The Federal Court case of FCT v Ross [2021] FCA 766 concerned several aspects of taxation administrative law. This is the first article in a series on issues in FCT v Ross.
Taxation laws include penalties to enforce compliance with taxation laws and payment of outstanding tax.
Where a tax shortfall arises, the Commissioner of Taxation (Commissioner) can levy an administrative penalty based on a percentage of the tax shortfall (the base penalty). A taxpayer’s behaviour informs the quantum of the base penalty. A failure to take reasonable care enlivens a 25% base penalty, recklessness, 50%, while intentional disregard of the tax laws involves a 75% base penalty. The base penalty can be increased by a further 20% under specific circumstances.
In FCT v Ross, the taxpayers (husband and wife) were subject to an ATO audit on undisclosed assessable income. In 2015, the husband was issued with default and amended assessments that resulted in tax shortfalls for the 2009, 2010, 2012 to 2014 years.
Mr Ross was also issued with penalty assessments and a 20% uplift of the base penalty amount in relation to the shortfalls for each year after 2009. The wife was also issued with a default assessment and an amended assessment for two years, as well as being issued with penalty assessments in respect of the shortfalls.
Section 284-220(1)(c) of Schedule 1 to Taxation Administration Act 1953 imposes a 20% uplift to the base penalty where the base penalty has been worked out previously. Typically, that excludes at least the first instance of the penalty. The issue that arose in Ross concerned the operation of section 284-220 where a series of penalty assessments, are made contemporaneously.
At first instance, the Administrative Appeals Tribunal (AAT) set aside the additional 20% penalty uplift imposed under section 284-220 on Mr Ross on the basis that the uplift provision was intended to provide a deterrent to a taxpayer that had already become liable to penalty. As the amended assessments were issued on the same day, Mr Ross was not able to modify his behaviour in response to an earlier imposition of a penalty.
However, the Federal Court held the AAT decision was in error. It considered that on the natural meaning of the words under section 284-220, the preferable construction is that the uplift applies automatically and it is not a matter for the exercise of discretion by the Commissioner.
That is, section 284-220 applied by its own force and applied even where multiple assessments were issued on the same day. On that construction, it is the mere repetition of the same conduct that gives rise to the additional culpability warranting the imposition of the uplift, rather than the repetition of conduct after the earlier imposition of a penalty. The AAT erred in setting aside the imposition of the uplift on the penalties imposed.
To discuss or for further information, please contact:
Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E nbrydges@sladen.com.au
Lucy Liang
Lawyer
T +61 9611 0131
E lliang@sladen.com.au
