Tribunal: Deputy President Ian Hanger QC

The Commissioner of Taxation (the Commissioner) issued amended assessments increasing the applicant’s tax liability for multiple years after discovering the applicant had undeclared income for those years. This decision imposed administrative penalties and shortfall interest charges on the applicant for the years in question.

The Commissioner calculates administrative penalties by assigning a base penalty amount, which is determined by assessing the nature of the false or misleading statements made by the taxpayer connected to their incorrect tax returns.[1] Once this rate is calculated, the Commissioner also has a discretion to increase or decrease the base penalty amount after considering, more generally, the taxpayer’s behaviour.[2] The AAT considered the applicant’s conduct for three of the years in question and applied a base penalty of 50 per cent.

Taxpayers are liable to pay shortfall interest charges when the Commissioner issues amended assessments increasing the amount of income tax a person is liable for, such as in this matter. A shortfall is the difference between the original tax return and the amended assessment. Shortfall interest charges are calculated using a formula[3] after which the Commissioner has a discretion to remit (or change) the charge in whole or in part after considering the individual’s circumstances and the extent to which they were responsible for the size and duration of the shortfall.[4] The AAT had jurisdiction to review the imposition of shortfall interest charges for two of the years in question and, after considering the applicant’s conduct and individual circumstances, found the shortfall interest charges applied.

The AAT varied the decision in accordance with its findings.

Read the full decision on AustLII.

 

[1] Section 284-90 of schedule 1 to the Taxation Administration Act 1953. See paragraph 4 and 5 of the full decision. 

[2] Section 284-220 of schedule 1 to the Taxation Administration Act 1953. See paragraph 6 of the full decision.  

[3] Section 280-105 of schedule 1 to the Taxation Administration Act 1953. See paragraph 10 of the full decision.

[4] Section 280-160 of schedule 1 to the Taxation Administration Act 1953. See paragraph 11 of the full decision.