The Federal Court has allowed the Commissioner’s appeal from the decision in AAT Case 2011 AATA 478, Re Traviati and FCT, in which the AAT remitted 5% shortfall penalties in relation to the denial of over $1.5m in deductions for investments in a retirement village investment scheme. The AAT remitted the penalty on the basis that the taxpayer had a “reasonably arguable” position [Senior Member O’Loughlin].
However, the Federal Court found that the AAT erred in its finding that the taxpayer had satisfied the “reasonable care” standard on the basis of having a reasonably arguable position, and also in its finding that the penalty should be remitted on the grounds of “harshness”.
In particular, the Court found that the AAT had not followed the 2-step process of taking into account, first, whether the taxpayer had taken “reasonable care” in attempting to comply with the Act (a mainly “subjective” test) and, secondly, whether the taxpayer had a reasonably arguable position (a purely “objective” test).
The Court also found that the AAT had misdirected itself in its decision to remit the penalty under s 227(3) on the basis of “harshness” as this matter could not be said to be particular to the taxpayer, nor was it relevant given the scheme of the penalty provisions.
Likewise, the Court also found that the AAT had erred in taking into account the imposition of GIC in its penalty remission decision. Accordingly, the Court remitted the matter to the AAT to be re-decided in accordance with its reasons.
(FCT v Traviati [2012] FCA 546, Federal Court, Middleton J, 1 June 2011.)
[LTN 106, 4/6]