A $54,965.50 penalty turned on a manilla folder nobody copied and nobody read.
Your client sacks his accountant, collects a manilla folder on the way out, never opens it and drops it on his new accountant’s desk. He says the ATO and his old accountant agreed no GST is payable. They did not. Nobody copies the folder.
Years later the Tribunal asks what was in it. Nobody can answer. A $54,965.50 penalty turns on that silence.
BHZD and Commissioner of Taxation (Taxation) [2026] ARTA 1376.
What happened
The applicant is a family partnership. It demolished the existing premises and built two townhouses, claiming $217,281 in input tax credits. Two partners lived in each before selling it. The first sale settled with GST of $93,568 withheld [13]. The first agent chased it back as a main residence sale, on instructions [15]-[16]. The ATO refused.
The second sale ran on facts General Member Dunne found were exactly the same [77]. This time the client told the conveyancer no withholding was required, a critical step [94]. The Commissioner assessed at the 50% recklessness rate [53].
The safe harbour turns on what you can prove you handed over
The safe harbour in s 284-75(6) of Sch 1 to the TAA has four limbs. Two were live: all relevant taxation information and the agent’s recklessness [59]-[60].
Dunne could not be satisfied what was provided. No one knew what was in the folder, no one had a copy and the client never looked [66]-[68]. That decided it. The rest came “in brief” [71].
The client had told the incoming agent the ATO accepted GST did not apply. It had not. The test is objective. What he passed on was not accurate information [73]-[74]. “Inaccurate understandings can hardly be ‘relevant’” [79].
Dunne called the incoming agent an unflinchingly honest witness [49]. He declined to decide whether that agent was reckless [83]. He still said a new agent cannot take on a file saying “well I wasn’t on board then, so it’s the earlier tax agent’s problem, not mine” [85].
The practical takeaway
First, the safe harbour is won or lost on the file. Not every letter is mandatory, but Dunne imagined that in “99.99% of cases” all ATO correspondence and substantiation has to be handed over [75].
Second, an inaccurate assertion is not relevant information. Verbal facts can be enough, but not a material inaccuracy [78]-[79].
Third, hardship belongs in the remission submission. The ATO refused for want of exceptional circumstances, without weighing the partners’ health and finances. There is no such test, the discretion is unfettered and those circumstances count [89]. The penalty went back at 35% [97].
The Commissioner’s own closing pointed to hardship release in s 340-5 of Sch 1. It does not reach GST penalties [98].
General information only. This note was accurate when written. The law may have changed since and the note is not updated. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.