LAURETI V COMMISSIONER: NOVEL QUESTIONS ON PENALTIES AND DEFAULT ASSESSMENTS

How can the ATO say that a taxpayer intentionally disregarded the law and be liable to a penalty when the ATO fails to disclose what law was broken?

That was a theme, inherent in a taxpayer’s Federal Court interlocutory application, arising in Laureti v Commissioner of Taxation [2026] FCA 1086.

Unusually, this was the taxpayer’s attempt to obtain a summary judgment against the Commissioner’s 75% penalty position. The applications against the Commissioner are rare.

The taxpayer was disputing the Commissioner’s penalty decision found in circumstances where the Commissioner raised default assessments and alleged evasion had taken place. The taxpayer raised various arguments about the Commissioner’s position in trying to have the Court overturn the Commissioner’s position before hearing.

To quote Perry J, a number of “novel and important questions”, arose relating to the “imposition of administrative penalties in circumstances where the Commissioner issues a default assessment”.

Those questions included (summarily):

1. Does a ‘shortfall amount’ arise, on which an administrative penalty can be calculated, when the Commissioner has issued a default assessment of income tax and has not followed the statutory formula (s4-15 ITAA 1997) prescribed for calculating income?

2. Does a default assessment raised after a taxpayer has furnished their original income tax return, retrospectively render the statements contained in that original return false or misleading where “the taxpayer could not, at the time of lodging their tax return, have known what view the Commissioner would later form … under [the default assessment provision]”?

Summary judgment was not granted. This is unsurprising as the Court would have had to have been satisfied that the Commissioner had no reasonable prospect of defending the application.

However, Perry J acknowledged that the Commissioner’s filed appeal statement (which sets out his contentions, facts and issues relating to the dispute) has a deficiency in that it “requires further specificity if the taxation law the Commissioner asserts was intentionally disregarded by the applicant”, but that the deficiency was curable by an amendment prior to hearing.

The application in this matter was bold, likely filed with a strategic intent in mind in having the Court acknowledge the novel argument being raised against the regulator. Doubt in the Commissioner’s position might entice a settlement discussion.

Intrigue lies in the answer to these novel questions at full hearing. It will be an interesting decision for all tax practitioners, especially those advising where the ATO uses indirect audit methodologies to assess a taxpayer.

Smailes Krawitz acts and advises in all taxpayer engagements, from audit to litigation.

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