Wainwright and Commissioner of Taxation (Taxation) [2019] AATA 333 (5 March 2019)

1. In the Objection Decision, the Commissioner applied Senior Member Walsh's reasoning in Mason and Commissioner of Taxation to conclude that, having regard to the facts of this case and the policy intent governing section 304-10 of the ITAA, it is not unreasonable to include the $12,497 in each of the Applicants' income assessments in the 2008 Income Year merely because of the financial difficulty that would be faced by the Applicants.
2. Having regard to the findings that I have made in respect of the 2008 Income Year, I am satisfied that it was not unreasonable to include the whole superannuation benefit received by the Applicants, being $12,497 each, in their assessable incomes for that Income Year.

1. The Applicants' submit that, having found that the $700,000 deposit was a superannuation benefit received by Mr Wainwright in the 2009 income year, the Commissioner should have exercised the discretion available to him by virtue of section 304-10(4) of the ITAA.[52] In seeking the exercise of this discretion, the Applicants rely on the following matters that they consider to be relevant. Firstly, when the Applicants became aware of the issues that had arisen because the sale of Athol could not be completed, they took action to seek new advisers and meet with the Australian Taxation Office to discuss the issues in detail. It is also relevant that there was a genuine contract; that the purchaser gained an equitable interest in the land by the payment of a deposit of $700,000; that the vendor defaulted on the contract; and that the trustee of the fund knew that the Fund, while having a good action available against the vendor for performance of the contract, did not take such action.
2. The Applicants sought to differentiate their circumstances from the taxpayers in the matters of Mason and Commissioner of Taxation;[53] Brazil and Commissioner of Taxation;[54] and Peach and Commissioner of Taxation,[55] by arguing that there have been other consequences that have flowed from the breach, namely, having been disqualified as trustees of the Fund, having tax assessed on the sum of $724,995 at the marginal tax rate of 15% and losing their retirement money in the Fund; further, that they sought advice from accountants and did not use the payments to fund their everyday activities.
3. The Applicants' predominant argument lies in the fact that for many years, they retained financial advisors and accountants whom they trusted, and for whom they paid annual fees of about $4000 for the work that was completed for the super fund, acting as tax agent for the unit trust, and completing both individual tax returns for the Applicants and for the Fund. At Hearing, Mr Wainwright accepted that both the Applicants' personal tax returns, and the Fund's tax returns for the Income Years ended 30 July 2009 - 2014 were lodged late, despite his knowledge of his obligations, both personally and as trustee of the Fund, to lodge a yearly tax return. Mr Wainwright gave evidence they had always been given all the information relating to their businesses and that insofar as tax returns were lodged late, they believed what their accountants had told them, to the effect that they couldn't lodge tax returns until they knew the ATO's position regarding the impugned transactions. Mr Coetzee says the tax returns were lodged late because he was waiting for the applicants and the applicants were delaying because they could not meet his firm's costs. Mr Wainwright was aware that there was an issue in relation to his non-completion of the Athol transaction, and says he raised it with his financial planner but continued to get advice to not lodge tax returns until consultations with the tax office had been finalised. He was never told that the situation wasn't rectifiable. I accept his evidence on these particular matters.
4. He terminated the relationship with his accountants and had personal interviews with officers of the Australian Taxation Office in September 2015 to try to resolve this matter but that was unsuccessful. I heard evidence from both Mr and Mrs Wainwright and I am satisfied that they are honest and diligent people. I have accepted that they were reckless in relation to the withdrawal from the fund in the year 2008 Income Year, but the situation is somewhat different to 2009 and subsequent years. They were certainly out of their depth financially. The evidence given by Mr Coetzee during the Hearing confirmed that the Global Financial Crisis significantly affected the Applicants' ability to complete the contract, and their ability to obtain meaningful financial advice given the uncertainty faced by the financial sector.
5. I have considered the cases referred to me by the parties including Peach and Federal Commissioner of Taxation,[56] Brazil and Commissioner of Taxation;[57] and Mason and Commissioner of Taxation.[58] Each of those cases turns on its own particular facts. I accept that the Applicants' circumstances are sufficiently different from the facts of the aforementioned cases.
6. In Peach the taxpayer used the funds as a bank account when he should not have done so before he had retired. He had lost his job but even after being re-employed he continued to access the funds. This tribunal agreed that the Commissioner had not acted incorrectly in refusing to exercise its discretion. In Brazil the taxpayer suspected or should have suspected that the fund with which he was involved was not a bona fide fund. In Mason 'which I referred to above, Senior Member Walsh sets out the history of S 304-10(4) and comments that it may be unreasonable to include a superannuation benefit paid in breach of the legislative requirements in a person's assessable income where for example:

