Author Archives: chrissievers

Tribunal denies application for extension of time to review objection decision because four year limitation period had expired

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On Friday the Tribunal handed down its decision in Hampson and Commissioner of Taxation [2013] AATA 731 where it denied the applicant’s application for an extension of time to lodge an application to review the Commissioner’s objection decision to deny a refund of input tax credits on the basis that the application was made more than four years after the tax period in which the refund related.

The decision illustrates that the four-year limitation rule in s 105-55(1) of Schedule 1 to the TAA operates in a mandatory way with potentially harsh results. The Commissioner acknowledged that the applicant was entitled to the refund, but because of the expiry of the limitation period there was no discretion which could be exercised in his favour. The Tribunal agreed and referred to the following observation of the Tribunal in Re Australian Leisure Marine Pty Ltd and Commissioner of Taxation (2010) 76 ATR 390; [2010] AATA 620 at [17]:

In my view, s 105-55 of Sch 1 to the Act has substantive effect in that the expiry of the 4-year time-limit extinguishes the right of a taxpayer to notify the Commissioner of an entitlement to the input tax credit. As such the provision certainly denies the entitlement of an entity to an input tax credit. The High Court of Australia has also recognised that taxation legislation which imposes time-limits on amending an income tax assessment to have substantive rather than procedural operation: see McAndrew v FCT [1956] HCA 62; (1956) 98 CLR 263; [1956] ALR 1008.

I also note that early last week the Tribunal handed down its decision in Lakatos and Commissioner of Taxation [2013] AATA 712 where it affirmed the Commissioner’s decision that the applicant (who operated a used-car business) had not substantiated his entitlement to input tax credits and had a shortfall of GST given his failure to report GST on sales of vehicles. The Tribunal did not accept the applicant’s contention that as the sales were consignment sales, GST was only applicable to the 10% commission he charged on each sale and that any GST on the sale price should be paid by the vendor.

Commissioner publishes draft GST Determination on objecting to a private ruling dealing with s 105-65 of the TAA and refunds of overpaid GST

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Today the Commissioner published draft GST Determination GSTD 2013/D4 ‘Goods and services tax: can you object to a private ruling that the Commissioner makes on the way in which section 105-65 of Schedule 1 to the Taxation Administration Act 1953 applies or would apply to you?’

The draft Determination has been issued in response to the decision of the Tribunal in Naidoo and Commissioner of Taxation [2013] AATA 443 where the Tribunal found that it had no jurisdiction to hear an application to review a decision of the Commissioner with respect to s 105-65. On 23 August 2013 the Commissioner published a  Decision Impact Statement confirming that he accepted the decision of the Tribunal and that the Tribunal has no jurisdiction to consider an application with respect of the Commissioner’s refusal to exercise his discretion under s 105-65 to refund overpaid GST. My post discussing the Decision Impact Statement can be accessed here.

The issue addressed in the draft GST Determination is whether taxpayers have jurisdiction to object to a private ruling dealing with the application of s 105-65. The view is that an objection can only be made to a private ruling if an assessment has not been made. This means:

  • for tax periods prior to 1 July 2012, if no assessments have been made an objection can be made to a private ruling on the application of s 105-65;
  • for tax periods post 1 July 2012, due to the introduction of the self-assessment regime, GST returns are regarded as assessments – therefore, an objection cannot be made to a private ruling dealing with s 105-65 if it relates to a tax period in which a GST return has been lodged. Accordingly, an objection can be made if the private ruling relates to future tax periods.  As observed by the Commissioner, given that s 105-65 is about the refund of overpaid GST, this is unlikely to frequently occur in practice.

Comments are invited on the draft Determination by 6 November 2013.

Tribunal decision on creditable acquisitions; final GST Determination issued

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Last week the Tribunal handed down its decision in Confidential and Commissioner of Taxation [2013] AATA 701 where the Tribunal affirmed the Commissioner’s decision that the applicant was not entitled to input tax credits as she had not demonstrated that an enterprise was being carried on and that the acquisitions were creditable acquisitions. Also last week the Commissioner published GSTD 2013/4 ‘Goods and Services tax: where capital assets that diminish in value over time are utilised in making a supply, can the consideration provided by the supplier to acquire those assets be taken into account in determining whether the supply is GST-free under subparagraph 38-250(2)(b)(ii) of the A New Tax System (Goods and Services Tax) Act 1999?’

