Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 869
ADMINISTRATIVE APPEALS TRIBUNAL	)
	)	Nos. VT200600267-268 
TAXATION  APPEALS  DIVISION	)	
	Re	Confidential	
	Applicant
	And	Commissioner of Taxation 	
	Respondent
DECISION
Tribunal	Mr G L McDonald, Deputy President	
Date	11 November 2009
Place	Melbourne 
Decision	The Tribunal decides to:
(a)	affirm the decision with respect to the Commissioner’s assessment of the applicant’s assessable income for the 1999 year; and
(b)	vary the assessment of the 2000 year by reducing the amount assessed by $264,000; and
(c)	vary the penalty payable for both years to 20%.

The Tribunal certifies that this case resolved in a manner favourable to the applicant. 	
		
			..............................................
		Deputy President 

CATCHWORDS
Employee incentive plan introduced on last day of the financial year – was payment to be  made in return for services rendered for that year and the successive year – nature of payments made to the plan on behalf of business owner – whether owner needed long term incentive to remain with the business – did leasing transactions occur as claimed – operation of the plan – whether excessive remuneration paid – whether penalty appropriate and if so at what rate.
Administrative Appeals Tribunal Act 1975 s 37
Income Tax Assessment Act 1936 ss 26(e), 26AAC(14), 44(1), 109, 109(1), 177F, 226D and 226Y
Income Tax Assessment Act 1997 s 6-5

Federal Commissioner of Taxation v Stone (2005) 59 ATR 50
Reuter v FCT (1993) 24 ATR 527

REASONS FOR DECISION

11 November 2009	Mr G L McDonald, Deputy President	

1.	The applicant, who is an engineer, is applying for the review of decisions in respect to assessments of income tax made by the respondent for the tax years ending 30 June 1999 and 2000.  Income adjustments of $22,000 and $399,000 were added to the applicant’s respective returns and a penalty of 40% for each applied.
The Hearing 
2.	The applicant and Mr Darren Price, a chartered accountant who was an employee of Ruskin Financial Services Pty Ltd (“Ruskin”) between 1998 and 2001, gave oral evidence and were cross examined by the respondent.  The respondent did not call any witnesses.
3.	The documents filed for purposes of s 37 of the Administrative Appeals Tribunal Act 1975 along with several sets of supplementary documents were before the Tribunal as well as documents exhibited by the parties during the course of the hearing.
The Background And Facts
4.	Engineering was incorporated in 1988 and carried on a tooling engineering business.  In 1999 and 2000 Engineering supplied PET blow moulds principally to AP.  This constituted approximately 85% of Engineering’s business.  It was the applicant’s evidence that in order to retain supplier status with AP, Engineering was required to constantly upgrade its plant.  It did this by purchasing, through hire purchase, or by leasing, the necessary equipment.
5.	Before 30 June 1999 the applicant held all of the 100 issued shares issued in Engineering.  At all times, up until Engineering went into liquidation on 22 May 2005, the applicant was the sole director.  In the three tax years preceding 1999 the applicant received a modest salary, and in the 1996 and 1998 tax years he received dividends from Engineering.
6.	Messrs AM and SP were long standing employees of Engineering.  The former commenced as a machinist and developed high level computer skills which were necessary to operate the upgraded tooling machinery.  The applicant maintained that there was a shortage of such machinists in Australia.  Over time AM assumed greater contact with AP as well as undertaking the staff management role for Engineering.  It was the evidence of the applicant that a competitor of Engineering had made an approach to employ AM and that he (the applicant) was anxious to retain AM’s services.  One way to achieve that was for him to give equity in Engineering so that AM had an ongoing interest to remain as an employee.  SP was a long standing and valued employee whose services the applicant wished to acknowledge.
