The Federal Court case of FCT v Ross [2021] FCA 766 concerned several aspects of taxation administrative law. This is the second article in a series on issues in FCT v Ross. The first article on penalty uplifts is available here. The next article discusses the onus of proof.
Taxation laws authorise the Australian Taxation Office (ATO) to impose administrative penalties for a range of conduct to enforce compliance with taxation laws. However, the ATO has discretion to remit the penalty according to individual circumstances.
In the Federal Court case of FCT v Ross, the taxpayers (husband and wife) were issued with default and amended assessments that resulted in tax shortfalls. Both taxpayers were also issued with penalty assessments. Mr Ross died part-way through the Administrative Appeals Tribunal (AAT) case.
The AAT held that the penalties imposed upon Mr Ross should be remitted in their entirety in the unusual circumstance of his death on the basis that it was difficult to see what purpose the imposition of the penalties would now serve now given he had died and the penalties would simply be paid out of his estate.
The AAT also remitted most of the penalty imposed for the 2013 income year and half of the penalty imposed for the 2014 income year on Mrs Ross. The AAT purported to exercise the power to remit on the basis that Mrs Ross faced unusual circumstances following the untimely death of her husband, specifically that she had been left to raise her daughter with special needs.
The Commissioner contended that the Tribunal erred in interpreting and applying section 298-20 of Schedule 1 to the Taxation Administration Act 1953 (Cth).
The primary issue raised by the Commissioner in relation to the remission of penalties was whether, in exercising the general discretion to remit in section 298-20, the Commissioner was confined to the consideration of matters which arose prior to the imposition of the penalty assessments. He submitted that Mr Ross’s death was irrelevant as it arose after that time.
Section 298-20 states that the Commissioner may remit all or part of a penalty. The Federal Court considered that section 298-20 operates to ameliorate the imposition of penalties for contraventions of taxation legislation.
In relation to the power to remit under section 298-20, the Court observed that there needed to be circumstances that could be regarded as mitigating the taxpayer’s behaviour in some way. The question is whether there was something in the circumstances giving rise to the imposition of the penalties which rendered the imposition of the rate of penalty inappropriate in the sense of it being unreasonable, unjust or harsh. The consideration was, therefore, not one of whether the penalty imposed was inappropriate having regard to circumstances which were divorced from the contravening conduct for which it was imposed.
The Court said that it:
may be accepted that where the death of a taxpayer has arisen from or impacts upon their conduct in attempting to comply with their taxation obligations, that death may be relevant to the exercise of the discretion to remit a penalty; and
in this case, Mr Ross’s death in no way related to the conduct for which the penalties were imposed and his death did not constitute circumstances that could be regarded as mitigating his behaviour in some way insofar as it gave rise to the imposition of those penalties.
Accordingly, the Court held Mr Ross’s death was not a circumstance relevant to the discretion to remit in this case and the AAT erred in exercising the power to remit penalties.
This issue in FCT v Ross is a useful reminder of what factors are relevant when making submissions to the ATO on the remission of penalties.
By way of summary, as set out on the ATO website in deciding whether to remit a penalty the ATO considers the following factors:
the taxpayer’s compliance history
whether tax was deferred or avoided
the reason for the increased tax that brought about the imposition of penalties
whether the ATO became aware of the tax shortfall because of the taxpayer’s voluntary disclosure or because of the ATO’s compliance efforts
the taxpayer’s attitude towards complying with the tax laws
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
