In Automotive Invest Pty Ltd v Commissioner of Taxation [2024] HCA 36 the High Court has allowed the taxpayer’s appeal in a 3:2 decision. The case involved the imposition of luxury car tax and GST and the characterisation of the taxpayer’s “purpose” in displaying a number of luxury motor vehicles in a “car museum” in circumstances where each of the vehicles was available for sale and was, in fact, sold. Were the vehicles held solely for the purpose of trading stock or also for the additional purpose of display in the museum?

The majority (Edelman, Steward and Gleeson JJ) allowed the appeal, finding that the use of the cars as exhibits in a car museum was intended by the appellant only as a means to the ultimate end or object of using the cars as trading stock, ie, selling them. The minority (Gageler CJ and Jagot J) dismissed the appeal, finding that the appellant used the vehicles for a purpose other than for holding as trading stock – namely for the purpose of displaying them as part of a tourist attraction.

The decision has potential ramifications for the operation of the GST Act because the majority concluded that in answering the question, the “purpose” of the taxpayer was its subjective purpose and not the purpose as objectively determined. Some of the potential implications of the decision are discussed below, including the operation of s 40-65 and determining whether the sale of residential premises are “to be used predominantly for residential accommodation” and therefore input taxed.

The facts

The taxpayer opened the museum in 2016. Until its closure in 2019, the taxpayer held a  a licence to sell motor vehicles and sold over 800 cars with gross sales income amounting to $114 million. It was accepted that all of the 40 cars at issue were the appellant’s trading stock; they were all for sale. The appellant made profits and losses. In the first full financial year of operation its net revenue from car sales was $4.39 million. It had a sales office at the premises. It also sold cars online.

The taxpayer marketed the museum as a tourist attraction through its website and in social media; it was said to be a desirable “day out” from Sydney. The website proclaimed that it was not just a museum: “we’re a car lovers dream”. It attracted 13,000 visitors in its first month, and thereafter about 2,500 per week; in about its first year it attracted 100,000 visitors. Adults were charged $20 each, which was increased from an initial $16 charge. There was evidence that the museum made a loss and the revenue from the museum was only a tiny fraction of the revenue from the sale of the cars. 

The evidence of the director of the taxpayer was that his sole reason for employing the museum concept was as a means to achieve his ultimate object or end of selling cars and the primary judge made a finding that the museum concept was chosen by the taxpayer only as the way for the appellant to achieve its objective of selling cars. This finding was unchallenged in the Full Court.

The Commissioner issued the taxpayer with assessments for LCT and GST on the basis that each vehicle was (i) used for the purpose of holding as trading stock and (ii) also used for the additional purpose of being displayed as an exhibit in a car museum.

The primary judge

The majority observed that the primary judge found that the characterisation of purpose was “an objective characterisation” and that the most reliable method of determining the end to be accomplished was to draw inferences from the objective facts, without excluding subjective evidence which might properly inform an assessment of purpose. And further that, whilst accepting that the appellant’s “primary commercial objective” was to sell cars, the primary judge concluded that the “museum component of the [appellant’s] activities was substantial … [It] gave rise to significant revenue.”

The Full Court

The majority upheld the decision of the primary judge. The majority of the High Court observed that the judges accepted that the deployment of a novel manner of displaying cars would not necessarily mean that they were being used for a purpose other than that of being held as trading stock, but considered that  the novel method deployed achieved a commercial purpose “in and of itself by attracting as many visitors as possible” and reasoned as follows:

Whatever Mr Denny as the controlling mind of the appellant thought he was doing, or whatever character might be attributed to the use of the premises for local government purposes, and irrespective of whether the premises constituted a museum stricto sensu, the scale and nature of the appellant’s activities resulted in each of the cars being held as more than trading stock.

Logan J dissented, finding that given the acceptance of the taxpayer’s evidence as to how the museum was to be deployed to assist his business of selling cars, the museum was only ever a means of achieving that end. His Honour also concluded that the sale of the museum, and the appointment of staff as, for example, a “curator”, were just aspects of the “museum concept”.

The High Court

The majority found that the reasoning and conclusion of Logan J was correct.

