Trustee loses appeal in GIC remission case

The original decision by the primary judge was based on several factors, including:

• EMH was obliged to lodge an income tax return for the year ended 30 June 2015 by 15 May 2016.

• EMH lodged the 2015 return on 7 June 2016, and the return declared that nil tax was payable.

• There was no good reason for its failure to lodge the 2015 return by 15 May 2016.

• EMH did not make any application for an extension of time to lodge the return.

•  

   

  There was no basis to remit the accrued GIC.

Details of the case

EMH said it was obligated to lodge the 2015 return on 5 June 2016 (or the next closest business date, 7 June 2016) rather than 15 May 2016 (or the first business day thereafter, 16 May 2016). The disagreement over the definitive due date arose because the taxpayer claimed that it met the extended timelines allowed for individuals and trusts under the Tax Agent Lodgement Program (TALP) concessions.

The tax commissioner audited the affairs of EMH and determined that, as trustee of the trust, it had a tax shortfall in the 2015 year, and issued a notice of assessment on 20 May 2020. The ATO assessed its income tax at around $9 million and contended that this amount was payable by 7 June 2016.

This was 21 days after the date on which the commissioner claimed EMH was required to lodge the 2015 return. It did not pay the amount by that date.

In March 2023, EMH wrote to the commissioner to request the remission of the GIC that was said to have accrued in its income tax liability since 7 June 2016. The commissioner denied that request in November 2023. That determination was set aside, and the request for remission of the GIC was remitted to the commissioner.

In August 2024, EMH wrote to the ATO asserting that it was required to lodge the 2015 return with the commissioner by 7 June 2016, and it had lodged its return within that time frame. As such, it said that the GIC for its unpaid 2015 income tax liability should only have run from 10 June 2020 (that is 21 days after EMH was provided with the notice of assessment of 20 May 2020) in line with subsection 5-5(6) of the Income Tax Assessment Act 1997.

Two months later, in October, the deputy commissioner of tax determined that while the situation did not warrant a full GIC remission, it would grant partial remission of almost $4.5 million. This included a partial remission of $1,701,961.48 and full remission of the GIC imposed from 21 April 2023 to 11 October 2024, totalling $2,776,495.37.

However, the ATO refused full GIC remission for the period from 7 June 2016 to 10 June 2020. EMH responded by taking issue with this conclusion, arguing that the date required for lodgement of the 2015 return was 7 June 2016, which was met, and that the due date to pay income tax under the original assessment of 20 May 2020 was 21 days after notice of the original assessment on 10 June 2020.

The primary judge found that the terms of the individual and trusts concession subsection in the TALP did not extend the lodgement end date to 7 June 2016 for any taxpayer in the individual and trusts section.

The ATO’s TALP 2015-16 contained a special concession for individuals and trusts using registered tax agents, which said that eligible individuals, partnerships, and trusts could lodge after the 15 May due date and by 5 June without penalty, provided they met relevant requirements, including payment requirements. The subsection only provided for the remission of an administrative penalty that had accrued for taxpayers who had lodged their tax return out of time.

EMH said that despite being called a concession, the practical implication was to make 5 June the lodgement date. The commissioner contended that 15 May remained the legal lodgement deadline, while the June arrangement waived the failure-to-lodge penalty for qualifying late lodgers. The primary judge ruled that the ATO’s refusal to remit the GIC was entirely lawful and dismissed the case.

Appeal dismissed

The Full Federal Court dismissed the taxpayer’s appeal of this decision, affirming that the primary judge made no error regarding the 16 May 2016 due date, there was no denial of procedural fairness by the ATO, and the primary judge’s reasoning was strictly within the boundaries of a proper administrative judicial review.

In its decision, the judges criticised EMH’s notice of appeal for not being drafted succinctly.

“[It] is discursive and argumentative in style. Rather than taking each of the grounds individually, it is convenient to group the grounds according to their subject matter, and deal with them by reference to the EMH’s submissions,” the judgment read.

Earlier this year, the Tax Ombudsman criticised the ATO’s GIC remission process and raised concerns about consistency and transparency.

In her review into the ATO’s management of GIC remissions, Ruth Owen said the approach failed to meet community expectations and led to unduly harsh outcomes for taxpayers. Issues included a lack of transparency and poor communication, she said.