as a result of a miscalculation of an amount of GST payable (for example, the amount of GST payable was incorrectly calculated on a taxable supply of real property using the margin scheme), and can instead self-assess their claim to a refund of overpaid GST.

After the new law is enacted, taxpayers will need to review their circumstances regarding their claims for refunds of overpaid GST made during the period between the date of the announcement and enactment.

If a taxpayer is required to seek amendments and the amendments result in an increase in their liability there will be no shortfall penalties or interest imposed where the amendments are made within 28 days after enactment.  Otherwise the full GIC will apply from the date of enactment.

If amendments reduce a taxpayer’s liability, appropriate interest on any overpayment will be paid.

 

Commissioner issues ATO ID on whether council rates are an “Australian tax” for the purposes of Division 81 of the GST Act

Posted on by

On Friday the Commissioner issued ATO ID 2012/87 ‘GST and Division 81 of the GST Act: whether payment of general rates imposed by local government is an ‘Australian tax” for Division 81 purposes.  The view of the Commissioner is that general rates are an “Australian tax” for the purposes of s 81-5(1) of the GST Act, so that general rates are not subject to GST.

An “Australian tax” is defined as a tax imposed under an ‘Australian law’, which is defined to be a law of the Commonwealth, State or Territory.  The power to charge rates is found in the Local Government Act (being a legislative act of State Parliament).  Further, the rates as a “tax” because they are “a compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered”: referring to Matthews v Chicory Marketing Board (Vict) (1938) 60 CLR 263 per Latham CJ.

The Commissioner also relied on the long-standing High Court decision in The Municipal Council of Sydney v The Commonwealth (1904) 1 CLR 208, where all three judges found that the municipal rates in question were taxes within the meaning of s 114 of the Constitution.

I note with interest that the Commissioner also refers to this decision in GSTR 2006/5 ‘GST: meaning of ‘Commonwealth, a State or a Territory’, where the Commissioner states as follows:

…all three judges found that the Council was the “State” for the purposes of s 114.  The power delegated to the Council, by State legislation, which allowed the Council to levy rates, was the determinative factor in that case.

Somewhat surprisingly, in that ruling the Commissioner contends that there is no general proposition that local governments are “State” for the purposes of s 114 of the Constitution, and that the legislation constituting a particular local government must be considered.  This contention is made notwithstanding the subsequent approval of The Municipal Council of Sydney by the High Court in Essendon v Criterion Theatres Pty Ltd (1947) 72 CLR 1 (per Latham CH at 13, Dixon J at 17, McTiernan J at 27), Deputy Federal Commissioner of Taxation v State Bank of NSW (1992) 174 CLR 219 (per the Court at 25), SGH Ltd v Commissioner of Taxation (2002) 210 CLR 51 (per Gummow J at [47]), Roy Morgan Research Pty Ltd v Commissioner of Taxation [2011] HCA 35 (per the six judge majority at [23]-[24]).

It is difficult to understand the basis for the Commissioner’s contention.  No examples are given where the legislation in question does not constitute local councils as “State”.  It is instructive to consider the following extract from the Court in Deputy Federal Commissioner of Taxation v State Bank of NSW (at [25]):

Indeed, the decision in The Municipal Council of Sydney v The Commonwealth is direct authority for the proposition that a corporation exercising governmental functions is “a State” for the purposes of s 114.  In that case the municipal council, a body corporate, which levied local government rates on property, was held to be the State and its rates were held to be a tax on property for the purposes of that section.

Given the above statement, for the Commissioner’s contention to succeed it would arguably need to be shown that the terms of the legislation constituting a local council were such that the local council was no longer exercising governmental functions.  This would include, presumably, the government function of levying rates on properly held by its constituents.  I am not aware of any of the various State Acts in question being drawn in such terms.

 

First anniversary – a year in review

Posted on by

Today marks the first anniversary of this site going live.

