Monthly Archives: October 2011

Taxpayer files appeal to Full Federal Court in LVR (WA) Pty Ltd

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On 27 October 2011 the taxpayer filed an appeal to the Full Federal Court from the decision of Justice Gilmour in LVR (WA) Pty Ltd v Administrative Appeals Tribunal [2011] FCA 1146 to dismiss an application for judicial review of the decision of the Tribunal in LVR (WA) Pty Ltd and Anor and Commissioner of Taxation [2010] AATA 570 to dismiss the application for failure to comply with directions.

The issues in substantive dispute concerned contentions by the Commissioner that the taxpayer carried on the enterprise of property subdivision and sale, was required to be registered as it exceeded the registration threshold, and penalties.

The Tribunal found that the applicant had failed “within a reasonable time” to comply with the directions. Dismissal of proceedings without hearing is a drastic step and the Tribunal noted that the effect of such an order was to make the debt to the Commissioner final and recoverable.  However, the Tribunal was of the view that every requirement of procedural fairness had been followed.

Appeal in Multiflex to be heard today

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The Full Federal Court will be hearing the Commissioner’s appeal in the Multiflex case at 9.30am today in Court 22A of the Federal Court in Melbourne.  On the bench is Justices Stone, Edmonds and Logan.

Each of these judges has had considerable experience with GST.  Stone and Edmonds JJ sat on the Full Court appeals in Reliance Carpet and Qantas.  Logan J sat on PM Developments.

Given the expedited manner in which the hearing was scheduled (less than a month from the date of judgment at first instance), I would expect the Court to pronounce judgment quickly.

NZ cases added to site

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I have added a Menu item to this site providing access to those New Zealand GST cases which can be accessed on-line.  I have not sought to include every case (such as penalty cases).

The next project for the site will be to collate UK VAT cases. This is a significant task and I would expect the project to be completed next month.

New paper on GST and settlements – a review of GSTR 2001/4 ten years on

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The interaction between GST and court judgments and settlements have caused legal practitioners headaches for a number of years.  The ruling issued by the Commissioner (GSTR 2001/4) has provided a useful and practical insight into how the Commissioner seeks the role of GST in this environment.

It is now about ten years since the ruling was issued and it is timely to consider how the ruing has stood up to judicial consideration.

The attached paper seeks to outline the fundamental principles in the ruling and considers a number of cases dealing with GST and damages, judgments and costs.

ATO Rulings and Determinations added to this site

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I am in the process of incorporating a link to the current ATO GST Rulings and GST Determinations into this site.  These documents can be accessed by the drop-down menu.  Simply hold the curser over the menu item and a drop down list will appear. This function has been incorporated into the GST cases section as well.

At the time of this post the current ATO rulings from 2004 have been added. This project should be completed in the next few days.

Mount Pritchard & District Community Club Limited v COT – a “material change” opens the door to the Commissioner

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The decision two days ago of the Full Federal Court in Mount Pritchard & District Community Club Limited v Commissioner of Taxation [2011] FCAFC 129 confirms that the Commissioner can disregard a private ruling if there has been a “material change” to the arrangement which was the subject of the ruling.  The decision shows the importance of getting the arrangement right initially and also the dangers to the client if circumstances change down the track.  While the decision related to the private ruling regime for income tax, the lessons are equally applicable to private rulings sought in respect of GST.

The decision has rather an unfortunate history, but the essential facts are that in February 2004 the taxpayer obtained a private ruling that it would be exempt from income tax for the 2003 to 2010 income years.  In 2007 the Commissioner contended that due to a material change in the arrangement (as a result of the amalgamation of the club with another), the Commissioner was not bound by the ruling and proceeded to issue income tax assessments for the 2006 income year.

The taxpayer objected to that assessment but issued these proceedings under s39B of the Judiciary Act seeking to effectively quash the assessments on the basis that the ruling regime placed a duty on the Commissioner not to raise assessments in a manner contrary to the ruling.  The Full Federal Court found that such a duty did not exist.  Further, due to the “material change” in the arrangement, the Commissioner was free to issue the assessments and the taxpayer had recourse to review of the assessment under Part IVC of the Taxation Administration Act.

The decision is yet another example of the difficulties involved in attacking assessments through means other than Part IVC.

Update on taxpayer’s appeal in Central Equity

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A review of the Commonwealth Courts portal shows that the callover for the taxpayer’s appeal of the decision of Justice Gordon in Central Equity Limited v Commissioner of Taxation [2011] FCA 908 has been adjourned to 17 April 2012.