7.	In May/June 1999 the applicant met with Mr Ronald Scott of Ruskin.  It was the applicant’s evidence that Mr Scott suggested the introduction of an employee incentive share trust plan (“the plan”) as follows:
(a)	The plan would be constituted by a trust.  The trust would receive contributions made by Engineering on behalf of Messrs AM and SP.  In turn the trust would lend them money to buy units in the trust.  The units would give them an entitlement to participate in the profits arising from investments made.  It would be six to 12 months before ownership of the units would vest (that is, there would be progressive vesting) in order to ensure continuing service from Messrs AM and SP;
(b)	The trust would purchase shares in Engineering which in turn would pay dividend income to the plan.  That way Messrs AM and SP would have an interest in ensuring the continued performance of Engineering.  AM would have an increasing entitlement to shares up to 40% of the value in Engineering over time, although no such arrangement applied in the case of SP;
(c)	The applicant was to become a consultant to Engineering through a new company to be incorporated, K.  K would be paid a management fee from Engineering for the applicant’s services.  K would also make contributions to the trust.  The trust in turn would loan money to the applicant to purchase units in the trust.  The trust would also purchase shares in K.  K would invest in an investment company owned by the applicant REF.
8.	Mr Scott was not called as a witness to testify as to the basis upon which he recommended the scheme to the applicant.
9.	It was the applicant’s understanding that the plan had several aims, namely:
(a)	to ensure continuity of service for valued employees; and
(b)	to provide a succession plan for Engineering permitting the applicant to retire; and
(c)	that ultimately, since the applicant would retain a majority of the shares in Engineering, the plan would provide an income for him in retirement; and 
(d)	that Engineering’s assets would be separated from its production business, thereby securing the former from claim should the business fail.
10.	The proposal was to be implemented and managed by Ruskin.  Ruskin arranged the purchase of the documentation relating to the plan from Remuneration Planning Corporation Pty Ltd (“Remuneration”), a company based in Sydney.  According to the evidence of Mr Price, Ruskin arranged for approximately another 66 of their small business clients to participate in the same or similar plans promoted by Remuneration.
11.	The applicant accepted that he had seen copies of various documents associated with the establishment of the plan, some of which he had signed, but was unable to recall their contents except, and then only sometimes, in the most general way.  He told the Tribunal that he relied on the advice of Mr Scott and that he did not understand the details of the proposal.  He also told the Tribunal that despite undertakings to do so Remuneration did not forward documentation explaining how the proposal was to operate.  The applicant does not seem to have pursued either understanding how the plan was to operate or obtaining the documentation as energetically as might be expected in the circumstances, given he would be diluting his interest in a company which he had established and which was owned 100% by him and given the establishment of a trust which was to hold investments not only on his behalf but also of third parties who were trusted long term employees of his company.
12.	As part of the documentation the applicant claims to have been shown a letter signed by Mr Nick Petroulas (who he described as the second in charge at the Australian Taxation Office) that the scheme “passed”.  The applicant said he took “passed” to mean that the Commissioner was satisfied that there would be no adverse tax implications arising from the implementation of the scheme.  The applicant apparently did not ask for, and was not given, a copy of that letter.  No such letter emerged in the course of the evidence and since Mr Scott was not called he could not be asked about the letter.  The Tribunal is unable to attribute any weight to the content of such a letter.
13.	According to a letter, dated 23 June 1999, confirming the arrangements from Ruskin to the applicant, Engineering was to deposit $142,120 with the trustee as the initial contribution towards benefits for three employees.  Apart from Annexure J of Exhibit A3 records the contributions to made on behalf of each employee in the 1999 year as follows:
(a)	$22,000 for the applicant;
(b)	$92,400 for AM; and 
(c)	$27,720 for SP.
The plan was to be implemented before the close of the 1999 financial year in order to take advantage of any beneficial taxation deductibility open (as advised in Ruskin’s letter to the applicant dated 30 June 1999).
14.	The minutes of the meeting of Engineering held on 23 June 1999 record it as being resolved that a $22,000 contribution would be made on behalf of the applicant for an “unvested – Long Term Incentive for the purpose of taking up 22,000 Employee shares in [K] …” and that the shares would not vest for five years.  The minutes record, ”This is an employer incentive driven contribution hinging principally on the continuous loyal service of the employee(s).”  It seems to have been assumed that the loyal service was to be extended to Engineering even although, as part of the new arrangements, the applicant was to be employed by another company which in turn was to provide his services to Engineering.