The past 12 months have been a busy time for GST in Australia.  We have seen a number of decisions by the Courts and Tribunals, significant legislative change and activity by the ATO.  Some of the highlights include:

  • one decision of the High Court (Qantas); two applications for special leave to appeal to the High Court by the Commissioner (Qantas – successful, Multiflex – unsuccessful); four decisions of the Full Federal Court – three in favour of the taxpayer (Unit Trend, Multiflex, Qantas) and one in favour of the Commissioner (MTAA Superannuation Fund), two decisions of the Federal Court (ECC Southbank, Yacoub), plus multiple decisions of the Tribunal
  • Legislative developments including: self assessment for GST from 1 July 2012; the Commissioner’s ability to retain refunds pending investigation (s 8AAZLG of Schedule 1 to the TAA); exposure draft for new GST refund provisions (proposed Division 36 of the GST Act)
  • The Commissioner has published four GST Rulings, eight GST Determinations, 12 ATO IDs dealing with GST issues, and around 600 private rulings dealing with GST issues have been published on the ATO’s Private Ruling Register

In my view, there will continue to be a lot of activity in the area of GST.  Some things to look forward to over the coming year include:

I would like to thank those people who have supported this site during the last year.  In the past year the site (and its various pages) has received in excess of 18,000 views and 130 people have signed up to receive updates by way of email.  These statistics appear to reflect the level of interest in GST in Australia and the continued activity in the area.

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

Posted on by

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.

GST Private Rulings published in September 2012 – focus on grants of financial assistance and GST refunds

Posted on by

In September 2012 the Commissioner published nearly 60 private rulings dealing with GST issues on the Private Rulings Register.  A list of the rulings can be accessed here.

This month I would like to focus on a private ruling made on the difficult issue of whether grants of financial assistance are consideration for taxable supplies and a private ruling made on the perennial issue of GST refunds.

Private ruling No. 1012140548318 – grants of financial assistance

This private ruling deals with the difficult issue of whether grants of financial assistance are consideration for taxable supplies.  The private ruling is interesting because it involves the application of the Commissioner’s views in GSTR 2012/2 ‘Goods and services tax: financial assistance payments which was published earlier this year.  My analysis of that ruling can be accessed here.

The facts of the private ruling were as follows.  The applicant (A) was registered for GST and under the terms of a deed, B made a grant to A for the approved purpose, being the design, construction, delivery and installation of an item to be used in a specified location.

Clause A provided the following conditions for the grant:

  • to use the grant only for the approved purpose
  • to store, maintain, transport, clean, erect and dismantle the item
  • to make the item available to authorised users
  • to maintain proper financial records in relation to the grant
  • to disclose the grant as a separate and identifiable item in your financial statements
  • to provide annual audited financial statements
  • to keep the other party informed on progress and provide other information as agreed

Clause B provided that A was required to publicly acknowledge the assistance of the grant from the other party

Clause C dealt with the possible repayment of the grant, at the option of the other party, if A failed to apply the grant for the approved purposes.

Clause D stated that the grant did not include GST, but B agreed that if GST was payable the additional amount for GST would be paid.

Having regard to GSTR 2012/2, the Commissioner concluded that, viewing the arrangement as a whole, A made a supply to B for consideration and GST was payable on the grant.  The basis for this conclusion is that the terms of the deed go beyond providing a grant to enable A to acquire the item, which on its own could result in a mere expectation only (and no supply).  The additional clauses (including the obligation to make the item available to authorised users and to store, maintain, transport, clean, erect and dismantle the item) evidence that there is more than a mere expectation.  Further, it is only be building the item that the express obligations to maintain them and make them available to users can be fulfilled.

In coming to this conclusion, the Commissioner referred to the following example in GSTR 2012/2 where it was considered no supply was made because there is a mere expectation:

  • A local tennis club is seeking funding to enable them to resurface their privately owned tennis courts.  The local council provides financial assistance to the tennis club on the basis that the money is only used for the resurfacing of the tennis courts.
  • The local council has an expectation that the works will be carried out.  However, as there is no binding obligation on the tennis club to actually carry out the resurfacing of the courts, and there are no other goods or services passing between the parties there is no supply to the local council

As discussed in my analysis of the Ruling, the reasoning behind this example appears to be that the agreement with the local tennis club is not binding and it creates expectations alone. This may be a simplification of the arrangement between the parties, which in my view would necessarily involve a binding agreement, including the following terms (whether express or implied):

  • the funds will be used for no other purpose than to resurfacing the tennis courts; and
  • the funds will be repaid if the funds were not used for that purpose

If not, the payment would simply be a gift and the tennis club would be free to spend the money as it saw fit, including retaining the money.

