"...(1) In about May or June 2004 when the settlement of the sales of the villas were being carried out, I telephoned the Australian Taxation Office to seek advice on what was required of the taxpayers as regards lodgement of further business activity statements and the payment of any remaining GST in light of the fact that the development was drawing to a conclusion and that the partnership which owned the development would then be dissolved.

(2) I was advised by the enquiry officer that the GST registration should be cancelled and that any remaining GST issues should be included in the partnership's final income tax return when a final assessment would then be made.

..."

1. The June 2004 BAS was lodged with the Respondent on 12 July 2004, and the May 2004 BAS was lodged on 3 June 2004. There is no notation of the date on which the telephone conversation took place. Mr Barakat maintains that it occurred prior to 14 July 2004; he having left Australia on 17 July 2004.
2. Mr Martin Henderson, a Project Leader with the Respondent, was a Team Leader in the Australian Taxation Office ("ATO") Small Business Call Centre in 2004. He was then responsible for overseeing the work performed by persons such as the individual with whom Mr Barakat had his conversation. According to Mr Henderson (Exhibit 1) "a circumstance where the client is planning to cease carrying on its enterprise, but has not yet done so" is not a circumstance where a GST registration may be cancelled. Thus if Mr Barakat had, in July 2004, indicated that sales had not yet been settled, the registration would not, Mr Henderson said, have been cancelled.
3. According to the records maintained by the Respondent, the cancellation was created on 14 July 2004, yet the BAS for June 2004 was lodged on 12 July 2004. There is no reason to doubt the accuracy of the Respondent's records. Even be it Mr Barakat now believes that he contacted the officer on an earlier date, it is more likely than not that the conversation occurred on 14 July 2004, and that the June 2004 BAS had been lodged prior to the conversation.
4. However, I am also satisfied that Mr Barakat was endeavouring to finalise a situation at a time of stress to himself, and before leaving the country. The settlements had already occurred, even be it he was not aware of the details. There was clearly room for misunderstanding on the part of Mr Barakat. I am also satisfied that he was endeavouring to finalise the BAS lodging obligations of the partnership prior to his departure, even be it he believed the GST indebtedness was a matter that would be assessed or calculated by the tax agent, and after valuation information was available. Having in mind that some of the property had been acquired pre 1 July 2000, and the "margin scheme" provisions in Division 75 of the GST Act were to be applied, it would not be unreasonable for Mr Barakat to rely upon professional advice to aid him in supplying relevant information to the Respondent. It is true, as submitted on behalf of the Respondent, that a notation could have been made on the BASs as to the outstanding matter, except that the form itself does not provide for the same.
5. I am satisfied that Mr Barakat did believe, as he stated in his letter of 6 September 2005 that, "all the relevant information and payment of GST and other tax liabilities would be included in the partnerships final income tax return as per the instruction given by the ATO help line. The final return was to be prepared by the accountant". I am not satisfied, however, that the officer in fact gave the above mentioned advice. But whatever was said by the officer was clearly misunderstood by Mr Barakat.
6. The Tribunal is satisfied that Mr Barakat was following an established practice lodging monthly BASs recording cash transactions. The building project was complete. No further monthly statements would be required. Mr Barakat was heading overseas and would not be completing another monthly statement. He believed that any outstanding liability arising from the sale of the townhouses was dependent upon valuations being obtained by professional advisers, and calculations then made. In fact it did take some time, extending into 2005 and 2006, before relevant information was obtained, calculations made and an amended BAS finally lodged for May and June 2004.

1. There is no issue in this matter that the Applicant's situation fell within the pre-requisites of section 284-75(1) of the TAA. A relevant statement, the BAS, was made. The two BASs were false in a material particular in that they did not disclose the sales, and stated information that was incorrect and incomplete. There was a shortfall in GST because of the statements. The exception provided for by section 284-215(2) is, however, applicable in the present circumstances.

