The AAT has confirmed 75% administrative penalties were rightfully imposed on three companies for their failure to lodge FBT returns over a four-year period. In doing so, the AAT found the Commissioner was obliged to impose the penalties, and that the "safe harbour" provisions did not apply. It also found it was not appropriate for the AAT to exercise its discretion to remit the penalties in part or whole under the circumstances.

Background

The taxpayers were three companies that were in effect owned and controlled by one director. Following an audit and their failure to comply with the Commissioner's request to lodge FBT returns by a specified date, the Commissioner raised default FBT assessments to the taxpayers over four years in relation to several luxury cars provided by the taxpayers, resulting in an overall liability of over $620,000. The assessments imposed 75% administrative penalties of over $250,000 under s 284-75(3) of Sch 1 to TAA 1953 for the companies' failure to lodge their FBT returns. The taxpayers unsuccessfully objected to the assessments, the imposition of the penalties and the Commissioner's failure to exercise his discretion to remit them.

Before the AAT, the taxpayers contended, among other things, that the discretion to remit the penalty should be exercised on the basis that the director had entrusted his accountant (and part-business partner) with financial management of the companies, including all their tax compliance obligations, but that he had "completely and singularly failed to discharge his professional obligations"; otherwise, the director contended, he had no knowledge of the companies' FBT compliance obligations.

The Commissioner argued that the taxpayers were given more than ample time to lodge the outstanding FBT returns when directed to do so by the ATO, and that there was no discretion to impose any other rate than the 75% base penalty rate under s 284-90(1) (item 7) in circumstances where the administrative penalty was imposed under s 284-75(3) for failing to lodge FBT returns.

Decision

In agreeing with the Commissioner, the AAT emphasised that all the requirements for imposing a penalty under s 284-75(3) had been complied with. It also noted that the failure to lodge FBT returns by the date required meant the Commissioner instead had to determine the companies' liability to pay FBT in the absence of a tax return. The AAT emphasised that there was no discretion to impose any base penalty rate other than the 75% base penalty amount where the administrative penalty was imposed under s 284-75(3), and that the "safe harbour provisions" in s 284-75(6) were not applicable to an administrative penalty imposed under s 284-75(3).

In relation to remission of the penalty, the AAT ruled that "severity or harshness" is not a requirement for remission. It further found that the criteria in PS LA 2014/4 provided relevant guidance on the matter, as it had the benefit of achieving consistency in decision-making, and that it also accorded with the Federal Court's decision in Sanctuary Lakes Pty Ltd v FCT (2013) 212 FCR 483. In this regard, the AAT noted among other things that:

  • there was no "mistaken belief" on the part of the taxpayers that FBT lodgment was not required - especially as their tax agent had been registered since 1987 and a chartered accountant since 1988; furthermore, he could not have been in any doubt about the requirement to lodge FBT returns after receiving the request from the ATO requesting lodgment by a certain date;
  • the taxpayers failed to manage or make appropriate efforts "to understand and comply with" their FBT lodgment obligations - their failure to lodge the FBT returns as required was not due "to circumstances beyond their control";
  • there was no "unjust result" in not remitting the penalties, especially in view of the accountant's unsatisfactory explanation for failing to lodge the FBT returns by the requested date and the director's "retrospective completion of log books";
  • the taxpayers did not provide the requisite level of cooperation at any time (in terms of, for example, failing to make voluntary disclosures at an earlier meeting with the ATO and creating a log book "after the events"); and
  • there was no evidence that the ATO's actions had been "inconsistent" in its dealings with the taxpayers during the course of the matter.

Accordingly, the AAT affirmed the Commissioner's decision under review. In doing so, the AAT stated that the taxpayers failed in their onus to prove that the remission decision should have been made differently.

Re GSLL and FCT [2016] AATA 954, Re MKDZ and FCT & Re ZZSW and FCT, AAT, Ref Nos 2015/3760-3763, 2015/3764-3767, 2015/3769-3770, McDermott DP, 29 November 2016, http://www.austlii.edu.au/au/cases/cth/AATA/2016/954.html.