The AAT (sitting as the Small Taxation Claims Tribunal) has confirmed the Commissioner’s decision to impose 25% shortfall penalties amounting to some id=”mce_marker”9,000 for “failing to take reasonable care” in respect of a taxpayer who, in completing his own tax returns over a 2-year period, claimed interest deductions of over $40,000 in respect of moneys borrowed to purchase shares in his wife’s name. At the same time, he also claimed what he considered were “standard” costs of managing his tax affairs of id=”mce_marker”50 in each year.
In confirming the Commissioner’s decision, the AAT found there was no reason to doubt the honesty and integrity of the taxpayer, and his explanation that he made an “honest mistake”. However, it found that the taxpayer’s good intentions were not sufficient to negate the effect of the significant error he made in completing his tax returns. In particular, the AAT found that as an intelligent person, the taxpayer could reasonably have been expected to understand that a deduction could not be claimed in respect of expenses he incurred in relation to shares held solely in his wife’s name, and in claiming the costs of managing his tax affairs without appropriate substantiation.
In relation to the remission of the penalties, the AAT found that the circumstances for remission did not exist in the present case (ie to address harsh or perverse applications of the penalty regime) and that, while the outcome may well be unfortunate for the taxpayer who acted honestly at all times, it did not warrant the exercise of the discretion in these circumstances where significant deductions were claimed to which he was not entitled.
(AAT Case [2013] AATA 449, Re Chowdary and FCT, AAT, Ref Nos 2012/5443-5444, Hughes M, 1 July 2013.)
[LTN 127, 4/7/13]