"(i) This would be in addition to other taxation consequences which flow from the breach. (For example, a superannuation fund no longer gets the benefit of an exemption or becomes non-compliant for the relevant tax year); and/or

(ii) The benefit arose in circumstances beyond the effective control of the recipient".

1. Having regard to the evidence before me, I find that the Commissioner should have exercised his discretion to decide that it was unreasonable to include the deposit and settlement payment amounting to $700,000 in Mr Wainwright's assessable income under section 304-10(4) of the ITAA for the following reasons:
   • (a) The transaction involved was a legitimate arm's length, documented transaction;
   • (b) The taxpayer had no intention of deceiving, evading or cheating, and the transaction was entered after receiving professional advice;
   • (c) The taxpayer became unable at the relevant time to complete the contract he had undertaken through no fault of his own;
   • (d) The benefit he received in 2009 resulted from facts that arose after he had entered into a legitimate transaction and resulted from events principally beyond his control. It is easy to assert that being unable to complete the contract to transfer Athol he should have refunded the money to the fund, but he didn't have it. There was nothing both proper and practical that he could do. The taxpayer fell on hard times because of drought, floods, the Global Financial Crisis and a decline in the dairy industry.
   • (e) Impecuniosity took over and he became unable to obtain wise professional advice and the financial advice he received was less than optimal;
   • (f) There were other consequences flowing from his conduct in that he and his wife were disqualified from being trustees of the fund.

1. Pursuant to Section 284-75 (1) of Schedule 1 of the TAA, a person who makes a false or misleading statement to the Commissioner is liable to an administrative penalty. The amount of that base penalty is determined by reference to section 284-90 (1) of Schedule 1 to the TAA.
2. The miscellaneous Taxation Ruling 2008/1 (MT2008/1) provides guidance as to the imposition of penalties. When a shortfall amount results from a failure to take reasonable care, the base penalty under is 25% of the shortfall amount.[59] Where recklessness as to the operation of a taxation law results in a shortfall amount, the base penalty amount is 50% of the shortfall amount.[6]
3. The mere existence of a shortfall does not necessarily mean that there has been a failure to take reasonable care. There must be evidence to enable one to conclude that the standard of care by the applicant fell short of what was reasonable in the circumstances.[60]
4. Recklessness involves more culpable conduct than a failure to take reasonable care but falls short of conduct that involves an intentional disregard of the taxation law. Recklessness assumes that the behaviour in question shows disregard of or indifference to a risk that is foreseeable by a reasonable person. It has been defined as involving gross carelessness.[61]

1. The Commissioner assessed the Applicants' as being liable to an administrative penalty of 50% in respect of the 2008 Income Year, necessarily importing considerations of recklessness. A finding of recklessness is an objective determination, having regard to behaviour or a risk that is reasonably foreseeable by a reasonable person in the person or entity's circumstances. The difference between a finding of recklessness as opposed to a failure to take reasonable care depends on the extent, or degree to which the conduct falls short of that expected of a reasonable person. The Applicants actual intention bears no relevance to the determination of whether they were reckless or otherwise.[62]
2. Recklessness has been described in the relevant case law as consisting of "gross carelessness,"[6] "a real, as opposed to fanciful risk that the material may be incorrect, or gross indifference as to whether the material is true or correct"[63] and "disregard of, or indifference to, consequences foreseeable by a reasonable person."[64]
3. Having regard to the fact that the Applicants were aware of their considerable obligations as trustees of the Fund, and notwithstanding the complexity of the transactions, considerable financial troubles and their reliance on external advice, the Applicants' conduct in applying Fund money to meet their personal expenses for 2008 year fell sufficiently short of the conduct expected of a reasonable person, and was indifferent to the consequences that would reasonably be foreseen.
4. By virtue of the findings that I have made in relation to the 2008 Income Year, the Applicants have not established that the Commissioner was in error in his assessment of the penalties.

