In Cash World Gold Buyers Pty Ltd and Commissioner of Taxation [2020] AATA 1546 the Tribunal affirmed the decision of the Commissioner to deny the applicant’s claim to input tax credits of $6,936,947.00 with respect to acquisitions of gold during the quarterly tax periods ending 31 December 2014 and 31 March 2015. The Tribunal’s decision is another in a line of cases where the decision of the Commissioner to deny input tax credits to with respect to the acquisition of gold has been affirmed by the Tribunal. In particular, ACN 154 520 199 Pty Ltd (in liq) and Commissioner of Taxation [2019] AATA 5981, noting that the Full Federal Court heard the taxpayer’s appeal of that decision last week with judgment being reserved.

The disputed claims for input tax credits involved the acquisition (or purported acquisition) of significant amounts of gold from three individuals (referred to as Intermediaries). The applicant satisfied the Tribunal that the acquisitions of gold were made and that the Intermediaries were not acting as agents of the applicant. The real issue before the Tribunal was the form of the gold when it was acquired by the applicant, given that director of the applicant accepted at the hearing that the gold supplied to the applicant by the Intermediaries was sourced from gold bullion dealers and those supplies were treated as input taxed supplies of “precious metal”. The Commissioner submitted that the applicant was not entitled to input tax credits because the applicant purchased “precious metal” from the Intermediaries, an input taxed supply. The applicant contended that all of the gold it acquired was “scrap gold” and was taxable.

The Commissioner also issued assessments to the Intermediaries for unpaid GST with respect to the sales of gold to the applicant. Objections to those assessments were made, but no decision had been made on the objections. However, some amounts were recovered from the assessments pursuant to garnishee orders. As discussed at the end of this post, the applicant contended that the actions of the Commissioner gave rise to a double recovery of GST.

Substantiation and documentation

The Tribunal’s decision ultimately came down to a question of substantiation and documentation. After reviewing the evidence, the Tribunal was not persuaded about the extent to which the gold acquired by the applicant from the Intermediaries was scrap gold. The Tribunal considered that there many inconsistencies and gaps in the evidence, and some of the evidence was inherently implausible – there were too many shortcomings in the evidence.

The Tribunal also made the following observations:

• That the applicant was in possession of a document entitled “tax invoice” was not sufficient to prove that a supply was a taxable supply. A tax invoice does not create a taxable supply, it records one. If a taxable supply did not take place, then a tax invoice stating that it did is meaningless
• In response to the applicant’s contention that there was no commercial reason for it to pay 105 per cent of the prevailing spot price for gold bullion unless it was required to pay GST to the Intermediaries in respect of the taxable supply of scrap gold, the Tribunal considered that the applicant would have been on notice that subtracting GST from the price paid by the applicant to the Intermediaries left them with approximately 95% of the spot price of gold. Consequently, the Intermediaries would have made a loss of at least 5% each time they supplied gold to the applicant if they were making taxable supplies and remitting GST, as they were themselves acquiring gold bullion for the spot price plus a premium. The Tribunal considered that the applicant could not provide any satisfactory explanation for this proposition.

The Tribunal also agreed with the Commissioner that the applicant was not entitled to input tax credits because it did not hold valid tax invoices.  The Tribunal found that the invoices did not comply with the requirements of s 29-70(1) of the GST Act, nor was this an appropriate case for the tax invoices to be treated as a tax invoice under s 29-70(1B). This was because many of the invoices failed to describe the quantity or weight of the gold supplied and none of the invoices identify any amount of GST payable. All the invoices issued were headed ‘TAX INVOICE*/STATEMENT* (*DELETE AS APPROPRIATE)’ but in none of them had the word ‘STATEMENT’ been crossed out to make clear the document was intended to be a tax invoice. Instead, the invoices were, in the Tribunal’s view, deliberately ambiguous.

Other matters before the Tribunal 

In the course of the decision, a number of other matters were considered by the Tribunal. These issues appear to have arisen because of the actions of the Commissioner in issuing assessments of GST to the Intermediaries with respect to the sales of gold to the applicant, while at the same time denying the applicant’s entitlement to input tax credits.