The language of the Act

The majority made the following initial observations on the language of the LCT Act:

• From the former jurisprudence concerning sales tax, it is always important to look “at the substance and reality of the matter”.
• From the jurisprudence concerning diesel fuel rebates, one should apply a “commonsense and commercial approach” in applying the LCT Act.

In my view, these observations can be equally applied to the GST Act.

The majority observed that the ordinary language of s 9-5(1) of the LCT Act shows that it is concerned with  the purpose for which “you have the intention” of using the car. It is concerned with the intended purpose of use. Further, s 9-5 recognised a broad conception of “use” with both “display in a museum” and “holding as trading stock” being capable of being uses.

The majority considered that once the intended use or uses had been identified, it was necessary to identify the intended purpose of those uses. This required the identification of the specific ends or goals which were the ultimate reason or reasons why a taxpayer is using a car in a particular way. It was also necessary to distinguish between this use of purpose to mean a specific “end” and the different concepts of “motive” and “means”.

Distinction between purpose or end from motive or means

The majority observed that there was much debate in the appeal about the meaning of “purpose” in ss 9-5(1) and 15-30(3) of the LCT Act and whether the reference to “purpose” in those provisions is to the objective or subjective purpose of the person whose purpose is in issue. The Commissioner contended that the reference in each provision was to “objective purpose”, ascertained by inference from how the cars were in fact used, and to the exclusion, for the most part, of the evidence of the taxpayer. In that respect, the Commissioner invoked a proposition that revenue statutes are generally concerned with “objective purpose”.

The majority considered that the starting point must be an understanding of the difference between “motive”, “means” and “purpose”. A person’s purpose is usually the ultimate end, object or goal that the person seeks to achieve. A person’s motive is the reason that the person seeks to achieve that purpose or end. And a person’s means are the way in which the purpose is to be achieved. In one sense, a person’s means to achieving their ultimate object could also be characterised as a purpose but it is only an intermediate or “proximate” end. The means are distinct from the ultimate end, object or goal, which is the sense in which purpose is used in s 9-5 and 15-30. It was therefore necessary to characterise the relevant person’s purpose or end at the proper level of generality, as distinct from any motive for that purpose or the intended means of achieving that purpose.

Purpose in the provisions of the LCT Act

The majority considered that in s 9-5(1) of the LCT Act “purpose” was used in its central sense of the purpose of the taxpayer, not some purpose that a reasonable person in the taxpayer’s position might hold, in all the circumstances. The focus was on the the intention of a specific person to use a car for a purpose; namely, to hold as trading stock and for no other purpose. The focus was not on the intention and purpose that it might be thought that a reasonable person would have based upon a particular use of a car.  The focus of the section was upon the intention of the taxpayer and the “intention” must be that of the actual taxpayer.

The majority also considered that s 9-5(1) requires an examination of the purpose of using a car by using ordinary communication directed to “you”. The “you” is the taxpayer, not an objective construct or reasonable person. By its terms, the section assumes that a taxpayer has an intention of using a car for a purpose or purposes.

Finally, the  concern of s 9-5(1) is with an inquiry into the intention and purpose of the taxpayer, and this can be shown by the taxpayer producing contemporaneous evidence of intended use of a car for a purpose, such as in a board paper, a business plan, or another document, as well as by the sworn or affirmed testimony of the taxpayer.

That was not to say that objective evidence about the nature of the car acquired, or how it ends up in fact being used, was irrelevant. Such evidence may be used to corroborate the purpose of the use that was intended or to demonstrate that the taxpayer’s evidence of intended use was in some way false. But if direct evidence is accepted, corroboration is unnecessary.

Characterisation of the taxpayer’s purpose

The majority observed that the taxpayer’s accepted purpose in holding the cars was to hold them as trading stock. In short, he held the cars to sell. The taxpayer’s motive for doing so was obvious: it was to make profit. And the taxpayer’s accepted evidence was that the museum was only the means by which the taxpayer’s purpose was achieved. The museum was not the ultimate object or end itself.

The means that the taxpayer proposed to employ to achieve the purpose were substantial. But at no point, based on the accepted evidence of the taxpayer, did the museum concept become an end in itself. The museum concept never ceased to be subjugated to, or the means of achieving, the goal of selling cars.