1. The Tribunal is satisfied that the position taken by Mr Barakat in preparing the May and June 2004 BASs was reasonable in the circumstances in which he then found himself. Section 284-215(2) of the TAA may operate to disregard the shortfall amounts.
2. Mr Barakat did not act unreasonably in the circumstances in which he found himself. He did make contact with the Respondent, and did seek to obtain advice. He clearly misunderstood any advice given. He reasonably believed however, that the GST payable on the sales would be the subject of valuation and then calculation. He did not seek to mislead or avoid payment of any GST properly payable.
3. Mr Barakat sought to organise the affairs of the Applicant so that the monthly BAS would no longer need to be lodged. The tax agent and his legal adviser would assist in due course with the computation of the final GST liability. He was not in a position to deal with this himself. The relevant law was complex, as was the calculation of the liability. He was not frivolous, and his conduct was not irrational. There is not any evidence of errors or mistakes in the past. Mr Barakat was reasonably certain, in his own mind, as to the steps that would be taken in due course to finalise the taxation situation. In his mind, and reasonably so, the necessary information was not yet available, and the time had not arrived for the calculations to be made, and any amended statement provided to the Respondent.
4. It was not a case of Mr Barakat being unaware of the need to have the valuations obtained and calculations made. He was so aware, but reasonably believed that the supplies made by the Applicant did not necessarily need to be detailed in the monthly statements, but in a final accounting. Whilst the Applicant had been involved in the particular property development for a number of years, it was the one project which, by the end of the 2004 financial year, had come to fruition. There had not been any previous sales by which an appropriate procedure could be gauged. Mr Barakat was reliant upon professional advice. All he sought to do by lodging the May and June 2004 BASs, and then seeking de-registration, was to obviate the necessity for the Applicant to thereafter lodge monthly cash movement BASs.
5. The Tribunal finds that in all the circumstances of this matter, reasonable care was taken by the Applicant in relation to the relevant BAS. As Mr Barakat stated in his evidence:

"Question ("Q"): When you had conversation with the tax department person did you believe that GST would be payable on the sale of the townhouses?

Answer ("A"): Yes.

Q: Your situation was that you then knew GST would be payable?

A: That's right.

Q: But you are not in a position to calculate how much GST would be payable?

A: That's right, that's correct.

Q: Is that the position you say...?

A: That's exactly the position I was in. That's exactly what it was, the whole thing, the whole comes into that, to this, exactly that point...

Q: But you lodged two activity statements that didn't include sales that should have been included, didn't you?

A: I did not include them, as I said to you, I was not aware...I did not report them because I knew in the end there's going to be calculated through an accountant to figure out what is the value of the margin scheme for the development which is exactly what has been done...

Q: Mr Barakat, is there any question that has just been put to you by Ms Deards where you've felt you did not give a full answer or that you would like to say anything more in relation to the question

A: Yes, I've got to say. What I did I understood I was doing nothing wrong, I wasn't going out of my way on purpose to submit GST with a shortfall which is the way I understood it and I was not trying to cheat the Tax Department...."

1. I accept this evidence of Mr Barakat. The Applicant was waiting for its accountant to finalise the calculations necessary to apply the margin's scheme. Mr Barakat may have done little to inform himself as to the operation of the scheme, or what was necessary in order to apply it before he lodged the May and June 2004 BASs. He reasonably believed, however, that he could leave this to, and rely upon advice received, from the Applicant's accountant and solicitor. He believed that the margin scheme calculations, and the resulting liability to GST, could be dealt with separately and apart from the monthly activity statements.

1. As submitted on behalf of the Respondent, recklessness is something more than mere inadvertance or carelessness. It involves running what a "reasonable person" would regard as an unjustifiable risk. As was stated in BRK (Bris) Pty Limited v Federal Commissioner of Taxation (2001) ATC 4111 at 4129 :

... "recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful, risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement..."

