Monthly Archives: June 2014

New paper – “Division 142 and refunds of overpaid GST – when is GST passed on?”

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I have prepared a paper looking at the concept of “passing on” in the context of Division 142, which was recently introduced into the GST Act.

Division 142 replaces s 105-65 of Schedule 1 to the TAA and effectively creates a deeming regime, whereby overpaid GST that has been “passed on” to another entity is taken to have always been payable until that other entity is reimbursed for the passed on GST. The Commissioner retains a discretion to pay refunds, but it is expected to have a narrow operation.

Determining whether GST has been “passed on” is therefore a critical matter as it provides the trigger for the operation of the new regime. If no part of overpaid GST has been passed on, taxpayers will be entitled to a refund as a matter of right. However, to the extent that the overpaid GST has been passed on, taxpayers must reimburse the other entity or undertake the difficult task of convincing the Commissioner to exercise his discretion.

The paper can be accessed here. It can also be accessed from the “My Articles” part of the site.

 

 

Tribunal finds applicant claiming to be a victim of identity fraud was “dissatisfied” with objection decision

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In Van Gestel and Commissioner of Taxation [2014] AATA 396 the Tribunal found that it has jurisdiction to hear the applicant’s review of the Commissioner’s objection decision where the applicant contends that he was the victim of identity fraud. The Tribunal rejected the Commissioner’s contention that the applicant was not “dissatisfied” with the objection decision in the sense intended by the legislation and was therefore unable to challenge the objection decision. In what would appear to be a harsh outcome, the Commissioner contends that the applicant should approach the Australian Federal Police if he believes he has been the victim of identity fraud. In the meantime, the Commissioner says the taxpayer should pay the monies he is required to pay under the assessment

The facts were described by the Tribunal as follows:

This unhappy tale begins with the lodgement of Business Activity Statements (“BAS”) in respect of the periods 1 July 2010 to 31 July 2010 and 1 August 2010 to 31 August 2010. Both forms were lodged electronically. The first claimed sales of $11,098 in the period which attracted GST of $1,009 – but also recorded purchases of over $123,000, which resulted in a claim for input tax credits. After adjustments to take into account other monies the taxpayer owed to the Commissioner, a refund in the amount of $9,695 was paid into an account held in the name of a third party. The Commissioner says the third party account was nominated by the taxpayer over the phone. The second BAS also recorded an excess of purchases over sales and a fuel tax credit leading to a total refund of $8,791 after adjustments. That refund was paid into an account in the name of a different third party whose identity was also supplied to the Commissioner over the phone.

The Commissioner subsequently conducted an audit of the taxpayer’s business, only to find there wasn’t one. The taxpayer says he had not conducted a business for some time, and denied ever lodging a BAS in July or August 2010. He says he did not supply the names of the third party bank accounts or receive the money that was refunded. He claims he is mystified as to how the payments came to be made. He says he has been the victim of identity fraud, and thinks the Commissioner has been taken in by a fraudster as a result of shortcomings in internal processes. The taxpayer says the Commissioner should pursue the fraudsters rather than taking the easy option of attempting to recover the monies from the taxpayer.

On the question of jurisdiction, a person who is “dissatisfied” with a reviewable objection decision may apply to the Tribunal for review of the decision: s 14ZZ(1)(a)(i) of the TAA. The Commissioner referred to the decision of the Full Court in CTC Resources NL v Federal Commissioner of Taxation [1994] FCA 947 where it was concluded that it was not enough for the taxpayer to be curious about the outcome of an appeal if the absence of a favourable result would have no legal consequences for the taxpayer. The Commissioner contended that the objection decision concluded that the applicant was not entitled to claim the input tax credits at issue and the applicant agrees with this – therefore, there was really nothing left for the Tribunal to do as the review would produce no legal consequences for the applicant.

The Tribunal did not agree, noting that while the applicant did not dispute the reasoning in the objection decision, he disputes the factual premise on which the reasoning and the ultimate conclusion were based – namely, that he had sought credits in a BAS in the first place. He was therefore “dissatisfied” with the objection decision and a review of that decision necessarily extends to its factual basis, which may extend to the disputed allegation that the taxpayer never claimed the credits in the first place.

Tribunal finds letter by taxpayer constitutes a notification of entitlement to input tax credits

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In North Sydney Developments Pty Ltd and Commissioner of Taxation [2014] AATA 363 the Tribunal found that a letter provided to the Commissioner was a valid notification for the purposes of s 105-55(1)(a) of Schedule 1 to the TAA in relation to input tax credits for tax periods ending December 2005 and January 2006.

Set out below are the principal events underlying the input tax credit claim as identified by the Tribunal and the conclusions of the Tribunal. As I appeared in the case I will not be providing an analysis of the decision.