Enterprise: The Commissioner contended that the supply of gold by the Intermediaries to the applicant was not a “taxable supply” because the Intermediaries were not carrying on an enterprise as their activities were not carried on with a reasonable expectation of profit or gain – as required by s 9-20(2)(c) of the GST Act given that the Intermediaries were individuals. The Tribunal found it unnecessary to explore this submission because of the conclusion that the applicant was not entitled to input tax credits for other reasons, but the Tribunal did observe that this contention was inconsistent with the fact that the Commissioner had earlier instigated the GST registration of one of the Intermediaries and had also issued assessments to each of the Intermediaries for net amounts of GST.

Division 142: Division 142 deals with the entitlement of taxpayers to recover overpaid GST. Essentially, if a taxpayer has overpaid GST (referred to as “excess GST”), the taxpayer is not entitled to a refund of that GST if the GST has been “passed on” to the recipient and the recipient has not been reimbursed for the overpaid GST (for a detailed consideration of these provisions and the concept of “passing on”, see my paper here). If GST has been passed on, until such time that the recipient is reimbursed, the GST is deemed to have been properly payable: s 142-10.

The Tribunal observed that the Commissioner may trigger the application of Division 142 by causing an amount of “excess GST” to be included in a taxpayer’s “assessed net amount” by issuing an assessment even though the GST hasn’t actually been paid to the Commissioner. The applicant contended that by reason of the GST assessments issued to the Intermediaries, this GST was “passed on” to the applicant and even if the Intermediaries did not make taxable supplies to the applicant, the supplies were deemed to be taxable supplies pursuant to s 142-10.

The Tribunal considered that the applicant’s difficulty was that it had not demonstrated that the Intermediaries did in fact “pass on” any excess GST to it. The Tribunal found that there there was no GST passed on where the prices charged by the Intermediaries did not recover any amount on account of GST. In this regard, it was plainly uneconomic for the Intermediaries to sell gold at prices of approximately 105% of the spot price of gold having purchased the gold from bullion dealers for the spot price plus a margin, in circumstances where they were required to remit GST. Further, if there was excess GST, s 142-15(5) effectively denies the input tax credit if the applicant knew or could be expected to have known that the Intermediaries had not paid the excess GST.

Double recovery of GST: The applicant contended that the Commissioner has sought to recover GST from the applicant (by denying input tax credits) and at the same time was seeking to recover GST from the Intermediaries on the basis that they made taxable supplies to the applicant. The Commissioner had issued assessments to the Intermediaries that included the same GST. It also transpired that the Commissioner had recovered amounts owed by the Intermediaries from third parties pursuant to garnishee orders at the same time as he had sought to deny the input tax credits claimed by the applicant. The applicant submitted that the assessments were in fact cumulative assessments which were issued contrary to the Commissioner’s stated procedures regarding alternative assessments in the income tax context and impermissibly sought double recovery of GST on the same transactions. The Commissioner adopted the view that he is entitled to issue multiple assessments. Counsel for the Commissioner also submitted that the Commissioner would not seek to recover the GST twice.

While not determining the issue, the Tribunal made the following observation (at [225]):

Were the Commissioner to succeed against both Cash World and the Intermediaries, it appears that the Commissioner would be in a position to recover the GST amounts twice and, furthermore, may be required to do so without necessarily having a choice in the matter (leaving aside issues with respect to the good management rule and when it is appropriate for the Commissioner to settle tax disputes). In my view, there remains an unresolved issue as to the efficacy of the Commissioner recovering GST amounts twice. However, the double recovery of the GST is not determinative of this dispute and does not give rise to an issue for determination by the Tribunal.

The Tribunal appeared to accept that the conduct of the Commissioner could give rise to a double recovery of GST. This begs the question of what the Commissioner’s obligations now are with respect to the GST assessments issued to the Intermediaries (against which objections were lodged but no decision has been made), and the amounts recovered under those assessments pursuant to the garnishee orders.