Ohl and Anor and Commissioner of Taxation [2012] AATA 3 (5 January 2012)

Last Updated: 16 January 2012

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2012] AATA 3

ADMINISTRATIVE APPEALS TRIBUNAL )

) Nos 2010/3737 &

TAXATION APPEALS DIVISION		) 2010/5022
	Re		NORMAN OHL ACN 104 950 156 PTY LTD

Applicants

And

COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal

Ms A F Cunningham (Senior Member)

Date 5 January 2012

Place Hobart

Decision

The decisions under review are affirmed.

[Sgd Ms A F Cunningham]
Senior Member

CATCHWORDS

TAXATION – failure to lodge income tax returns – default assessments issued by Commissioner - imposition of administrative penalties – discretion to remit in whole or in part – applicants failed to discharge burden of proof – no factors to justify exercise of discretion – decisions under review affirmed

Corporations Act 2001

Administrative Appeals Tribunal Act 1975, s 35

Income Tax Assessment Act 1936, s 167

Tax Assessment Act 1953, ss 284-73(3), 284-75(3), 284-90, 298-20 of Schedule 1, 14ZZK

Dixon v Federal Commissioner of Taxation [2008] FCAFC 54

REASONS FOR DECISION

5 January 2012

Ms A F Cunningham (Senior Member)

1. These were appeals against decisions of the Commissioner of Taxation to issue Notices of Assessment of penalty for failure to provide income tax returns for the year ended 30 June 2005. The appeals were consolidated and heard together.
2. The applicant, Norman Ohl, is an individual and the beneficiary of the Ohl Family Trust. An extract from the ASIC database indicates that Mr Norman Ohl is entitled to a share of the income of the Ohl Family Trust for the year ended 30 June 2005. The applicant, CAN 104 950 156 Pty Ltd (hereinafter referred to as the Company) is an entity incorporated under the Corporations Act 2001 and is a beneficiary of the Ohl Family Trust. An extract from the Australian Securities Investment Commission (ASIC) database dated 12 January 2010 indicates that the company was incorporated on 2 June 2003 and Mr Norman Ohl was subsequently appointed sole director and secretary. Two ordinary shares were issued with Mr Norman Ohl and Mrs Caroline Ohl each holding one ordinary fully paid share.
3. In Mr Ohl’s application for review he contends that the penalties levied by the Commissioner of Taxation for each of the years ended 30 June 2005, 30 June 2006 and 30 June 2007 are excessive and should be remitted to nil or alternatively to a lesser amount. The application filed by the Company contends that the Commissioner of Taxation erred in not remitting all of part of the administrative penalties imposed for each of the years ended 30 June 2005 and 30 June 2006. At the commencement of the hearing the Tribunal was informed that only the administrative penalties levied with respect to the applicants’ failures to lodge income tax returns for the year ended 30 June 2005 remain in dispute.
4. The applicants were presented by Mr Richard Zawadzki. Mr Norman Ohl gave oral evidence and tendered a written statement. The respondent was represented by Mr Tim Cox. Bernadette Anne Stewart, an officer employed in the Australian Taxation Office (ATO) gave oral evidence before the Tribunal. Her written statement was tendered in evidence. The T Documents were tendered in evidence pursuant to section 35 of the Administrative Appeals Tribunal Act 1975.

BACKGROUND

5. The following backgrounds facts were not in dispute.
6. Upon the applicants’ failure to lodge income tax returns for the income year ended 30 June 2005, the Commissioner of Taxation proceeded to raise default assessments pursuant to section 167 of the Income Tax Assessment Act 1936 (ITAA 1936). A notice of assessment for the year ended 30 June 2005 against the applicant Norman Ohl was issued on 6 February 2008 for the amount of $13,497.00. A Notice of Assessment for the applicant company ACN was issued on 13 February 2008 for an amount of $86,760.00.
7. On 26 March 2008 the Commissioner issued Notices of Assessment of penalty for failure to provide income tax returns for the year ended 30 June 2005 pursuant to section 284-73(3) in Schedule 1 to the Tax Assessment Act 1953 (TAA 1953). The penalties were imposed at the base rate of 75% of the income tax payable for the year ended 30 June 2005 in accordance with Item 7 of section 284-90 in Schedule 1 to the TAA 1953. The administrative penalty imposed against Mr Ohl was in the amount of $10,535.25 and against the Company in the amount of $65,070.20.
8. Both applicants lodged objections to the income tax assessments for the year ended 30 June 2005 but initially not the associated penalties in respect of that year of income.
9. On 28 July 2008 the applicants lodged income tax returns for the year ended 30 June 2005 with the Commissioner. Further information was provided by the applicants by letters dated 28 October 2008 and 5 December 2008 in respect of the Ohl Family Trust.
10. The applicants objections were disallowed in full and the applicants appealed against the Commissioner’s objection decision.
11. The applicants’ appeals against the income tax assessments for the year ended 30 June 2005 were stayed pending objections against the Commissioner’s decision in respect of the associated administrative penalties for that year of income.
12. By letter dated 9 September 2010, the Commissioner disallowed in full the applicant’s objections in respect of the administrative penalties. The applicants appealed the Commissioner’s objection decisions to the Administrative Appeals Tribunal.
13. The applicants have subsequently withdrawn their objections to the income tax assessments for the year ended 30 June 2005.

