New South Wales Supreme Court finds taxpayer made GST-free supplies of ambulance services under s 38-10(5)

Most cases where GST is an issue involve the Commissioner of Taxation as a party. However, that is not always the case because GST can be the subject of a commercial dispute between the parties. The recent decision of the New South Wales Supreme Court in Acquatic Air Pty Limited v Siewert [2015] NSWSC 928 is a further example.

The case involved a dispute about the sale of shares in a group of aviation companies, which included the provision of air ambulance services to regional hospitals and area health services. The case is complex but it appears from the judgment that the facts relating to the GST issue can be relevantly summarised as follows:

  • while the vendor owned and operated the business, the ATO made enquiries of the nature of the business and the absence of any payment of GST. The ATO appeared satisfied with the explanation provided to them that it was an air ambulance service and accordingly did not have to pay GST (i.e., the services were GST-free under s 38-10(5) as a supply provided by an ambulance service in the course of the treatment of the *recipient of the supply).
  • the share sale agreement was made on 22 July 2011 and the agreement contained warranties and representations that the accounts as at 30 June 2011 were accurate – the accounts disclosed no GST liability
  • on 23 July 2012 the ATO issued assessments in excess of $2.3m for unpaid GST in the period 1 July 2008 to 31 May 2012.
  • the company objected to the assessment, which was disallowed (other than to remit penalties) – but did not appeal the objection.

The issue concerning GST was whether the vendor had made a false representation or warranty in the share sale agreement, given that the accounts disclosed no GST liability when it was contended that there actually was a GST liability as at 30 June 2011.

The Court found that there was no false representation or warranty in the accounts. The Court then considered whether the company had a GST liability at 30 June 2011 at all. The Court noted that the assessment for GST was conclusive evidence of the existence of the liability, and that the company indisputably had a GST liability as from the date of the assessment – namely, 23 July 2012. However, the Court found that the issue was whether that GST liability existed at 30 June 2011, and that question depended on the correct application of the facts as at 30 June 2011, irrespective of the later assessment.

The Court noted that the ATO’s reasoning supporting the assessment involved two elements: the first was that as the company did not hold an Air Operators Certificate (AOC), it could not be providing air ambulance services; and the second was that the services were provided to the hospitals, not to the individual transported, and thus were not in the course of the treatment of the recipient.

As to the first point, the Court observed that  the GST legislation makes no reference to any requirement for an ambulance service to hold an AOC – nor for that matter any other licence or permit. Further, that there seemed to me no reason why an ambulance service could not contract with another entity for the use of vehicles or aircraft owned and/or operated by that other entity. And finally, even if the ambulance service were to cease to hold a relevant licence, it would not cease to be an ambulance service. In coming to this view, the Court noted that the ATO had issued an “interpretative ruling” [ATO ID 2005/185] that considered that an ambulance service is one that relevantly “is permitted to provide aerial ambulance services pursuant to section 27 of the Civil Aviation Act” – but found that this was not a requirement of the legislation.

As to the second point, the Court took the following view:

As to the second, the essential question is, who is the recipient of the supply – the hospital that contracts the ambulance service, or the patient. Often – probably usually – an ambulance will be called by a person other than the patient. Hospitals often arrange for specialist attendances and investigations on patients. It seems to me that in each of those cases, the recipient of the supply is, at least ordinarily, the patient – not the person who calls the ambulance, nor the hospital that arranges the specialist investigation. Likewise, it seems to me that the recipient of the supply of an air ambulance service, although it might be arranged by the hospital, is the patient. It is the patient, not the hospital, who is transported. It is the patient, not the hospital, who receives the benefit of the service. It is the patient who usually ultimately pays. But even if it is the hospital that pays, the GST Act recognises that the recipient of a supply is not necessarily the person who pays for it: s 9-15(2) provides:

It does not matter whether the payment … was made by the recipient of the supply.

For those reasons, and while minds may reasonably differ on the question, in my view, upon the proper construction of s 38-10(5), Wingaway was an ambulance service, and the services it supplied were supplied to the patients it transported, in the course of their treatment. Such services were therefore exempt within s 38-10(5), and as at 30 June 2011 – more than a year before the assessment issued – Wingaway did not have a liability for GST, even though such a liability arose upon the issue of the assessment on 23 July 2012.

The decision shows that the scope given by the Commissioner to the exemption in s 38-10(5) was seen by the Court as being too narrow.

Going forward, the Commissioner is not bound by the decision, as he was not a party. Also, the decision has no impact on the liability of the taxpayer to pay the assessment. However, one would expect that the Commissioner would address the decision by amending or withdrawing the ATO ID, or issuing a Decision Impact Statement.

Cases such as these are difficult for the Commissioner, because he does not have an opportunity to address the Court or to make submissions on the GST question. A good example is the decision of the New South Wales Supreme Court in Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 where the Court took a view contrary to that given in a private ruling about whether the sale of a house with a development approval for the construction of a residential development was a taxable supply or an input taxed supply of the sale of residential premises. Ultimately, the Commissioner had to wait until the Full Federal Court in Sunchen Pty Ltd v Commissioner of Taxation [2010] FCAFC 138 disapproved of the Toyama decision some four years later.

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