1. There is a discretion to remit a shortfall interest under section 298.20 of Schedule1 of Taxation Administration Act charge but having regard to the purpose of the penalty regime to deter non-compliance with the legislation, the applicants have failed to disclose any basis for the non-imposition of the Shortfall Interest Charge for the year.

1. Given my decision that it was unreasonable to include the $700,000 as assessable income there is no need to consider the issue of administrative penalties or shortfall interest in respect of the 2009 financial year.

1. The decisions under review:
   • (a) In relation to the 2008 Income Year is affirmed; and
   • (b) In relation to the 2009 Income Year, is set aside, and substituted with a decision that the Commissioner should have exercised its' discretion under section 304-10(4) of the ITAA to exclude the amount of $700,000 from Mr Wainwright's assessable income.

I certify that the preceding 98 (ninety-eight) paragraphs are a true copy of the reasons for the decision herein of Deputy President R I Hanger QC

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[1] Exhibit 1, T Documents, Volume II, T45 at pages 496, 509, Trust Deed & Deed of Variation.

[2] Exhibit 2, Applicant's Statement of Facts, Issues and Contentions dated 9 November 2017, para 12.

[3] Exhibit 1, T Documents, Volume I, T11 at page 146, Information provided by Applicants containing investment details for the Fund.

[4] Exhibit 2, Applicants' Statement of Facts, Issues and Contentions dated 9 November 2017, para 15; Exhibit 9, Statement of Gerard Wainwright dated 22 May 2017, para 27.

[5] Exhibit 1, T Documents, Volume II,T51 at page 633, Contract of Sale for Triton Park dated 29 August 2007.

[6] Exhibit 3, Applicants' Statement of Facts, Issues and Contentions dated 9 November 2007, para 3.

[7] Exhibit 1, T Documents, Volume II, T51 at page 646, Contract of Sale for Athol dated 28 September 2007.

[8] Exhibit 2, Supplementary T Documents, ST58 at page 1787, Letter from Kennedy Spanner Lawyers to Gerard and Janice Wainwright dated 4 October 2007, dated 20 January 2016.

[9] Exhibit 4, Respondent's Statement of Facts, Issues and Contentions, Schedule 2.

[10] Exhibit 4, Respondent's Statement of Facts, Issues and Contentions, Schedule 1.

[11] Exhibit 1, T Documents, Volume I, T12, pages 155-164, Income tax return for the period ended 30 June 2008 for the Wainwright Family Superannuation Fund dated 30 October 2009.

[12] Exhibit 4, Respondent's Statement of Facts, Issues and Contentions, Schedule 1.

[13] Exhibit 1, T Documents, Volume I, T31, page 246, Income tax return for the period ended 30 June 2009 for the Wainwright Family Superannuation Fund dated 29 April 2014.

[14] Exhibit 1, T Documents, Volume II, T46, Loan agreement documentation for the Wainwright Family Superannuation Fund, pages 597-599, dated 16 January 2015.

[15] Exhibit 9, Statement of Gerard Wainwright dated 23 May 2017, para 130.

[16] Exhibit 1, T Documents, Volume I, T44 at pages 344-347, Notice of Audit dated 4 December 2014.

[17] Exhibit 1, T Documents, Volume IV, T72, pages 981-1008, Income tax return for the period ended 30 June 2008 for Janice Wainwright, dated 30 June 2009.

[18] Exhibit 2, Supplementary T Documents, ST4, pages 1328-1331, Notice of Objection Decision issued to Gerard Wainwright, dated 21 February 2017.