LEGISLATION

14. The applicants do not dispute that they are liable for administrative penalties pursuant to section 284-75(3) of Schedule 1 to the TAA 1953 which provides:

“(3) You are liable to an administrative penalty if:
(a) you fail to give a return, notice or other document to the Commissioner by the day it is required to be given; and
(b) that document is necessary for the Commissioner to determine a tax-related liability of yours accurately; and
(c) the Commissioner determines the tax-related liability without the assistance of that document”.

15. The issue for the Tribunal to determine is whether a discretion should be exercised to remit the penalties either in full or in part under section 298-20 of Schedule 1 to the TAA 1953 which provides:

“Remission of Penalty
(1) The Commissioner may remit all or a part of the penalty.
(2) If the Commissioner decides:
(a) Not to remit the penalty; or
(b) to remit only part of the penalty
The Commissioner must give written notice of the decision and the reasons for the decision to the entity”.

16. Also of relevance is section 14ZZK of the TAA 1953 which provides:

“Grounds of objections and burden of proof
On an application for review of a reviewable objection decision:
(a) the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b) the applicant has the burden of proving that:
...
(iii) in any other case – the taxation decision concerned should not have been made or should have been made differently”.

DISCUSSION

17. Mr Ohl contends that he was unable to lodge the Ohl Family Trust income tax return for the year ended 30 June 2005 because he was denied access to the Trust’s accounting records by Mr Dean Demeyer, his former accountant. He claims that he was consequentially unable to lodge his personal income tax return for the year. It is the Company’s contention that the lodgement of its income tax return for the year ended 30 June 2005 was consequential upon the lodgement of the Ohl Family Trust income tax return for that year.
18. The TAA provides no guidance as the circumstances in which a penalty should be remitted. The ATO has issued Practice Statement Law Administration Guidelines and the Tribunal was referred to relevant case law that has considered the issue.
19. The Full Court in its decision Dixon v Federal Commissioner of Taxation [2008] FCAFC 54 stated that there is nothing in the legislation to suggest that special circumstances must be established before the discretion to remit a penalty can be exercised. Whilst the appeal against Collier J’s decision was allowed in part, the Court did not disturb the list of considerations outlined by Her Honour as being relevant to the exercise of the discretion to remit. They were summarised at paragraph 18 of the Full Court’s decision. Those relevant to the current case can be identified as follows:

(a) The penalty imposed in accordance with section 284-90 Item 2 is imposed automatically and the discretion to remit the penalty is made after the full penalty is imposed

(b) The clear intention of the legislation is to impose a uniform rate of penalty that allows the exercise of the discretion in order to mitigate the effects of the penalty in appropriate circumstances

(c) In exercising leniency there can be no limit to the circumstances to which regard must be had

(d) The conduct of the tax payer is relevant with the most severe penalties reserved for tax payers who intentionally disregard taxation law and fail to give returns, notices or other documents, necessary for the Commissioner to determine tax-related liability accurately

(e) The particular circumstances and compliance history of the tax payer are of key importance.

(f) The following factors identified in the Explanatory Memorandum 2000 are relevant:

• treating tax payers in like circumstances consistently
• considering a tax payers particular circumstances and compliance history
• tailoring the penalties to secure improvements in compliance behaviour.

