Court Decisions
Penalty for recklessness
31.08.2010
The Federal Court has allowed the Commissioner’s appeal against a decision of the AAT and held that the taxpayer had failed to discharge the onus of proving that penalty tax for recklessness should not be imposed (FC of T v White (No 2) [2010] FCA 942).
The Commissioner had assessed the taxpayer to penalty tax (under the former ITAA 1936 provisions) of 40% of the amount of the tax shortfall, reduced from 50% for voluntary disclosure before the commencement of an audit. The AAT reduced the level of penalty to 25% (reduced to 20% after applying the voluntary disclosure discount).
Gordon J, in allowing the Commissioner’s appeal in relation to the penalty tax, held that the taxpayer had failed to discharge the onus of establishing that the tax shortfall was not caused by his recklessness or the recklessness of his registered tax agent and, accordingly, penalty was payable under former sec 226H ITAA 1936 (see now item 2 in sec 284-90 Sch 1 Taxation Administration Act). Her Honour held that it was not necessary to remit the matter to the AAT, saying:
“I do not consider that the issue is required to be remitted to the AAT. I say that for a number of reasons. Section 226H operated by reference to the recklessness of Mr White or his tax agent. Ms Sarah McClusky was Mr White’s tax agent. No evidence was lead by or on behalf of Mr White in relation to her mental state. Ms McClusky was not called as a witness. Mr White gave no evidence about the instructions he gave her or the inquiries she made of him at the time she prepared and filed each of his tax returns …”
The position is the same under the present penalty tax provisions.
