Tribunal decision on whether an acquisition was made – a question of evidence

Yesterday the Tribunal handed down its decision in Confidential and Commissioner of Taxation [2013] AATA 624 where it affirmed the Commissioner’s decision that the applicant was not entitled to input tax credits in respect of the purchase from related parties of intellectual property and debtors. The Tribunal set aside the Commissioner’s decision that the an administrative penalty of 75% was to be applied for intentional disregard of the law, and found that the appropriate penalty was 25% for failure to take reasonable care.

The purported acquisitions arose from two agreements, both of which were in a similar form. The agreements provided for the purchase of certain assets from a related party and the terms included the following:

  • the assets were to be acquired under each agreement on completion;
  • title to the assets passed on completion;
  • the applicant agreed to pay the purchase price on completion
  • the applicant agreed to assume nominated liabilities at completion

Tax invoices were issued by the applicant with respect to both agreements.

The Tribunal found that the documents tendered and oral testimony did not establish that liabilities were assumed to the extent of the purchase price payable under the the agreements, nor did they establish that cash was paid. Further, beyond the assertion made by the applicant, the evidence that the applicant provided consideration for the assets to be purchased was limited – as a consequence, the Tribunal found that there was limited, weak and insufficient evidence on which to base the applicant’s claim that it made an acquisition under either agreement.

The Tribunal concluded that the evidence did not establish that the property to be sold passed from the vendors  to the Applicant in the relevant period, with the result that there were no supplies in that period and credits were not available.

The Tribunal made some adverse comment in response to the Commissioner’s contention that the:

[A]pplicant has failed to discharge even the most rudimentary step of proving it made a creditable acquisition because there is no evidence to indicate what was bought.

The Tribunal observed that this contention could not be accepted, noting that the agreements and tax invoices were included in the “T” documents filed by the Commissioner with the Tribunal, being documents which are relevant to the decision under review.

These observations of the Tribunal appeared to filter into the decision about penalties. The Commissioner imposed penalties of 75% on the basis of intentional disregard as the applicant maintained that each transaction occurred without any basis on which they could have occurred – the only reasonable inference was that the applicant knew that it had not made the acquisitions and yet proceeded with the claim for credits.

The Tribunal observed that it was apparent that the applicant was of the belief that the transactions had occurred and that the applicant had (potentially inadvisably) created transactional documents without understanding their effect and had acted in ignorance. In these circumstances, intentional disregard was not the appropriate standard – failure to take reasonable care was the appropriate standard.

The case is a good example of the onus of proof on the applicant to show that the assessment is excessive – in this case by showing, on the balance of probabilities that it made the acquisitions contended. The Commissioner did not appear to allege that the agreements were a sham, so the task before the applicant was to establish that the purchase price was paid (whether by the assumption of liabilities or the payment of cash). The applicant was not able to do so.

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