THE EVIDENCE

20. In Mr Ohl’s witness statement dated 16 February 2011 tendered in evidence, he stated that he was first contacted by Mr Roger Undy of the ATO in mid- 2006 regarding lodgement of the income tax return of the Ohl Family Trust for the year ended 30 June 2005. He claims that all documents required to complete the income tax return which included bank statements, cheque butts and detailed Quickbook electronic accounting information, had been submitted to the former accountant for the Ohl Family Trust, Mr Dean Demeyer.
21. Mr Ohl described his relationship with Mr Demeyer at the time as less than amicable with civil proceedings ongoing. On the recommendation of a friend he appointed the accounting firm, Wise Lord and Ferguson (WLF) to prepare financial accounts and income tax returns for the Trust. Mr Ohl states that in March 2007 he was advised by WLF that they were unable to include the family group on their tax agent list until the 2005 tax returns were lodged. Mr Ohl states that over the course of the next year WLF was unsuccessful in obtaining any accounting information or documentation from Mr Demeyer about the Ohl Family Trust and related entities. Mr Demeyer refused to deliver any of the Trust accounting records either to WLF or Mr Ohl.
22. At paragraph 13 of his statement Mr Ohl states:

“During this period of time I was in constant contact with Mr Undy informing him of progress (or lack thereof) in obtaining documentation required to complete outstanding tax returns”.