15.	On 30 June 1999 K was incorporated.  The applicant became the sole director of K.  K’s shareholders were Engineering and M.  The latter company was also acquired on 30 June 1999 to be the trustee for the plan.  The shareholders of M were the applicant and his son, each holding six ordinary shares in the company.  The applicant and his son were also the directors of M (until his son’s resignation on 26 July 2002).  The applicant became an employee of K.  A letter dated 1 July 1999 from K to the applicant confirmed him as having an employment contract with K from 30 June 1999 and sets out the terms of that employment.
16.	According to Mr Price the $22,000 payment for the 1999 tax year should have been forwarded by Engineering to K and then from K to M.  Despite receipts dated 30 June 1999 being issued by M, the business account statement issued by M’s bank (the National Australia Bank) records two cheques – one for $22,000 and one for $120,120 – deposited into the M account only on 21 February 2000.  The long time lapse between the receipt of the contributions and their deposit into the trust account is indicative of the money not being invested in a timely manner on behalf of the beneficiaries.  It suggests that the plan was not being seriously implemented.  The Tribunal, however, accepts that the payments outlined were made on 30 June 1999.
17.	A deed of trust was established.  No signed and dated deed was produced.  The applicant told the Tribunal that he attended at Ruskin’s offices in order to sign the necessary paperwork associated with the implementation of the plan.  The signing, if it occurred, must have occurred prior to or on 30 June1999.  The Tribunal accepts that the applicant was shown, but was told he could not be given a copy of, the trust deed.  Curiously, having regard to a trustee’s responsibility to administer a trust according to its terms, the contents of the trust deed and, it appears, other documentation involved in implementing the plan were the subject of a confidentiality agreement between Remuneration and Rushkin.  This was an attempt by Remuneration to restrict what it claimed to be its interest in the intellectual property associated with the development of the plan from becoming more widely distributed.  Ruskin was required to hold the deed and was permitted to show it on request to those employer companies implementing the plan.
18.	Had the transfer of the $22,000 occurred as Mr Price maintained it should, then the applicant would have worked for K for one day in the 1998/1999 tax year.  Mr Price stated in his affidavit that value of the contributions was to be determined by a remuneration report prepared by the Kenneths group and maintained in his oral evidence that a report should have been prepared.  An unsigned Labour Supply Agreement dated 30 June 1999 between Engineering and K evidences K’s appointment as an independent contractor for the provision of services on a monthly in arrears basis to Engineering for an unspecified amount.  Exhibit R6 is an unsigned letter from the applicant in his capacity as a director of K to the applicant in his personal capacity.  It sets out the terms of his employment with K.  The Tribunal does not accept Mr Price’s evidence that the letter merely constituted advice as to how the applicant could structure his package.  The letter establishes that the applicant was to receive a minimum $1,500 salary per annum, superannuation, fringe benefits and “Maximum contributions to [the plan] (to be determined by independent analysis).”  Despite Mr Price’s evidence to the contrary, no such analysis was apparently carried out for the 1999 year.  None was produced in these proceedings to support Mr Price’s evidence.  It was the applicant’s evidence that he had no idea how the value of his services was to be calculated.
19.	Despite being employed by K in the 2000 tax year Engineering continued to pay the applicant’s superannuation contributions.  The applicant could give no reason as to why when employed by K his superannuation contribution was made by Engineering.  However, the Tribunal notes he remained all times the sole director of Engineering and the payment was made to him in that capacity and not in his capacity as an employee of Engineering.  Accordingly, the Tribunal is satisfied that there is nothing untoward in this payment being made.  The point, however, is that one of the stated reasons for the introduction of the plan was that it would provide the applicant with a benefit in lieu of superannuation.  The Tribunal accepts that the continuation of superannuation contributions, at the maximum tax deductibility rate, brings into question the legitimacy of one of the stated reasons for the introduction of the plan.