[19] Respondent's Amended Statement of Facts, Issues and Contentions dated 26 July 2018, para 3.1.2

[20] Income Tax Assessment Act 1936 (Cth), s 170(1) Item 1.

[21] Income Tax Assessment Act 1936 (Cth), s 170(1), Item 5.

[22] Taxation Administration Act 1953, Schedule 1, Section

[23] Taxation Administration Act 1953, Schedule 1, Section 284-90.

[24] Superannuation Industry (Supervision) Act 1993, s 3(2).

[25] See for example: ZDDD and Commissioner of Taxation [2011] AATA 3; Vivian (Deputy Commissioner of Taxation (Superannuation)) v Fitzgeralds (2007) ATR 834.

[26] Income Tax Assessment Act 1997, section 304-10.

[27] Income Tax Assessment Act 1997, section 304-10.

[28] Income Tax Assessment Act 1997, section 307-5, Item 1.

[29] Superannuation Industry (Supervision) Act 1993, s 62(1).

[30] Mason and Commissioner of Taxation [2013] AATA 133 at [31].

[31] Applicants' Closing Submissions dated 23 July 2018, para 30.

[32] Exhibit 2, Supplementary T Documents, ST4, pages 1328-1331, Notice of Objection Decision issued to Gerard Wainwright, dated 21 February 2017.

[33] Income Tax Assessment Act 1997, s 304-10.

[34] Applicant's Closing Submissions dated 23 July 2018, para 25.

[35] Applicant's Closing Submissions dated 23 July 2018, para 37.

[36] Applicants' Closing Submissions dated 23 July 2018, para 40.

[37] ST Documents, ST112 at page 2029, Letter from Kennedy Spanner Lawyer to the Wainwrights re valuation report and extension of settlement, dated 11 July 2008.

[38] Exhibit 3, Applicants' Amended Statement of Facts, Issues and Contentions dated 9 November 2017, para 26

[39] Exhibit 4, Respondent's Statement of Facts, Issues and Contentions dated 30 November 2017, para 79.

[40] Exhibit 4, Respondent's Statement of Facts, Issues and Contentions dated 30 November 2017, para 22.1.

[41] Applicant's Closing Submissions dated 23 July 2018.

[42] Exhibit 1, T Documents, Volume III, T72, Notice of Objection Decision issued to Gerard Wainwright dated 31 August 2016; Volume IV, T86, Notice of Objection Decision issued to Janice Wainwright dated 31 August 2016.

[43] Australasian Jam Co Pty Ltd v Federal Commissioner of Taxation [1953] HCA 52; (1953) 88 CLR 23

[44] Wilson v Chambers [1926] HCA 15; [1925-26] 38 CLR 131 per Isaacs J at 144.

[46] Exhibit 9, Statement of Gerard Wainwright dated 23 May 2017, paras 5-9.

[47] SRBBB v Commissioner of Taxation [2011] AATA 529.

[48] Exhibit 6, Statement of Craig Coetzee dated 10 July 2018, para 10.

[50] Exhibit 4, Respondent's Statement of Facts, Issues and Contentions dated 30 November 2017, para 79.1.

[51] Exhibit 4, Respondent's Statement of Facts, Issues and Contentions dated 30 November 2017, para 79.1.6.

[52] Exhibit 3, Applicants' Statement of Facts, Issues and Contentions dated 7 November 2017, para 105.

[55] [2012] AATA 781.

[56] [2012] AATA 781.

[57] [2013] AATA 192.

[58] [2012] AATA 133.

[59] Income Tax Assessment Act 1997, s 284-90(1). Item 3.

Income Tax Assessment Act 1997, s 284-90(1), Item 2.

[60] Miscellaneous Taxation Ruling 2008/1, para 42.

[61] Miscellaneous Taxation Ruling 2008/1, para 102.

[62] Miscellaneous Taxation Ruling 2008/1, para 100.

[63] BRK (Bris) Pt y Ltd v Commissioner of Taxation [2001] FCA 164.

[64] Hart v Commissioner of Taxation [2003] FCAFC 105; (2003) 53 ATR 371 per Hill & Hely JJ.