Tribunal finds private tutor carrying on enterprise but not entitled to input tax credits – also concludes the Commissioner’s actions in issuing assessments were unsatisfactory

Today, in The Private Tutor and Commissioner of Taxation [2013] AATA 136 the Tribunal accepted that taxpayer’s contention that he was carrying on an enterprise of tutoring but the Tribunal found that it was not satisfied that the taxpayer was entitled to any of the input tax credits claimed.

The taxpayer lodged BASs for each tax period whereby input tax credits exceeded GST. The Commissioner formed the view that the taxpayer was not carrying on an enterprise and had not done so during the previous four years – the Commissioner then cancelled the taxpayer’s GST registration. The Commissioner nevertheless issued assessments to the taxpayer showing a positive GST amount. For each tax period in question, the assessments reflected an adjustment of the taxpayer’s net amount from a negative to a positive tax position.

What is interesting about this case is the Tribunal’s adverse comments on the Commissioner’s conduct in issuing assessments to the taxpayer for a positive net amount.

Deputy President Frost observed that it was “surprising” that the Commissioner assessed the taxpayer to a positive net amount for each tax period in question, given that the Commissioner’s central proposition was that the taxpayer was not at any stage carrying on an enterprise. The Commissioner’s explanation for making the assessments was to give effect to the Commissioner’s discretion to withhold refunds pursuant to s 105-65 of Schedule 1 to the TAA – the Deputy President stated that the Commissioner’s approach and explanation were unsatisfactory. The comments of the Tribunal are reproduced below:

[15]. As mentioned above, s 17-5 of the GST Act defines the “net amount” for a tax period as the difference between the GST payable on taxable supplies and the ITCs available in respect of creditable acquisitions…

[16] Section 17-15 speaks directly to taxpayers. It does not speak for the Commissioner. It tells taxpayers that they may choose to work out their net amount in the way specified in an approved form, and if they make that choice, then the amount that they work out in that way is their net amount, no matter what the net amount might have been if it had been worked out under s 17-5.

[17] The taxpayer evidently chose, as virtually all taxpayers do, to work out his net amount in the way specified in an approved form – namely, the quarterly BASs that he lodged. To take his BAS for the April to June 2007 quarter as an example, the amount that he “worked out” by using the way specified in the BAS was minus $311. Because of s 17-15, that amount became his net amount. (It does not seem to matter that the “way” of working out the net amount as specified in the BAS and the “way” of working out the net amount as specified in s 17-5 are exactly identical, and it also does not seem to matter that the figures that the taxpayer used in that “working out” exercise may have been wrong: see Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 at [25].)

[18] Now, as the Full Court pointed out in Multiflex at [26], that amount of minus $311 can be “superseded” as the net amount if, for example, the Commissioner makes an assessment of the taxpayer’s net amount under the power that is available to him in s 105-5 in Schedule 1 to the TAA. That is what the Commissioner did here. But in arriving at the taxpayer’s net amount (under s 17-5, since s 17-15 has no relevance to the calculation of net amount by the Commissioner), the Commissioner used, as one of the integers in the calculation, the “GST payable” figures that the taxpayer reported in his BAS. The only apparent reason for doing so was that it was one of the integers that the taxpayer used when he worked out his net amount in the way that s 17-15 says he can. The Commissioner clearly did not think that was the correct amount of “GST payable”, because by the time of making the assessment, he had formed the view that the taxpayer was not carrying on an enterprise. The Commissioner was therefore bound to conclude, based on that view of the facts, that s 9-5(b) was not satisfied, and so the taxpayer could not have an amount of “GST payable”. The Commissioner should have applied the reasoning set out in [12]above, and assessed a net amount of zero.

[19] Instead, and for the presumed purpose of creating an opportunity to claw back the $79 declared by the taxpayer on what the taxpayer thought were taxable supplies, the Commissioner assessed the taxpayer for that amount, namely $79. In doing so, he committed at least two errors. First, he assessed a net amount which, on his view of the facts, cannot possibly satisfied the requirements of s 17-5 of the GST Act. And secondly, he sought to invoke s 105-65 (a provision dealing with restrictions on refunds to a taxpayer) as authority for recovering an amount from a taxpayer. Section 105-65 is neither designed nor drafted to play that role.

The above paragraphs appear to reflect an attempt by the Commissioner to utilise the provisions of s 105-65 of Schedule 1 of the TAA to underpin a recover of “over-recorded” GST in the taxpayer’s BAS (but not overpaid by reason of the taxpayer’s claim for input tax credits) – rather than “over-paid” GST. The words of s 105-65 are clear – the section applies if “you overpaid the amount”.

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