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Case Of The Sanctuary Lakes Pty V Commissioner

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Question:

Discuss about the Sanctuary Lakes Pty v Commissioner of the Taxation.
 
 

Answer:

Case introduction:

This is the case of the Office of the Australian taxation which released the impact of the decision of the statement with regard to the full court of the federal court in the case of the Sanctuary Lakes Pty v Commissioner of the taxation. This case further raised an issue as to whether the taxpayer would be entitled to the deductions and whether the penalties were imposed and also remitted on the related parties (Schilling, 2006).

The ATO has successfully published the impact statement of the decision in relation with the federal court in the stated case.

Sections breached:

The section 260-60 (1) was breached by the tax payer.

 

Decision and the reason behind the decision:

The appeal of the tax payer was dismissed by the full federal court of law. The court had found that the losses that were claimed were capital in nature and this also, agreed with the AAT which claimed that the outgoing was not incurred by the payer who paid the taxes during the year of 2003. In relation to the issues related with the penalties, the court had rejected the argument that was laid down by the court which followed that the payer of the taxes along with its agent must also take some of the reasonable care in case, it had a RAP. RAP meant having and taking a reasonable care which was in accordance with the statutory standards that were independent in nature and there is as such no reason which was supposed that the application would take a reasonable amount of care which would include the consideration as to whether the tax payer has a RAP or not.

The court went on to dismiss the appeal of the commissioner. There was a disagreement between the views that was expressed in the case of Traviati wherein the court had held that the AAT failed to take into account all the facts that were relevant. When it came to the exercising of the discretion for the remittance of the penalty under the section 298-20 of the schedule 1 of the Taxation Administration Act of the year 1953, by the way of considering the facts that the payer of the taxes had the RAP on the deduction of the issue in the dispute. By the majority, the court had found that the AAT applied the test under the section 298-20. The AAT had further acknowledged that there was a need for the circumstances that would mitigate the failure of the payer of the taxes to take some of the reasonable care and appreciate the circumstances of the payer of the taxes that were relevant to the stated decision.

Griffiths J further notes that under section 298-20, the application was confined to the terms and that under the scheme of the divisions 284 and the 298, the consideration was precluded of the fact of the RAP from the exercising of the discretion of the sections 227 and 240. The power under the section 298-20 required the consideration of the circumstances of the payer of the taxes and the fact that the tax payer in the stated case had a RAP on the provisions of the contract and the provisions had the party which was the matter which related with some of the particular circumstances. The judge also notes the decision in the case of Traviati was read in the full court decision in Dixon v FC of T during the year 2008 167 FCR 287 which required the decision to be made under the section 298-20 in order to determine the harshness of the particular circumstances of the payer of the taxes for the imposition of the penalty. The correct question under the stated section 298-20 is not the question of harshness but is the decision of whether the maker of that decision is satisfied to not. This has a regard to the payer of the taxes in the particular circumstances which was apt in order to remit the amount of the penalty. The decision was in accordance with the relevant paragraph 247-9.

 


Before the AAT, it was held that the deductions would not be allowed. But then the AAT also stated that there were many of the tax shortfalls which were the result from the failure by the payer of the taxes or the agent so that it would be take care of. But the AAT decided that the penalty which was payable must be remitted in relation with the other of the issues that were involved in the dispute and this was decided on the basis of the payer of the taxes as per the issues laid down under the Reasonably Arguable position or RAP. Both of the parties had filed an appeal in this regard and the federal court had held that the decisions that were laid down in the case of FC of T v Traviati during the year 2012. Hence, considering the same the court dismissed both the appeals.

In relation with the issue of the penalty, the full court agreed with the case of Traviati and so, rejected the arguments aid down by the payer of the taxes that it was necessary to follow the payer of the taxes took on a reasonable care which was independent of the statutory standards. The court did not agree with the view that was expressed in the case of Traviati and hence, the court did not take the same into consideration when it came to the exercising of the discretion of the remittance of the penalty as laid down under the section 298-20 of the schedule 1 of the Act of Taxation Administration of the year 1953. Hence, the same took into account the fact that the payer of the taxes had RAP on the issue of the deduction and so, the same was in dispute (Tax institute, 2017).

The summary of the facts of the case included the payer of the taxes which was involved in the development of the Sanctuary Lakes Resort which is the residential development which was located in Point cook in the area of Victoria. There were many of the related entities which included the tax payer that was responsible for the different functions of the development and also, it entered into a number of different agreements. In its return of taxes of the year 2003 relating with the income of the year, the payer of the taxes claimed the deductions for the losses and also the outgoings were stated to have been incurred under a number of different agreements (Tax technical, 2017).

 


After the ATO had conducted an audit into the payer of the taxes that was involved in the development, the commissioner went on to issue the amended assessment to the payer of the taxes, this disallowed the number of the deductions that were claimed. The commissioner has went on to assess the tax payer at the rate of 25% which was the rate of the administrative penalty on the basis of the different alternatives with relation to the issues that were involved. On the basis of the same, the tax payer or the agent had failed to take on some of the reasonable care when it came to filing the return of the income taxes and so, in relation with the issues that were involved, on the basis of the payer of the taxes failed to take the reasonably arguable position. On the review of the same, the tribunal agreed with the commissioner that the payer of the taxes were not allowed to claim any deductions in dispute as per the AATA 404 of the year 2012. The tribunal also deicide that there were many of the taxation shortfalls which was the result of the failure of the tax payer or it agent to take on some of the reasonable care. But the tribunal had decided to remit the amount of the penalty that was payable in full on one of the issues that were involved in the disputes, this was on the basis of the tax payer who had the RAP on the stated issue.

