Tribunal denies taxpayer’s entitlement to input tax credits for the acquisition of gold

In Very Important Business Pty Ltd and Commissioner of Taxation [2019] AATA 1120 the Tribunal has affirmed the decision of the Commissioner to deny the applicant’s entitlement to input tax credits with respect to the purchase of gold.

The applicant claimed to operate a precious metal refinery during the last quarter of 2015 and during that period claimed it was entitled to input tax credits with respect to purchases of scrap gold. The basis of the claim was that it was “a refiner of precious metals”, as defined in the GST Act. The applicant also claimed that the acquisitions were made for a creditable purpose as its subsequent supplies of precious metal (that is, gold it had refined into bullion) were GST-free supplies pursuant to s 38-385 of the GST Act.

The Commissioner questioned whether many (or any) of the acquisitions of scrap gold occurred, in part due to the lack of independent evidence that the applicant had the financial capacity to pay for the gold, and the applicant’s record keeping was seriously deficient. The Commissioner also contended that the applicant was not a refiner of precious metals, and therefore was not making GST-free supplies.

The Tribunal discussed the relevant provisions of the GST Act as they related to the gold industry. The observations of the Tribunal included the following:

    • The GST Act provides that a supply of “precious metal” is:
      • a GST-free supply if it is the first sale of the refined metal after its refining by, or on behalf of, a supplier to a dealer in precious metal, provided that the entity that the refined the metal is a refiner of precious metal: s 38-385; or
      • otherwise, an input taxed supply of precious metal: s 40-100.
    • The combined effect of ss 9-5, 9-30(1), 9-30(3) and s 38-385 is that the first sale of “precious metal” by “a refiner of precious metal” to a dealer in precious metal will be GST-free. This special arrangement was established because gold refined in Australia is sold into what is effectively a world-wide market. Australia’s gold refiners would be at a commercial disadvantage if they had to pay GST to the Commissioner on the first sale of precious metal or were unable to claim input tax credits on their feedstock.

The Tribunal agreed with the Commissioner and concluded that the applicant was not a refiner of precious metals during the quarterly tax period at issue as it had not commenced carrying out sufficient refining operations to be considered “a refiner” (the Tribunal left open the question of whether the applicant was a refiner at a later point). The Tribunal further concluded that the applicant was unable to explain how it could fund the acquisitions and had failed to satisfy the Tribunal that it had provided consideration for all of the acquisitions or was liable to pay such consideration.

The Tribunal found that in making these conclusions it was unnecessary to consider whether the supplies of gold by the applicant were input taxed supplies of precious metals pursuant to s 40-100 of the GST Act or were taxable supplies. The Tribunal also expressed no view on whether the activities conducted by the applicant constituted “refining” in the sense intended by the legislation. I understand that a matter is currently reserved before the Tribunal in which these issues may be addressed.

 

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