Tribunal finds taxpayer acting as agent and not entitled to input tax credits

In Crown Estates (Sales) Pty Ltd and Commissioner of Taxation [2015] AATA 949 the Tribunal found that the applicant was not entitled to claim input tax credits in respect of acquisitions made in providing property management services to owner-clients because the applicant was acting as the agent of those owner-clients.

The applicant contended that there were two aspects to the relationship with owner-clients:

  • finding and securing clients and collecting rents that were paid into a trust account; and
  • managing the property, including its physical state of repair. This included acquiring goods and services from tradespeople.

In respect of the second aspect of the relationship, the applicant contended that while those goods and services were acquired for use in properties owned by the owner-clients, it was acting as a principal when engaging the contractors and that the applicant was liable to the contractors, with the costs then passed-on to the owner-clients (some of whom refused to pay).

The Tribunal was not persuaded that the applicant was acting as a principal. In doing so, the Tribunal made some general observations about the  interaction between the GST and the law of agency:

  • you cannot receive an input tax credit in respect of a creditable acquisition made by another – the issue here was whether the applicant acquired anything, or whether the acquisition was made by the property owners;
  • an agent is able to create and affect a legally enforceable relationship between the principal and a third party – at least where the agency is disclosed or it is clear from the the terms of the agreement that the agent is acting in that capacity and does not intend to be personally bound;
  • where the agent does not disclose the existence of the principal and appears on the face of the relationship to be contracting with the third party in his or her own right, the undisclosed principal will still be liable and may enforce the agreement with the third party – in that event, the (undisclosed) relationship as between principal and agent suggests the acquisition of goods or services from the third party will still amount to a supply of goods or services by the third party to the undisclosed principal, albeit that the agent may also be liable to the third party.

A final comment of the Tribunal was that if the applicant was entitled to input tax credits on the acquisitions from the contractors, any input tax credit that could be claimed would be offset by the GST payable when those costs were passed on to the property-owners.

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