The justification for departing from this example in the private ruling appears to the presence of additional obligations on A. However, those obligations only come into effect if A actually uses the grant to acquire the item.  There are no obligations on A to actually acquire the item, and in this regard it is difficult to see how a distinction can properly be made with the example of the local tennis club.

What this private ruling does show is the difficulty of drawing a line between those arrangements which, while being enforceable legal arrangements, involve no supply because there is simply an expectation on a recipient of the funds to do something, and those arrangements where there is an obligation on the recipient to do something.

The recent decision of the High Court in Commissioner of Taxation v Qantas Airways Ltd [2012] HCA 41 may also raise difficulties with the Commissioner’s approach in GSTR 2012/2.  Where a party receives a grant in return for entering into a deed (and thereby entering into legal obligations), applying the reasoning of the majority (that the airline made a taxable supply upon entry into contractual obligations), it is difficult to see how there could not a be a taxable supply.

Private Ruling No. 101224509666 – GST refunds

The register shows that a number of private rulings were published on whether the Commissioner would exercise his discretion in s 105-65 of Schedule 1 to the TAA to refund overpaid GST.  This ruling is interesting because it deals with the difficult question of taxpayers having to reimburse recipients for the overpaid GST before being entitled to a refund of the GST (and thereby be exposed to the cash flow issues and also the risk of the Commissioner refusing to pay the refunds).

In this case, where the recipients were not registered nor required to be registered for GST, the applicant proposed the following arrangement because it claimed that it was not in a financial position to first reimburse its customers:

  • the applicant would send a letter to each recipient notifying them of their entitlement to a refund of GST, to which those recipients must respond within a specified time frame and also agree to being charged an administration fee, which would be offset against the refund entitlement
  • based on the response of the customers, the applicant could confirm the exact quantum of the GST refund to be claimed (i.e., the refund claim would equate to the claims made by recipients)
  • any refund paid by the Commissioner would be held in an audited trust account for the benefit of customers and the funds would be solely used to refund GST to customers (subject only to the administration fees)

The Commissioner denied to exercise the discretion to pay the refunds, for the following reasons:

  • the Commissioner will generally not exercise the discretion in cases where the supplier has not reimbursed the unregistered recipients a corresponding amount of the overpaid GST, unless there are countervailing reasons for doing so
  • the applicant has not presented any countervailing reasons why the discretion should be exercised – in citing cash flow reasons, the applicant has not demonstrated that its circumstances are exceptional or different to any other entity that may refer to receive a refund in advance.
  • if the Commissioner was to exercise the discretion, it would result in increased costs of administration for the Commissioner – he would need to take appropriate measures to ensure that all the terms of the arrangement were complied with both before and after the refund was paid, otherwise there was a risk that the refund would not be passed on to end consumers and this would result in a windfall gain to the applicant.

In denying the discretion, the Commissioner was clearly concern about setting a precedent.  As noted in the private ruling:

If the Commissioner were to exercise the discretion in your circumstances, then all future requests for similar arrangements would have to be considered accordingly.  The wording of the legislation, and the public ruling, indicate that this is not the scope or intention of the legislation.

The Commissioner was also clearly concerned about having to assume an administrative burden in ensuring that the refund was eventually paid to the recipients. In circumstances where the applicant has entered into legally binding arrangements to pay the refunds to customers, and the refunds are placed in a trust account solely for the benefit of those customers, whether the Commissioner should properly undertake this administrative burden may be doubted.

In any event, this private ruling shows that the Commissioner is taking a very strict approach to the requirement that the overpaid GST first be reimbursed to the customers before any refund is paid to the supplier.

Tribunal decision on GST and penalties

Posted on by

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.