23. Mr Ohl said that out of frustration he approached a friend, Mr Richard Zawadzki in 2008. However in the meantime the ATO had lodged default tax returns for the financial years ending 2005, 2006 and 2007. Mr Zawadzki subsequently prepared accounts and income tax returns based on information made available to him and lodged appeals on behalf of the Ohl Family Trust beneficiaries.
24. In his oral evidence to the Tribunal Mr Ohl stated that the Family Trust’s fulltime book keeper provided accounting documentation to Mr Demeyer at the end of each month for the purpose of lodgement of his tax returns. Under cross-examination Mr Ohl stated that he had assumed that Mr Demeyer had lodged the 2005 Tax Return with the ATO from the information that he had received. When asked whether he had recalled signing a copy of his 2005 Tax Return for lodgement, he replied that he presumed Mr Demeyer had forged his signature as he had done on previous occasions.
25. Mr Ohl had not stated either in his written witness statement or in his evidence in chief, that he had assumed Mr Demeyer had already prepared his 2005 Tax Return. The Tribunal does not accept his evidence in this regard. He does not claim to have stated this to Mr Undy when he contacted Mr Ohl about his failure to lodge his 2005 Tax Return. In any event his assumption that Mr Demeyer had lodged his 2005 Tax Return, even it was to be believed, does not absolve Mr Ohl of his responsibility to do so.
26. Nor does the Tribunal accept Mr Ohl’s oral evidence that he was unable to have his tax return prepared and lodged due to a break-in at his offices. This explanation was not referred to in his written witness statement nor was it mentioned during his oral evidence in chief. Mr Ohl conceded during cross-examination that despite the break-in to his office, he would still have had access to bank statements held by the bank, cheque butts and the Quickbook accounting records. Even if the evidence of the break-in was plausible, the Tribunal does not accept that for this reason Mr Ohl was prevented from lodging his 2005 Tax Return.
27. In paragraph 13 of his witness statement, Mr Ohl states that “during this time”, which presumably relates to the year following March 2007, that he was in constant contact with Mr Undy of the ATO. In his evidence in chief he said that he spoke to Mr Undy probably twice a month for a number of months usually about getting access to documentation from Mr Demeyer. Under cross examination he agreed that he was “probably not” in contact with Mr Undy in 2007. He maintained however that other people had telephoned him from the ATO in Townsville, South Australia and Launceston. His evidence regarding the content of those telephone calls was confusing and evasive and it appears to the Tribunal that the enquiries were regarding outstanding GST issues rather than the lodgement of Mr Ohl’s overdue 2005 Taxation Return.
28. The evidence from Ms Bernadette Stewart was that the ATO records do not reveal any contact between Mr Ohl and Mr Undy from 2007 and beyond. Ms Stewart explained that she had assumed carriage of Mr Ohl’s matter from Mr Roger Undy as auditor in the MEI Active Compliance Team. She described the files as “meticulously kept” with details of records of conversation. Ms Stewart stated that the file did not reveal any other contact between Mr Ohl and ATO officers Australia wide.
29. Ms Stewart referred to two lodgement reminders that were forwarded to Mr Ohl on 23 February 2007 and 17 September 2007 regarding his failure to lodge his 2005 taxation return. An initial notice was issued on 10 November 2006 which stated that the ATO had previously requested lodgement of the income tax return for the income year ended 30 June 2005 and required lodgement by 8 December 2006.
30. In the exercise of a discretion as to whether to remit any penalty for the assessments, Ms Stewart stated that there was no basis upon which she could remit the penalty. She specifically addressed details of communications on the file as well as the compliance history of the tax payer and concluded that these factors did not warrant the exercise of a discretion to remit all or any part of the penalty automatically imposed upon the applicants’ failure to lodge the 2005 tax returns.
31. Mr Ohl said that he did not attempt to contact Mr Undy or anyone else at the ATO because they had made contact with him. As stated above however Mr Ohl later stated in his evidence that those contacts were related to GST liabilities. They had nothing to do with his outstanding 2005 taxation returns. Despite several letters from the ATO to Mr Ohl regarding his obligation to file his taxation return, it appears that he chose to ignore them and took little if any action to have the returns lodged. The last documented communication from Mr Ohl to the ATO was an email sent to Mr Undy dated 11 December 2006. In the email Mr Ohl acknowledged that Mr Undy had agreed to stay any activity requiring lodgement of the 2005 return by 8 December 2006, and that Mr Ohl had emailed Mr Demeyer that day (26 November 2006, requesting that copies of the returns be forwarded to him and that he would forward a copy of that email to Mr Undy for his information and would contact Mr Undy upon his return from interstate. There was no evidence that Mr Ohl ever provided a copy of the email to Mr Demeyer to the ATO or that he initiated any further contact with Mr Undy or anyone in the ATO audit team.
32. The Tribunal was informed that Mr Ohl had suffered health problems as a result of the collapse of his business for which he had sought treatment. The Tribunal accepts that this may to some extent explain the confusing nature of his evidence. In the Tribunal’s view it does not however excuse his lack of communication and response to the letters of demand and telephone calls which he chose to ignore. The Tribunal accepts that Mr Ohl may have had difficulty in obtaining his accounting records from Mr Demeyer, however there is no evidence of any communication of these problems to the ATO. Mr Ohl did not call any corroborating evidence from Mr Demeyer, the book keeper for the Trust Ms Judy Duthoit or from Wise Lord and Ferguson. The Tribunal therefore only has the rather unsatisfactory evidence of Mr Ohl in support of the applicants’ case which is not persuasive for the exercise of a discretion to remit the penalty in this case.
33. As identified earlier in this decision, the onus rests with the applicant to persuade the decision-maker that the taxation decision should not have been made or should have been made differently. The applicants in this case have failed to discharge their burden of proof.
34. There is no evidence of the applicants’ compliance history nor was it raised by the applicants in their grounds of objection. It is therefore not a factor that the Tribunal can take into account.
35. The conduct of the tax payer as outlined above, does not persuade the Tribunal that an exercise of discretion is appropriate in these circumstances.
36. Mr Zawadzki in his closing submissions contended that the penalties imposed are excessive and unjust and should be remitted either in whole or in part.
37. The legislation provides that the penalties are imposed automatically and that the applicant bears the onus of proving that a discretion should be exercised to remit the penalty. There is no basis upon which the Tribunal can conclude that the penalties were either excessive or unjust as they were calculated on the basis of the income tax assessments for the year ended 2005, the amount of which has been accepted by the applicants. There is no evidence upon which the Tribunal could conclude that the penalties are accordingly excessive and or unjust in the circumstances. Mr Zawadzki submitted that account could be taken of the instalments paid by the applicants but again provided no basis upon which the Tribunal could consider this factor. There was no evidence presented regarding these payments in any event.
38. In the absence of any basis upon which the Tribunal should exercise a discretion to remit all or any part of the penalties imposed, the Tribunal accordingly affirms the decisions under review.

I certify that the 38 preceding paragraphs are a true copy of the reasons for the decision herein of Ms A F Cunningham (Senior Member)

R Hunt - Associate

Date/s of Hearing 16 November 2011

Date of Decision 5 January 2012

Representative for the Applicant Mr Richard Zawadzki

Counsel for the Respondent Mr Tim Cox

Solicitor for the Respondent Mr Ivica Bolonja, Australian Taxation Office