Tribunal finds taxpayer was not carrying on enterprise of land development

In Bryxl Pty Ltd as Trustee for the Kypu Trust and Commissioner of Taxation [2015] AATA 89 the Tribunal found that the taxpayer did not establish that it was carrying on an enterprise of land development and was entitled to input tax credits in respect of certain acquisitions.

The Tribunal observed that the documents provided by the taxpayer were unsatisfactory, some were incomplete, some simply absent and some appeared to be inconsistent with statements made to the ATO in the course of discussions following assessment. Given that the onus falls to the taxpayer to show that an enterprise was being carried on, in light of these observations the taxpayer faced a difficult task.

In particular, a critical issue appeared to be the circumstances in which the taxpayer purportedly purchased the land which was to be subdivided and sold. The taxpayer only put parts of the contract of sale into evidence, and those parts were did not support what was said in oral evidence before the Tribunal. Further, there was no objective evidence of any deposit being paid or that settlement ever took place. The title search produced by the Commissioner showed that the land remained in the name of the vendor. The Tribunal also found that the taxpayer could not raise the purchase price.

The Tribunal concluded that until such time that the land was conveyed to the taxpayer, it could not have commenced an enterprise involving the subdivision of that land. The Tribunal’s conclusion was as follows (at [59]):

The evidence in this case regarding Bryxl conducting a business or enterprise involving the subdivision and sale of land discloses that while Bryxl may have had the intention to carry out such a business or enterprise, the steps it undertook in obtaining a planning permit and a market valuation cannot properly be described as being steps taken in the course of commencement of an enterprise. Until such time as it acquired the right to deal with the land in such a way that subdivision and sale could occur, it is artificial to suggest it was conducting the enterprise involving the subdivision and sale of land. The steps taken were clearly precursors or preparatory to the possible commencement of business, whether that be subdivision of the land or a quick sale to a syndicate of buyers.

The Tribunal also found that the Commissioner had properly cancelled the GST registration of the taxpayer and affirmed the Commissioner’s imposition of penalties on the basis that the taxpayer was reckless.

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