20.	Despite the affidavit evidence of the applicant confirming the payment of the $22,000 as occurring from Engineering through K to M, it did not happen in the way outlined.  Instead, the $22,000 was transferred from Engineering directly to M.  Mr Price agreed in cross examination that in the absence of any management fee being paid by Engineering to K for the applicant’s services the $22,000 would form part of the applicant’s remuneration from Engineering for the 1999 tax year.
21.	The minutes of a meeting of K dated 30 June 1999 record that 22,000 employee shares at $1 were issued from K to M.  A memorandum signed by Mr Scott of Ruskin also dated 30 June 1999 confirmed the employee shares in K were to vest in five years time and that the applicant would have no entitlement to the funds until the expiration of that time.  It was also noted that this employer incentive hinged “principally on the continuous loyal service of the employee(s).”  The applicant was at that time the sole shareholder in, and director of, Engineering.  He proposed always to remain the majority shareholder.  In his oral evidence to the Tribunal the applicant agreed he did not need any such incentive to remain in his business.  That an owner/majority shareholder of a company should enter into a continuing loyalty agreement is, in the circumstances outlined, absurd and the Tribunal does not accept this as representing a legitimate reason for introducing the plan.
22.	The events of the busy 30 June 1999 were not yet complete.  An unsecured loan of $22,000 was recorded in the K financial statements as being made to REF on that day.  No documentation is evident to support the loan being made.  According to the applicant’s affidavit the money was to be used to diversify his investments.  The diversification was to occur by REF purchasing plant and equipment and leasing it to Engineering.  It was claimed that Engineering could not afford to purchase the plant and equipment but that it could afford to lease it.  Additionally, in the applicant’s affidavit he states that the money was to be used to purchase equipment already owned by Engineering in order to place it out of the reach of Engineering’s creditors.  The applicant also told the Tribunal that the money invested in REF was also used to buy equipment in another company he controlled.  This suggests, and the Tribunal accepts the suggestion as a fact the plan was not established to redirect money exclusively back into the development of Engineering, but that some of the money was used for other investments controlled by the applicant.
23.	One purchase of equipment is documented as occurring in which REF is noted as purchasing a grinding machine from Engineering.  A signed contract of sale for the equipment between Engineering and REF is dated 30 June 1999.  There was no independent valuation obtained for the grinder.  The taxation return for Engineering for the 1999 tax year records depreciated assets to the value of $134,000 as being sold but the valuation is not itemised and the purchaser(s) is not recorded.  It is not possible to determine whether the grinding machine, the subject of the contract of sale, was in fact sold to REF at its depreciated value or some other value.  There is a record of a lease dated 30 June 1999 between REF and Engineering of a grinder for an annual rental of $6,914.29 for two years with a residual value of $12,000.  An un-itemised total leasing payment for the 1999 year for Engineering is recorded as totalling $60,815.  It is not known if this figure included any payment to REF.  It would seem not because it was the oral evidence of the applicant that no lease payments were ever made from Engineering to REF.  That no payments were in fact made seems to suggest that the contract of sale and lease documentation were put in place to achieve a result other than that stated.  The Tribunal is satisfied that the evidence does not support what is documented as in fact occurring that is, that the documentation is inconsistent with the facts as in reality the purported leasing arrangement between REF and Engineering for plant and equipment was not effective in either the 1999 or 2000 tax years.
24.	Copies of invitations to participate in the plan, applications for the issue of units and notifications of the units issuing to the applicant and Messrs AM and SP are dated 30 June 1999.  In respect of the applicant 22,000 “A” class units in K were issued.  Consistent with the curious content of the minutes of the meeting of Engineering dated 29 June 1999, “A” class units were prescribed in the trust deed to be subject to a vesting period.  Class “B” units, which were issued to Messrs AM and SP, were fully vested.  The class unit allocation is the reverse of the applicant’s understanding of what was to occur.  It is consistent with his ownership of Engineering that the units issued to the applicant would be fully vested whereas those issued to Engineering’s employees would issued subject to a vesting period in order to maintain their loyalty and on going service.  The Tribunal accepts that this was not implemented as designed.  This points to the implementation of proposed plan as being significantly defective.