1. The conduct of Mr Barakat falls short of that above described. He had no awareness of any real risk that the BASs may be incorrect. He believed that they were correct for what they purported to say. Nor was he indifferent as to whether or not the material in them was true and correct. He knew that the sales were not included, and intended to furnish the necessary information when it became available.
2. There may have been a serious and significant risk created that a tax shortfall would arise, but Mr Barakat was not aware of this possibility, and reasonably so. As was submitted on behalf of the Respondent, completion of the Applicant's BAS "clearly required professional advice in order to complete the May and June statements correctly". Mr Barakat realised this, but believed, reasonably, that the situation could and should be dealt with in the annual accounting. As he has consistently maintained, there was no intent on the part of the Applicant to avoid payment of GST properly due. It was merely that the calculation of it was something that he saw as separate and apart from the cash transactions that had until then been the subject of entries in the BAS. Mr Barakat intended to seek appropriate advice in order to complete the relevant BAS. He was not himself aware of the GST consequences of the sales made by the Applicant. He saw the transactions that he noted in the May and June 2004 BASs as separate and distinct from the sales transactions. This was an innocent mistake on his part, and not indicative of a disregard of, or indifference to, the consequences foreseeable by a reasonable person.
3. Mr Barakat, reasonably in all the circumstances, did not knowingly, nor would a reasonable person knowingly, run an unjustifiable risk of a tax shortfall in failing to take steps, at the time of lodging the BASs, to determine the GST treatment to be afforded to the sales. There was not gross carelessness on the part of the Applicant. Mr Barakat did take care. He was aware of the need for professional advice and assistance in order to determine the extent of the tax obligation.

1. Consistent with the findings of the Tribunal already noted, it is not necessary to consider whether, within the meaning of section 284-225 of the TAA, there should be a reduction of the base penalty amount.
2. However, submissions were made on behalf of the Respondent in relation to this consideration.
3. An audit of the Applicant's affairs was commenced in about June 2004. The Applicant had not at that time lodged the relevant BASs. Thus the Applicant was not in a position to make any relevant disclosure referable to the May and June 2004 BASs before the commencement of the audit. Once contact was made by an officer of the Respondent with Mr Barakat on 18 August 2004, the officer was referred to the tax agent and solicitor acting on the sales. Valuations were sought. It was not a matter of the Applicant making, or not making, disclosures. The sales were known. Valuations had to be obtained, and assessments raised. When so raised, according to Mr Barakat, the GST was paid. There is no basis upon which the Respondent might not have considered a decrease in the base penalty amount, if that consideration remains relevant.

1. Again it is probably unnecessary to deal with the question of remission, other than to say that in the absence of the findings already made, the penalties would have been remitted.
2. As was stated in Re Michael Kowadlo and Sara Kowadlo and Commissioner of Taxation [2004] AATA 786 at paragraph 10, "the penalty regime is to penalise non-compliance with the requirements of the legislation". This implies, however, disregard or reckless behaviour, neither of which exists in the present circumstances.
3. Forthwith upon the Applicant being questioned as to non-compliance with the Act, Mr Barakat sought the advice of his tax agent and solicitor. This advice was sought, not in order to oppose the actions being taken on behalf of the Respondent, but to assist and ensure that the correct calculations were made. When put on notice as to the misunderstanding of its obligations, the Applicant did what was reasonably necessary to comply with them.
4. The Tribunal finds that in all the circumstances of this matter, there was a genuine and honest mistake as to the pre-requisites of compliance with the legislation.
5. There is not any issue raised in this application that the Applicant was not entitled to omit the shortfall amounts in the May and June 2004 BASs and include them in an annual GST return. But the Applicant, through Mr Barakat, believed that it was so entitled.
6. There is not any issue as to the Applicant not being entitled to complete an annual GST return because it remitted GST on a monthly basis, and did not use the GST instalment system. But the Applicant, through Mr Barakat, so believed.

1. For the reasons set forth above, the decisions under review are set aside.

I certify that the 42 preceding paragraphs are a true copy of the reasons for the decision herein of The Hon RNJ Purvis AM, QC, Deputy President

Counsel for Respondent Ms K. Deards

Solicitor for Respondent Ms J. Damyan