Last week, the High Court refused the taxpayer’s application for special leave to appeal against the decision of the Full Federal Court in Pintarich v Deputy Commissioner of Taxation.
The Federal Court’s ruling found that Mr Pintarich was liable for the entire amount of General Interest Charge (GIC) on income tax, despite an error in communication from a letter from the deputy commissioner stating that he was not.
The letter, issued on 8 December 2014 under the signature block of the first deputy commissioner, purported to remit all GIC payable by the taxpayer save for a relatively small amount of GIC covered by a lump sum payment amount of $839,115.43.
The amount specified in the letter was slightly greater than the taxpayer’s primary tax liability and significantly less than his total liability for primary tax and GIC.
“Thank you for your promise to pay your outstanding account. We agree to accept a lump sum payment of $839,115.43 on or by 30 January 2015,” said the ATO.
“This payout figure is inclusive of an estimated GIC amount calculated to 30 January 2015.”
Mr Pintarich then made the full payment by the due date but was later advised in a subsequent letter on 18 August 2015 that the amount paid did not include the entire amount of GIC accrued.
“We wish to advise you that the letter issued by the Deputy Commissioner of Taxation dated 8 December 2014 titled ‘Payment Arrangement for your Income Tax Account Debt’ was issued in error. The outstanding amount of $839,115.43 in the letter did not include the entire amount of GIC which had accrued on the entire amount of outstanding debt up to and including 8 December 2014,” the ATO letter said.
The court found that the error was made due to information input into a computer-based “template bulk issue letter” by an ATO officer, and that no decision had been made because there was no “mental process” of reaching a conclusion.
Speaking to Accountants Daily, the Tax Institute’s senior tax counsel, Professor Robert Deutsch said the case highlighted the problems in the administration of a modern taxation system, leaving taxpayers and accountants uncertain of Tax Office communication.
“My view is that the tax office should stick by their own unequivocal unambiguous offers of settlement and if it turns out that is an error, which clearly was the case here, they have to live by it,” said Professor Deutsch.
“In reverse, I’m hypothesising here, but if a taxpayer puts forward an unequivocal offer to pay an amount which the tax office then accepted, I’d be very surprised if the taxpayer was allowed to go back and say, ‘that was a mistake, my secretary sent that and I didn’t mean it’.”
Further, Professor Deutsch believes taxpayer will need to “tread carefully” with future offers of settlement, considering the number of automated letters issued by the ATO on a daily basis.
“The Full Federal Court said that this would be a rare circumstance and I’m not sure that it’s all that rare because the Tax Office does issue an awful lot of correspondence on a daily basis,” said Professor Deutsch.
“The Full Federal Court seem to have taken the view that it was a computer error and a decision had not been made and while technically that may be right, it puts taxpayers in a very awkward spot because you can’t rely on a statement made from the Tax Office about a payment being in full satisfaction of all your liabilities.
“Taxpayers and accountants representing should be entitled to think that if they get a clear and unambiguous statement from the Tax Office about a matter, they can rely on that without having to go back and ask ‘have you made this decision’,” he added.
“Taxpayers and their representatives, when they receive offers of settlement from the Tax Office, have to tread very carefully to make sure there is a clear and unambiguous commitment from the ATO to that end and if they have made that decision.”