25.	There were also other classes of units - class “C” and “bonus” units.  Bonus units were to be issued to, in effect, cancel the amount of the loan made by the trustee to enable the employee to purchase units.  The effect of this was to leave the employee with the value of the employee units unencumbered.  The applicant did not understand the purpose surrounding the issue of bonus shares and stated that he thought that they would issue in recognition of outstanding performance by an employee.  Since this was clearly not so, as it was not something authorised by the trust deed, it further reinforces a lack of understanding of the applicant of the purpose to be achieved by the introduction of the plan.
26.	In the 2000 tax year the arrangements were varied.  It was determined that AM would become an employee of K and that he would join the applicant in providing consultant services to Engineering in return for a management fee to be paid by Engineering to K with effect from approximately 29 January 2000.  A report addressed to K was prepared by the Kenneths Group dated 9 February 2000 setting out an analysis of remuneration recommended to be paid to the applicant and AM (“the report”).  The recommended remuneration for the applicant was $180,000 with incentive remuneration of $84,000 (totalling $264,000).  The report also recommended that a further $94,000 set aside for long term incentive payments over a five year period.  In regard to AM, the report also recommended remuneration of $85,000 and an incentive payment of $35,000 along with a term incentive of $10,000 to be set aside.  The advice was not followed since $399,000 was contributed to the plan on behalf of the applicant for the 2000 tax year, being considerably more than that recommended.  At the time no justification from K for the additional amount paid was provided.  The applicant agreed in cross examination that there was no fixed amount that Engineering would pay to K for his services to Engineering.  The applicant also agreed that the amount was not set because it would depend on the profit made by Engineering in 2000 tax year.  This leaves the Tribunal satisfied that K had no regard to the report prepared by the Kenneths Group.  While there is nothing to suggest that the analysis carried out by the Kenneths Group, in as far as it recommends a payment of $264,000 per annum to the applicant is other than justified the fact that it was apparently not accepted, again, undermines the introduction of the plan as being for the purposes stated.
27.	The first payment on behalf of AM was decided on 29 January 2000 whereas the report from the Kenneths Group is dated 9 February 2000.  Additionally, the Tribunal notes that minutes of the K director’s meeting dated 2 February 2000 records the applicant deciding to contribute on his own behalf the sum of $150,000 – again this predates the report from the Kenneths Group.  The Tribunal appreciates that both the letter to AM and the minutes of the meeting of K dated 2 February are unsigned.  However, the applicant has not produced any other documentation which would support the decisions being made on another date.  The Tribunal is satisfied that it is disingenuous for the applicant to claim that he relied on the report of the Kenneths Group to determine the appropriate contributions in 2000 year when decisions were made in fact prior to the production of the report and then in as far as the amount paid by Engineering to K for the applicant’s services far in excess of the recommendations contained in the report.
28.	The applicant confirmed in his oral evidence that the financial year ending 30 June 2000 was very successful for Engineering.  In that tax year Engineering paid a $535,800 management fee to K.  K contributed the fee to the plan – $136,800 being for AM and $399,000 for the applicant.  No contribution was made for Mr Phillips in the 2000 tax year.  The trust lent the equivalent of the money contributed in respect of AM and the applicant respectively to purchase employee shares in K.  On behalf of the applicant K acquired a further 399,000 “B” class shares in REF.  According to the applicant’s evidence REF again purchased plant and equipment to be leased to Engineering.  No lease documents were produced for the 2000 year (other than that said to be entered into in 1999 which covered both the 1999 and 2000 years – see paragraph 22 of these reasons).  The financial statement for Engineering for the period ending 31 December 2000 does not record any payments from Engineering to REF for the lease of equipment.  This along with the applicant’s oral evidence that no such payments were ever made confirms the Tribunal’s conclusion set out in paragraph 22 herein. 
