Monthly Archives: October 2011

Commissioner’s appeal in Multiflex to be heard on 28 October 2011

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The Commissioner’s appeal to the Full Federal Court from the decision of Jessup J in Multiflex Pty Ltd v Commissioner of Taxation [2011] FCA 112 is to be heard on 28 October 2011 before Justices Stone, Edmonds and Logan.

Given that the decision was only handed down on 30 September 2011, there is less than a month between judgment and the appeal to the Full Court.  That very short time frame is consistent with the application made by the applicant at first instance for an expedited hearing (see [2011] FCA 789)

ATO issues ruling on “charities”

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The ATO has issued TR 2011/4 ‘Income tax and fringe benefits tax: charities’ which sets out the Commissioner’s views on the meaning of ‘charitable’ in the terms of ‘charitable institution’ wherever those terms are used in the Income Tax Assessment Act 1997 (Cth), the Income Tax Assessment Act 1936 (Cth) and the Fringe Benefits Tax Assessment Act 1986 (Cth).  The ruling is very extensive and runs to some 106 pages!

While the ruling does not expressly say that it deals with the term ‘charitable institution’ in the GST Act (e.g., see subdivision 38-G Activities of charitable institutions etc), the term ‘charitable institution’ is not defined in the GST Act and one would expect that the views stated in the ruling would also be relevant in the GST context.

ATO issues ATO ID on attribution and ss 29-10(4) – another example of “purposive” construction

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The ATO has issued ATO ID 2011/76 which takes the view that ss 29-10(4) of A New Tax System (Goods and Services Tax) Act 1999 does not prevent an entity from revising a GST return for an earlier tax period so as to take into account an input tax credit for that earlier tax period.  The ID appears to confirm that where an entity discovers that it failed to claim an input tax credit for an earlier tax period, it can elect to either amend the GST return relating to that earlier tax period or claim the credit in the current GST return.

While this may be a reasonable outcome, it is one which is not readily apparent from the terms of the statute.  As noted in the ID, a literal reading of ss 29-10(4) might lead to the conclusion that the entity cannot revise the earlier period and must attribute the credit to the later period.  The ATO appears to take the view that an election by the entity to amend the previous GST return somehow overrides the mandatory language in ss 29-10(4).  While the extracts of the Explanatory Memorandum referred to in the ID may support the Commissioner’s construction, the dangers of relying on extrinsic materials to base a statutory construction contrary to the words of the statute were outlined by Logan J in Deputy Commissioner of Taxation v PM Developments [2008] FCA 1886.  As noted by his Honour (at [47]) “An assertion as to its meaning and effect in an explanatory memorandum circulated by or with the authority of the Minister introducing a Bill into Parliament, like the Second Reading Speech in respect of that Bill, is not a substitute for the language employed by the Parliament in the Bill as enacted…It is the duty of the courts to construe enactments, not to make them.  If, truly, the language of an enactment does not translate into law a meaning and effect that one might apprehend from secondary materials was intended it is for the Parliament to rectify that by further legislative provision”.

Federal Court orders the Commissioner to pay indemnity costs

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In International All Sports Ltd v Commissioner of Taxation (No.2) [2011] FCA 1027 the Federal Court has ordered the Commissioner to pay indemnity costs from the date that an Offer of Compromise was made by the taxpayer.  This is an important decision, as it shows that the Commissioner is not immune from the operation of the Federal Court Rules, including those relating to Offers of Compromise and their heavy costs consequences.

In making the order, Jessup J rejected the Commissioner’s submission that the provisions of Order 52B (those relating to appeals of objection decisions) amounted to a code, and did not include the provisions of Order 23 dealing with offers of compromise.  In doing so, his Honour noted (at [5]) that the Commissioner had made the very same submission in Clark v Commissioner of Taxation [2010] FCA 415 and was rejected.

Federal Court forces Commissioner to pay GST refunds “forthwith”

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The Federal Court has ordered that the Commissioner must “forthwith” pay refunds of a negative “net amount” to a taxpayer, notwithstanding that the Commissioner was conducting an investigation to establish whether the applicant relied on fraudulent tax invoices to claim input tax credits.

In Multiflex Pty Ltd v Commissioner of Taxation [2011] FCA 112, Jessup J ordered a writ of mandamus directing the Commissioner to comply with s 35-5 of the A New Tax System (Goods and Services Tax) Act 1999 and s 8AAZLF of the Taxation Administration Act 1953 by forthwith paying to the applicant the net amount notified in the GST return for each of the relevant tax periods.

In making the order, the Court rejected the Commissioner’s submission that the obligations to make refunds is subject to an implied proviso that those refunds need not be paid instantly, but must be complied with within a reasonable period.  In this case, the “reasonable period” would take into account the time to conduct an investigation into the tax affairs of the taxpayer, assuming that investigation was progressed with expedition.

The Court also rejected the Commissioner’s submission that the Court should not exercise the discretionary relief of mandamus because of his suspicions as to the fraudulent nature of the tax invoices and also the risks of having to seek to recover those payments from the company through the assessment process.

A more detailed analysis of this important case will follow shortly.

Qantas wins Full Federal Court appeal on “no-shows”

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In a dramatic development, the Full Federal Court has allowed the appeal by Qantas with respect to its liability to pay GST on forfeited airfares.

In Qantas Airways Limited v Commissioner of Taxation [2011] FCAFC 113, the Court (Edmonds and Perram JJ, with Stone J agreeing) allowed the appeal from the decision of the Tribunal and found that GST was not payable by Qantas where the passenger had paid the far, but cancelled or did not show for the fare and no refund was available or claimed.  The Court identified the air travel as the taxable supply, and as no travel took place there was no taxable supply.

The Court also found that there was no relevant distinction between fares which were non-refundable and fares which were fully refundable (but no claim for a refund was ever made).

This decision is arguably the most important GST case to date and the decision has ramifications far beyond the airline industry, with implications for all suppliers who may enter into transactions that do not complete.  Further, the decision is in direct conflict with the views of the Commissioner in GSTR 2009/3 ‘Goods and services tax: cancellation fees’.

The Commissioner has lodged an application for Special Leave to appeal to the High Court.