News Flash! – Full Federal Court hands down decision in AP Group – appeals dismissed

Today the Full Federal Court handed down its decision in AP Group v Commissioner of Taxation [2013] FCAFC 105. This case involved an appeal by the taxpayer and a cross appeal by the Commissioner against the decision of the Tribunal in AP Group Limited and Commissioner of Taxation [2012] AATA 617 (decision on principles [2012] AATA 409).

In an ironic twist, given the  anticipation that this decision would provide clear guidance as to the interaction between sections 9-5, 9-10 and 9-15 of the GST Act and the relevant “nexus” between supply and consideration, the majority of the Full Federal Court (Edmonds and Jagot JJ) dismissed both appeals on the basis that they did not raise an error of law because the Tribunal properly applied the statutory test in s 9-5. Bromberg J dismissed the taxpayer’s appeal for the same reason, but dismissed the Commissioner’s cross-appeal for different reasons.

Nevertheless, the Court made detailed obiter statements and it is quite clear that the Court agreed with the Tribunal’s decision and would have confirmed those decisions if the appeals had raised an error of law.

It is noteworthy that the Court rejected the Commissioner’s contention that the word “for” in the phrase “supply for consideration” in s 9-5(a) had no work to do when you considered the definitions of “supply” and “consideration”. The Court observed as follows (emphasis added):

The consideration must be “in connection with” the supply but the supply must also be “for” the consideration….It ensures that not every connection between the giving of consideration and the provision satisfy the first condition of making taxable supply. If it were otherwise, any form of connection of any character between the making of a supply and the payment of consideration would suffice.

This view appears to represent a fundamental shift away from the Commissioner’s view on the construction of  s 9-5(a) and how that section interacts with ss 9-10 and 9-15.

While not binding on future Courts and Tribunals (and indeed taxpayers and the Commissioner), these statements will likely be very persuasive going forward. It will be interesting to see whether one or both parties seeks to take the matter further and seek special leave to appeal to the High Court.

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