29.	The applicant said the plan died when Mr Scott advised participants in 2000 or 2001 that there was “trouble” and that thereafter Mr Scott became unavailable because of illness for a three year period.  At that time the applicant described everything as reverting to Engineering for growth.  By this evidence the Tribunal takes the applicant as saying the arrangements under the plan were discontinued and the situation was returned to that prevailing before the plan was introduced.  Apart from the resignation of the applicant’s son as a director it does not seem that there was any documentary record of this reversion dealing with the sale of equipment from Engineering, the transfer of employees from K back to Engineering, the deregistration or disposal of the companies incorporated to bring the proposed plan into being occurred.  It was the applicant’s evidence that there was no money in the any of the companies other than Engineering and that the companies were “just shell companies.”
30.	The applicant agreed, when it was put to him in cross examination that Engineering paid him a dividend in the 1998 and 2001 tax years and the only difference between those years and the 1999 and 2000 years is that he used the plan as a means of extracting profits from Engineering.
31.	The Tribunal is not concerned with the liability to pay tax, if any, of Messrs AM and SP.  The respondent posed the following issues in respect of the applicant:
(a)	Are the contributions made by Engineering to M on 30 June 1999 and to K in 2000 on behalf of the applicant for his benefit and assessable to him in those years on the basis that the payments represent ordinary income either as:
(i)	an allowance or benefit within s 26(e) of the Income Tax Assessment Act 1936 (“the 1936 Act”); or
(ii)	excessive remuneration under s 109 of the 1936 Act; or
(iii)	as a dividend within s 44(1) of the 1936 Act.
Alternatively,
(b)	are the contributions by Engineering and/or K ending in a trust fringe benefits to the both companies as employers.
Alternatively,
(c)	does Part IVA of the 1936 Act apply?  Either in a broad sense encompassing the totality of transactions over the two year period or in a narrower sense to the transactions occurring on a separate basis in each of 1999 and 2000.
Additionally if any of the above apply, 
(d)	whether the penalty imposed should be remitted in full or in part.
32.	On behalf of the applicant it was submitted not any of the (a), (b) or (c) above applied.  It was submitted that any benefit conferred on the applicant under the plan was a fringe benefit, that K has paid fringe benefit tax and because of the effluxion of time no valid objection could now be lodged.  Alternative grounds are advanced with respect to the non applicability of Part IVA of the 1936 Act.  The first is that the application of Part IVA is negated by the FBT assessment to K which results in it being accepted that the applicant received a legitimate benefit which takes the circumstances away from the ambit of a scheme as contemplated by s 177F of the 1936 Act.  The second is that elements of s 177F are not satisfied so that the provision has no effect.  Finally, it is submitted that the applicant taxpayer has a reasonably arguable case that the contributions were not assessable, and that Part IVA did not apply, so that even if the Tribunal is satisfied that he does not succeed the penalty should be remitted to nil.  It is also submitted that the applicant took reasonable care in implementing the plan to ensure compliance and relied on professional advice so that if Part IVA applies the penalty should be 25% reduced to 20% for voluntary disclosure.
33.	In respect to the 1999 tax year it is fanciful to suggest that the applicant, in his capacity as an employee of K, provided any services to Engineering for which Engineering should pay.  In that year K was acquired on 30 June and no payments were made to it from Engineering.  There is no reason for Engineering to pay M for any services provided by the applicant since it is not alleged any services were provided.  In the 1999 year the applicant was both the director and an employee of Engineering.  As the director and shareholder the applicant was in a position to determine what remuneration he was paid in his capacity as an employee and what distribution would be made to him as a shareholder by way of a dividend.  There was no evidence of any employment contract between the applicant and Engineering which would assist in determining the character of the payment. Ordinary principles must be applied.  The payment of the $22,000 is properly characterised as a payment directed in the applicant’s capacity as a director of Engineering to him in his capacity as an employee in return for services rendered as an employee.  It may be a gratuitous payment in that it was not one made on a regular basis or in recognition of any particular service rendered by the applicant qua employee.  Such payments nevertheless can form part of a taxpayer’s income.  As such it is ordinary income and assessable under s 6-5 of the Income Tax Assessment Act 1997 (“the 1997 Act”).  In turn in his capacity as an employee the applicant has directed the payment be applied to M.  There is no evidence which supports the payment being made to him as a distribution to him as a shareholder by way of a dividend.
