The decision of the Administrative Appeals Tribunal
(AAT) in Sinclair v FC of T  AATA
902 has thrown up some uncertainty about the level of assurance
that taxpayers need to obtain to avoid being subject to tax
Tax law advice
The case concerned a Melbourne stockbroker and property
developer who took a deduction based on advice from his tax
accountant. The Australian Taxation Office (ATO)
denied Mr Sinclair's deduction and imposed a penalty equal to
25 per cent of the tax liability on the basis that Mr Sinclair had
failed to take reasonable care in preparing his tax return. The AAT
upheld the penalty, finding that Mr Sinclair had failed to take
reasonable care because he had simply relied on the advice of his
accountant. Instead, the AAT ruled, Mr Sinclair should have sought
the advice of a tax lawyer.
While the decision highlights the need for taxpayers to seek
expert tax law advice, it has raised a number of issues. One of
these is that the AAT did not qualify its statement and gave no
guidance on whether (and if so, when) the advice of a tax agent
would ever be sufficient.
What is reasonable care?
Further uncertainty arises because of the subsequent decision in
Shin v FC of T  AATA 1012 in which the AAT held that
the taxpayers, an elderly Korean couple with little business
experience and who spoke little English, had exercised reasonable
care in reliance on the advice of their tax accountants.
While the two decisions appear to be in conflict, they merely
highlight the principle that the 'reasonable care' standard
is judged by reference to what a reasonable person with all the
taxpayer's circumstances (i.e. knowledge, education, experience
and skill) would do. In other words, a higher standard of care is
expected of taxpayers with a degree of skill and experience that
should put them on notice that expert advice is needed.
It is expected that accounting bodies will lobby the ATO and
government to provide clarity on the matter. In the meantime,
taxpayers are advised to seek advice from a tax lawyer on any
significant or complex transactions.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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