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Failure to comply with private ruling is not a failure to take reasonable care

January 2012

A recent case before the AAT has held against theCommissioner finding that the taxpayer's non-compliance with the Commissioner's private binding ruling did not constitute a failure to take reasonable care for the purposes of penalties in Schedule 1 of the Taxation Administration Act 1953.

Australian resident with an overseas pension
The Australian resident taxpayer was in receipt of a Dutch pension in 2001 and sought verbal advice from the ATO in relation to the Australian taxation implications.

The ATO advised that the pension would be subject to taxation at a rate of 10%. The taxpayer lodged their 2003 income tax return and included the pension in their income tax return and claimed a deduction for an undeducted purchase price.

Reasonable care
The taxpayer then wrote a letter to the ATO in 2004 which was treated as an application for private binding ruling by the Commissioner.

The Commissioner confirmed that the pension was assessable income but did not specify the rate of tax and was entitled to claim their contributions to the fund as an undeducted purchase price deduction.

The taxpayer amended their 2003 return to exclude the pension income and the deduction and the following 2004, 2005 and 2006 returns also excluded this amount.

Upon audit the Commissioner levied a 25% penalty of the tax shortfall for failure to take reasonable care.

Conflicting ATO advice
The Tribunal held that the taxpayer initially sought ATO advice which the taxpayer claimed conflicted with the private ruling advice and this constituted reasonable care on the part of the taxpayer.

The taxpayer was confused with the differing advice as he had a limited grasp of English and the Tribunal confirmed that this was a justification for the fact that he was confused.

Know where you stand

If you have a question about 'reasonable care' or you are concerned about how your overseas pension may affect your Australian tax liability, contact us on (02) 9957 4033 or via email to enquiry@batescosgrave.com.au.

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Last updated January 2012. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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