In respect of the view of the decision taken, it is not usual in nature for the tax payer to take a reasonable amount of care when he is in the course of taking some of the statements to be made to the commissioner. In such a case, the full court has further recognised that having a RAP and also taking a reasonable amount of care is somewhat independent and is as per the statutory standard when it comes to the imposition of the penalties which is administrative in nature. The court also went on to reject the proposition that the same allows the tax payer and its agent to take some amount of reasonable are when it comes to making a statement in case the tax payer has had a RAP under the court of law.

The ATO also accepts the decision of the curt when it comes to deciding the provisions stated under the section 298-20 when it comes to the remittance of the penalty which has been imposed when it comes to taking some of the reasonable care wherein a maker of the decision could take into consideration the falling that the taxpayer has had a RAP under the law of the income tax. Also, there is nothing contained in the legislation wherein such a consideration was relevant to the question that has bene stated. But the cull court also never stated nor the reasons it stated implied that there was an existence of the RAP which is the matter of the maker of the decision as if there was necessarily which was bound to be taken into account when it came to exercising the discretion under the section 298-20 of the Act (Jacmac, 2017).

Hence, the weight that had to be given to the existence of the RAP was mainly for the makers of the decision when it came to determining from one case to another as having regard to the facts and the circumstances of each one of the case. As far as the administrative treatment is concerned there are no implications for the precedential documents of the ATO (ATO, 2017).

 

Conclusion:

Hence, in the nutshell, this was the appeal from the administrative appeals tribunal by the payer of the taxes and which was a cross appeal by the commissioner in relation to the amount of the penalty. The tribunal confirmed the objection that was raised by the commissioner who had allowed the deductions that were made for the losses and also of the outgoings that were incurred under the various sets of the agreements that were related with the development of the sanctuary lakes golf courses and the resort. The deductions that were claimed were mainly for the losses the which was incurred by the company on the losses of the sale of the golf membership and also for the losses which was in respect of the forgiveness of the debt which was owed by one of the companies that were connected with the development of the sanctuary lakes and resorts and also comprised of the two items of the expenditure which the payer of the taxes had agreed to undertake in relation with the development of the golf course. The tribunal had also set aside the decision of the commissioner which was related with the penalties of the administration in respect of the issues and had also held that the company had an arguable position (minterellison, 2017).

Following the same, the appeal of the tax payer was dismissed. The losses that were claimed were held to be of capital in nature. Also, the interests of the memberships did not form the part of the trading stock of the payer of the taxes since it was trading at the time when the company had incurred those losses. Hence, the losses were considered of capital nature (Minterellison, 2017).

 

References:

Law.ato.gov.au. (2017). Sanctuary Lakes Pty Ltd (VID 520 of 2012 and VID 521 of 2012 ). [online] Available at: https://law.ato.gov.au/atolaw/view.htm?DocID=LIT/ICD/VID520of2012andVID521of2012/00001 [Accessed 16 May 2017].

Morgan, J. (2017). *Sanctuary Lakes Pty Ltd v FCT – Full Court confirms denial of $18m deductions in restructure of golf resort complex [37]. [online] Tax Technical. Available at: https://taxtechnical.com.au/sanctuary-lakes-pty-ltd-v-fct-full-court-confirms-denial-of-18m-deductions-in-restructure-of-golf-resort-complex-37/ [Accessed 16 May 2017].

Schilling, M. (2017). TAXATION. [online] www.vicbar.com.au. Available at: https://www.vicbar.com.au/GetFile.ashx?file=pdf/20140212%20-%20MAS%20CV.pdf [Accessed 16 May 2017].

Taxinstitute.com.au. (2017). Decision Impact Statement - Sanctuary Lakes Pty Ltd - The Tax Institute. [online] Available at: https://www.taxinstitute.com.au/news/decision-impact-statement-sanctuary-lakes-pty-ltd [Accessed 16 May 2017].

www.jacmac.com.au. (2017). No Sanctuary at the Lakes. [online] Available at: https://www.jacmac.com.au/uploaded/20131216_Litigation_Update_-_No_Sanctuary_at_the_Lakes_v5.pdf [Accessed 16 May 2017].

www.minterellison.com. (2017). Income Tax - Deductions. [online] Available at: https://www.minterellison.com/files/Uploads/Documents/Publications/Alerts/NA_20140130_Income%20Tax%20Deductions1.pdf [Accessed 16 May 2017].

www.minterellison.com. (2017). Income Tax - Penalties. [online] Available at: https://www.minterellison.com/files/Uploads/Documents/Publications/Alerts/NA_20140130_Income%20Tax%20Penalties1.pdf [Accessed 16 May 2017].

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