Also, the portal shows that the Commissioner filed a Notice of Contention on 4 October 2011.  When one has regard to the judgment, it is this likely that the Notice of Contention was filed in respect of the finding (albeit strictly obiter) that the refund notification lodged by the taxpayer was a valid notification for the purposes of s 105-55 of Schedule 1 to the Taxation Adminstration Act and the transitional provision in sub-item 16(2) of the Taxation Laws Amendment (2008 Measures No.3) Act 2008.  Notwithstanding the very clear finding of her Honour, it appears that the Commissioner is not willing to admit defeat on the notification issue.  The reasoning behind the Commissioner’s views on the validity of a notification can be found at MT 2009/1  ‘Miscellaneous taxes: notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953″.

ATO issues decision impact statement for International All Sports decision – another nail in the coffin of s 105-65?

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On 30 September 2011 the ATO issues a Decision Impact Statement for the decision of Jessup J in International All Sports v Commissioner of Taxation [2011] FCA 824.

While the decision relates to gambling supplies and Division 126 of the GST Act, the real impact of the Decision Impact Statement is the apparent concession that the application of the Commissioner’s “discretion” to refund refunds in s 105-65 of Schedule 1 of the Taxation Administration Act 1999 is limited to cases where a supply or arrangement was wrongly treated as a taxable supply.  In the All Sports case, and in a number of cases involving the margin scheme, the Commissioner was arguing that the discretion extended to where a taxpayer treated a supply as taxable, but nevertheless paid too much tax (eg, because of using an incorrect valuation methodology under the margin scheme).

The basis for the Commissioner’s view was set out in MT 2010/1.  In essence, the Commissioner argued that the words “treated as a taxable supply…to any extent” in s 105-65(1)(a) were broad enough to capture circumstances where a taxpayer correctly treated a supply as taxable, but paid too much GST on that taxable supply.  The Commissioner now accepts that MT 2010/1 must be amended.  I would contend that that the majority of that ruling should be amended.

I have always regarded the view of the Commissioner as “ambitious”, to say the least.  Further, the view appears to be founded upon the belief that the Commissioner’s discretion to refuse to pay refunds under s 105-65 is to be given a broad scope of operation.  The decision of Jessup J in AllSports is arguably another nail in the coffin of that view.  As noted by Emmett J in KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159 (at [33]): “Section 105-65 should not be given an expansive construction.  While its object may be commendable, in seeking to avoid windfall gains for taxpayers, it is, in a sense, a paternalistic interference with the rights of taxpayers.  It proceeds on the basis that GST that should not have been paid has been paid by a taxpayer.  It operates to ensure that the Commissioner receives a windfall rather than a taxpayer.”

These sentiments were approved of by the Tribunal in Luxottica Retail Australia Pty Limited and Commissioner of Taxation [2010] AATA 22 (at [59), a case where the Tribunal found it appropriate that the refund be paid.  While the Commissioner did appeal that case ([2011] FCAFC 20), it is unfortunate that he did not feel the need to appeal the issue relating to s 105-65, notwithstanding his statement in the Decision Impact Statement for the Tribunal decision that it “respectfully disagreed” with the reasoning of the Tribunal.

The checkered history of s 105-65 continues.  So far it is taxpayer 3, Commissioner nil.

Commissioner lodges Notice of Discontinuance in Reglon appeal

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On 13 October 2011 the Commissioner lodged a Notice of Discontinuance of Appeal in his appeal of the decision of Emmett J in Reglon Pty Limited v Commissioner of Taxation [2011] FCA 805.

In this case, the Court found that no taxable supply was made by the taxpayer by reason of a Supreme Court judgment for conversion of scaffolding owned by the taxpayer.  As noted by the Court (at [26]) “The effect of the payment in full by Citidel of the judgment in conversion against it was to vest in Citadel the ownership of the Taxpayer’s scaffolding.  However, the mere obtaining of judgment in conversion against a defendant does not of itself affect the ownership of the coverted goods.  Nor does the formal entry of judgment.  It is the satisfaction of the judgment that effects a transfer to the defendant of property in the goods that were the subject of the conversion.” and further (at [32]) “The payment made in satisfaction of that judgment resulted in ownership and was triggered by the payment of the judgment sum by Citadel.  That payment did not depend upon any action of the Taxpayer.  I do not consider that, in those circumstances, the Taxpayer may be said to have made a supply.  There was no taxable supply by the Taxpayer.”