Implications for the GST Act

The observations of the majority as to the meaning of “purpose” in the LCT Act would appear to also apply to the GST Act. In particular, the GST Act similarly directs attention to “you” – for example, s 9-5 provides that “you make a taxable supply if…”. Further, the GST Act also focuses in places on the intended use or purpose of supplies. For example:

• Item 4 of the table in s 38-190 makes the supply in relation to rights GST-free if “the rights are for use outside the indirect zone”.
• Section 40-65 provides that the sale of residential premises is input taxed where it is “to be used” predominantly for residential accommodation.

Section 38-190 – rights for use outside the indirect tax zone

In the context of s 38-190, a majority of the High Court in Travelex Ltd v Commissioner of Taxation [2010] HCA 33 appeared to confirmed that the determination of whether the rights are “for use outside the indirect tax zone” turns on the subjective intention of the recipient, or that at least that subjective intention is relevant. The plurality (French CJ and Hayne JJ) made the following observation (at [36]):

It may be accepted that, as the Solicitor-General submitted, there may be practical difficulties in administering the relevant provisions of the Act where the use to be made of the rights turns on the recipient’s intention. Those difficulties, however, do not provide any basis for reading down those provisions, or for reading the connecting expression “in relation to” in a way that departs from the construction which has been identified. Difficulties in deciding whether the supply is “for use outside Australia” do not bear upon what is meant by a supply “in relation to” rights.

Heydon J agreed with the plurality that the appeal should be allowed and observed as follows (at [56]):

Fifthly, the rights evidenced by the currency were for use outside Australia: Mr Urquhart acquired the currency with the intention of spending it in Fiji, and that intention was confirmed by the fact that he did spend it there.

Section 40-65 – residential premises to be used predominantly for residential accommodation

The operation of this provision could now be problematic, noting that there was a controversy in the mid to late 2000s as to whether this test was subjective or objective. Indeed, in his original public ruling, the Commissioner’s view was that it was the occupier’s subjective intention that was relevant.

In Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 the New South Wales Supreme Court considered the GST treatment of the sale of disused residential property with a development approval for the erection of a 14-unit development upon the land. A house was built upon part of the land containing two residences. The land was marketed as a development site. The vendor expected, as was the case, that the land would be purchased by a developer, the house demolished, and new units built on the site. The vendor treated the sale as a taxable supply. After settlement, the purchaser contended that the sale input taxed and sought recovery of 1/11th of the price paid to the vendor.

The purchaser relied on the Commissioner’s ruling (GST 2000/20) to support its contention that  it was the physical characteristics of the premises which both determined whether they were residential premises and whether they were to be used predominantly for residential accommodation. The Court observed that when the ruling was initially issued, the Commissioner expressed the view that whether residential premises were “to be used predominantly for residential accommodation” would depend upon the use of the premises by the occupier, or the occupier’s intention as to such use. 

Ultimately, the Court concluded as follows (at [93]):

In my view, it does not accord with the natural meaning of paragraph 40-35(2)(a) and subs 40-65(1), to determine the question whether the residential premises are to be used predominantly for residential accommodation, solely by reference to the physical construction of the premises, and what that construction connotes about the intention with which the premises were designed, built or modified.

And at [101]:

 In my view, the subjective intentions of the purchaser, and the objective criteria considered as a whole, show that the proper conclusion to have been drawn at the time of the supply was that the premises were not to be used predominantly for residential accommodation.

The issue was then addressed by the Full Court in Sunchen Pty Ltd v Commissioner of Taxation [2010] FCAFC 138. The majority (Edmonds and Gilmour JJ) observed that the decision in Toyama “undoubtedly erects a test in which the intentions of the purchaser are relevant and important”.

The majority concluded the the phrase ‘to be used predominantly for residential accommodation’ is only concerned with the characteristics of the property in terms of its suitability, and not with any person’s intended use of the property. The majority also considered that the introduction of the expression “intended to be occupied” into the definition of residential premises after the decision in Marana Holdings did not lead to a different conclusion. The expressions ‘intended to be occupied’ and ‘to be used’ were synonymous. At most the word ‘predominantly’ in the second phrase qualified the first phrase in a quantitative way. The two phrases were not separate criteria introducing, respectively, an objective and subjective test.

In light of the decision of the majority in Automotive Invest, this analysis may be open to question.