The principal events were as follows:

  • May 2004 to November 2005: North Sydney lodged 17 monthly Business Activity Statements reporting GST purchase payments totalling $1,070,800, and no sales. The Commissioner accepted that North Sydney was entitled to input tax credits in relation to the amounts claimed in each statement.
  • December 2005: North Sydney did not lodge a Business Activity Statement for the month.
  • January 2006: North Sydney again did not lodge a Business Activity Statement for the month.
  • 16 February 2006: the Commissioner issued a “lodgement and payment” notice requiring North Sydney to lodge its December 2005 Business Activity Statement, and pay any liability amount it recorded.
  • 8 March 2006: a mortgagee appointed a controller to the substantial property, whose (not yet completed) development had been the reason for the $11.78m GST purchases reported in the Business Activity Statements lodged up to November 2005.
  • 24 March 2006: the Commissioner issued a further “lodgement and payment” notice requiring North Sydney to lodge its January 2006 Business Activity Statement, and pay any liability amount it recorded.
  • 23 June 2006: North Sydney was placed in receivership, and the receiver subsequently sold the partially completed development.
  • 3 September 2009 North Sydney wrote to the Commissioner. The letter reported the receiver’s appointment on 8 March 2006 and stated that “ASIC and the receivers” had taken possession of all North Sydney’s books and records, and refused to either return them or provide access to them. The letter continued with statements to the effect that:
      1. North Sydney was unable to complete the lodgement of Business Activity Statements for December 2005 and January 2006
      2. The letter was to “provide notice that substantial GST refunds are due for these months”.
      3. North Sydney would be unable to lodge Business Activity Statements for those months until it gained access to the necessary books and records.

After considering a number of authorities (including Central Equity Ltd v Federal Commissioner of Taxation [2011] FCA 908; MTAA Superannuation Fund (RG Casey Building) Property Pty Ltd v Commissioner of Taxation [2011] AATA 769; National Jet Systems Pty Ltd v Commissioner of Taxation [2011] AATA 766 and Brookdale Investments Pty Ltd v Commissioner of Taxation [2013] AATA 154) the Tribunal observed as follows (at [25]):

The common themes resonating through the decisions to which I have referred are the absence of any formal notification content requirement, a disavowal of amount specificity and the apparent sufficiency of a notice where it communicates a claim relating to a particular tax period in relation to a particular kind of tax liability. Implicit in the third theme, and variously expressed in the judgments and reasons, is a refusal to endorse any particular requirement for the details, grounds or even circumstances relied on to support the claim. 

The Tribunal’s conclusion was as follows (at [31]):

In my view, North Sydney’s 3 September 2009 letter did notify the Commissioner of “the refund, other payment or credit” to which TAA Schedule 1: s 105-55(1)(a) applied. It did so for two reasons. Firstly, the provision required no greater specification than the tax period involved, and the nature of the refund or input tax credit claimed. The letter, by describing the notification as relating to the expected outcome of Business Activity Statements for December 2005 and January 2006, satisfied the requirements of a complying notification. Secondly, if the letter required some greater degree of specificity in order to permit satisfaction that any subsequent claim was covered by the notification, the letter also satisfied that requirement. It did so because it indicated that the reason for the notification was the lack of access to the contemporary books and records in the possession of the receiver. On this view any subsequent claim would be limited to a summarised reproduction of the information in the purchase, payment and supply records maintained by the receivers. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxpayer’s submissions in the MBI Properties appeal now available online

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The taxpayer’s (respondent) written submissions to the High Court in the Commissioner’s appeal of the Full Federal Court’s decision in Commissioner of Taxation v MBI Properties Pty Ltd [2013] FCAFC 112 are now available on the High Court website. They can be accessed here.

The Commissioner’s submissions were filed in May and my post discussing those submissions can be accessed here.

In my post I observed that the principal issue identified by the Commissioner in his submissions brought into question the decision of the Full Federal Court in South Steyne Hotel Pty Ltd v Commissioner of Taxation [2009] FCAFC 155 and whether the purchaser of a reversionary estate in land leased to a sitting tenant makes a “supply” to the tenant after completion of the purchase.

The taxpayer’s submissions (at [3]) contend that the relevant statutory questions in the appeal are not properly reflected in the “principal issue” as stated by the Commissioner. Also, the taxpayer makes the following contentions (at [8]-[9]):

  • prior to the special leave application, the Commissioner had not at any point contended that MBI made a separate supply to Mirvac in the form of a separate supply of residential premises by way of lease.
  • before the primary judge and the Full Court the Commissioner submitted that South Steyne was correctly decided
  • the appeal is in substance an appeal from the decision of the Full Court in South Steyne

The taxpayer contends that the relevant statutory questions are as follows:

  • did MBI intend to make any “supply” as a consequence of acquiring the reversionary interest in the residential premises?
  • if so, was any such supply intended to be made “through the enterprise” that was the subject of the acquisition by MBI from South Steyne for the purposes of s 135-5?
  • if so, what was the character of any such supply? In particular, was it an input taxed supply of residential premises by way of lease within the meaning of s 40-35?
  • what was the “price” of any such supply for the purpose of applying the formula in s 135-5(2)?

The Commissioner’s reply is due on 20 June 2014.

Legislation introducing Division 142 into the GST Act receives Royal Assent

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On Friday 30 May 2014 the the Tax Laws Amendment (2014 Measures No.1) Bill 2014 received royal assent. The Act repeals the current regime dealing with refunds of GST found in s 105-65 of Schedule 1 to the TAA and replaces it with a totally new regime in Division 142 in the GST Act.

The date of royal assent is important because the new regime applies to tax periods starting on or after that day. For monthly taxpayers that means tax periods starting 1 June 2014 and for quarterly taxpayers that means tax periods starting 1 July 2014.

Division 142 effectively creates a deeming regime, whereby overpaid GST that has been passed on to another entity is taken to have always been payable until that other entity is reimbursed for the passed on GST. Taxpayers can self assess their entitlement to GST refunds, where the GST has not been passed on or the GST has been reimbursed. The Commissioner retains a discretion to pay refunds, but it is expected to have a narrow operation.

The Bill can be accessed here.  The Explanatory Memorandum can be accessed here. The Bill passed through Parliament without amendment.