Tribunal decision re GST substantiation; Tribunal decision re whether primary production business carried on

On Friday the Tribunal handed down two decisions, Siddiqi and Commissioner of Taxation [2012] AATA 589 and Nelson and Commissioner of Taxation [2012] AATA 579.  The first decision deals with whether the taxpayer could establish that certain cash deposits were not business receipts.  The second decision deals with whether the applicant was carrying on a primary production business so as to claim income tax deductions. While dealing with income tax, the case raises an interesting question of whether a different result would arise in the context of GST.

In Siddiqi the taxpayer was assessed for income tax and GST in respect of his business operations where the taxpayer did not keep business records and most of the transactions involved cash.  An audit revealed discrepancies between the BASs and income tax returns and the Commissioner identified a number of deposits into bank accounts for which there was no satisfactory explanation.  In these circumstances, the taxpayer faced the difficult task of discharging the onus of providing that the unexplained deposits were not the result of payments received in the course of conducting his business activities.  Save for some deposits which were conceded by the Commissioner, the taxpayer was unsuccessful.

In Nelson the question was whether the applicant was carrying on a business of primary production.  The applicant did not make any income during the relevant period, but sought to claim deductions in respect of improvements made to the property and other expenses incurred, including depreciation of assets.  The Commissioner concede that the applicant did carry out a number of improvements, but contended that the operation had not reached the point where it could be characterised as a primary production business.  The Tribunal agreed with the Commissioner and found that the applicant was still in the preparatory stages of the business.

I accept the taxpayer has made a number of improvements to the property.  He has cleared parts of the property and laid down or improved vehicular access routes.  He has built fences out of harvested timber.  He has planted trees in test orchards and established farm outbuildings, including a hen house and nursery.  He has installed irrigation pipes.  He has a large machinery shed adjoining the residential accommodation he shares with his family.  All of these things are consistent with the operation being characterised as a business.

And yet I am not satisfied that the taxpayer was engaged in a business during the years in question.  None of the activities identified by the taxpayer had advanced much beyond the planning stage.  Some of the activities had not even gone that far; they remained glimmers in the taxpayer’s eye during the period in question.  He has certainly put a lot of thought into the various activities he would like to undertake, and he has taken some steps towards achieving those plans.  He may yet manage to make a success of some of the proposals, but the link between the activities he has already undertaken and the production of income at some future point in time is too tenuous during the years of income in question.

This decision raises the question of how the matter would be seen in a GST context.  In the GST Act, “carrying on an enterprise” is defined to “include doing anything in the course of the commencement or termination of the enterprise”.  In MT 2006/1  the Commissioner accepts that it follows from this definition that activities done by an entity that are part of a process of beginning or bringing into existence an enterprise are activities in carrying on an enterprise.  Given this broad definition, it may well be that the applicant in this case would have been “carrying on an enterprise” within the meaning of the GST Act, thereby being entitled to register for GST and claim input tax credits, but not entitled to claim an income tax deduction.


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