34.	In the 2000 year $399,000 was paid from Engineering to K.  The payment was in effect a payment made for services rendered by the applicant.  The payment made was significantly greater than that recommended in the remuneration report obtained by K from the Kenneths group.  To the extent that it exceeds the recommended amount payable the Tribunal is satisfied it should be deemed a dividend paid by Engineering to the applicant.  The Kenneths report recommended payment of $264,000 by way of salary.  That is the amount reasonably payable to K by Engineering for the applicant’s services.  The Tribunal is satisfied that the additional amount recommended to be set aside for the applicant’s long term incentive payment is based on a misunderstanding by the Kenneths group and should not be included in the salary reasonably payable.  As determined earlier in these reasons the Tribunal does not accept that any incentive was justified to maintain the continuing services of the applicant to Engineering.  Accordingly, the Tribunal does not accept this aspect of the recommendation of the Kenneths group in as far as it extends to payments reasonably payable from Engineering to K for the applicant’s services. 
35.	The Tribunal is satisfied that the applicant is an ‘associate’ as that term is defined in s 26AAC(14) of the 1936 Act.  Since the applicant is the sole director of Engineering and was at the time a joint director with his son of M and both of Engineering and M were the joint owners of K, it follows that K was obliged to act under the direction of the applicant.  The Tribunal is satisfied that the applicant directed the payment of the $135,000, which is correctly classified as either remuneration or excessive remuneration and therefore a dividend.   As such it is assessable to the applicant. 
36.	There was a suggestion that fringe benefits tax may have been paid by, presumably Engineering, on the amounts paid into the plan on the applicant’s behalf. The Tribunal has already found that the 1999 year payment was income in the hands of the applicant.  The year 2000 payment cannot be classified as a fringe benefit paid on behalf of Engineering since the applicant was an employee of K in that year. There would seem to be no basis for Engineering to make such a payment.  How any such payment may have been assessed in Engineering’s return is not a matter which is before the Tribunal in this case, and hence can have no influence on the determination in this case.
37.	In view of the determination by the Tribunal it is not necessary to consider the applicability of other provisions relied on or of Part IVA.  The final issue to be determined is that relating to penalty.  The respondent properly concedes that the applicant is entitled to a 20% reduction for voluntary disclosure after the commencement of the audit.  Despite the applicant’s failure to try and properly understand what was involved in the implementation of the plan, the Tribunal is sympathetic to his position that he is an engineer trying to operate a business in a competitive market and that he relied on his professional advisers to give him proper advice with respect to the adoption and implementation of the plan.  The Tribunal is satisfied to accept Ruskin as a professional adviser to the applicant rather than as his agent.  Clearly the advisers failed to provide him with the necessary material and sufficiently accurate advice to properly comprehend and implement the plan.  However the Tribunal accepts that the applicant was careless in failing to ascertain the details of the plan.  With that in mind the Tribunal is satisfied that the penalty rate which should be imposed is 25% less the 20% reduction resulting in a payment of 20%.  For the reasons stated the Tribunal determines to:
(a)	affirm the decision with respect to the Commissioner’s assessment of the applicant’s assessable income for the 1999 years; and
(b)	vary the assessment of the 2000 year by reducing the amount assessed by $264,000; and
(c)	vary the penalty payable for both years to 20%.
The Tribunal certifies that this case resolved in a manner favourable to the applicant. 
I certify that the 37 preceding paragraphs are a true copy of the reasons for the decision herein of
G. L. McDonald, Deputy President
Signed: 	.....................................................................................
		Personal Assistant
Date/s of Hearing	23 and 24 February 2009
Date of Decision	11 November 2009
Counsel for the Applicant	Dr N Orow
Solicitor for the Applicant	Mr R Jorgensen, 
	C/- Harwood Andrews
Counsel for the Respondent	Mr S Sharpley
Solicitor for the Respondent	Mr N Gulati,
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