Confidential and Commissioner of Taxation 

The applicant claimed input tax credits in respect of purchases made in the conduct of a services businesses. The credits were claimed in various tax periods between March 2009 and March 2012 and totalled $73,946 – no taxable supplies were recorded in these activity statements.

The evidence relied on by the applicant to substantiate the acquisitions and the activities which were said to constitute a business was limited to oral testimony and letters to the Tribunal. The applicant did not produce any documentary evidence to substantiate the claims, nor any corroborating evidence from another person. Between the date of the objection and the hearing, the applicant was requested on five occasions to substantiate the claims and to provide substantiating documents. Given these circumstances, the applicant clearly faced a difficult task of discharging the onus of proof of establishing that an enterprise was being carried on, that the acquisitions were made and that tax invoices were held.

The Tribunal came to the following conclusions:

  • There had not been sufficient evidence led for the Tribunal to undertake the examination required and/or to form the requisite views as to a reasonable expectation of profit or gain. This was so whether the enquiry was as to whether the steps taken were in commencing an enterprise or in carrying on the enterprise after commencement. This lack of evidence also precluded any inferences being made.
  • There is insufficient evidence that the purchases leading to the ITCs claimed by the Applicant were taxable supplies made by the vendors of the goods (although the Applicant asserted that she purchased and/or she held tax invoices in the periods in which the ITCs were claimed)

GSTD 2013/4

The Commissioner has issued GSTD 2013/4 ‘Goods and Services tax: where capital assets that diminish in value over time are utilised in making a supply, can the consideration provided by the supplier to acquire those assets be taken into account in determining whether the supply is GST-free under subparagraph 38-250(2)(b)(ii) of the A New Tax System (Goods and Services Tax) Act 1999?’

Subparagraph 38-250(2)(b)(ii) provides that a supply (that is not a supply of accommodation) made by an endorsed charitable institution is GST-free if the supply is for consideration that is less than 75% of the consideration the supplier provided, or was liable to provide, for acquiring the thing supplied.

In the Determination the Commissioner takes the view that the consideration the supplier provided for acquiring assets that diminish in value over time can be taken into account in determining whether a supply in that period is GST-free – to the extent that the consideration provided reasonably relates to that supply. The Commissioner also considers that the supplier should apply any reasonable methodology that reflects the proportion of the consideration that relates to each supply made.

The Commissioner takes a broad approach to the construction of subparagraph 38-250(2)(b)(ii), noting that a narrow construction would result in the provision applying only where the thing acquired is identical to the thing supplied. As noted by the Commissioner:

The purpose of section 38-250, expressed in the most general terms, is to make non-commercial supplies by charities GST-free. There is nothing in this purpose which would suggest a restriction on the class of supplies to which subsection 38-250(2) applies. A narrower interpretation of subparagraph 38-250(2)(b)(ii) would restrict the operation of the provision substantially and would not include most supplies by charities. However, there is nothing in the legislation or extrinsic materials that evidences an intent that the provision has such narrow scope.

NSW Land Environment Court finds that valuations of land include GST

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In Storage Equities Pty Ltd v Valuer-General [2013] NSWLEC 137 the Land Environment Court found that valuations of land made for the purposes of the Valuation Act (NSW) should include GST. The decision provides a helpful analysis of the treatment of GST in the context of valuations.

The sole issue between the parties was whether the valuation of the properties concerned should include GST, being calculated at the rate of 10%. The valuations relied on by the owner were therefore 10% less than the valuations relied on by the Valuer-General.

Section 6A(1) of the Valuation Act provided that “land value” meant:

(1) The land value of land is the capital sum which the fee-simple of the land might be expected to realise if offered for sale on such reasonable terms and conditions as a bona fide seller would require, assuming that the improvements, if any, thereon or appertaining thereto, other than land improvements, and made or acquired by the owner or the owner’s predecessor in title had not been made.

Both parties accepted that in determining the “value of land”, the relevant principles to be applied are those articulated in the judgment of the High Court in Spencer v The Commonwealth of Australia [1907] HCA 82; 5 CLR 418. Further, as observed by McHugh J in Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25;199 CLR 413 (at [50]):

The market for the property is, therefore, assumed to be an efficient market in which buyers and sellers have access to all currently available information that affects the property.

The Company contended that a sale of land inclusive of GST does not represent or afford evidence of the value of land to the vendor – rather, that value is evidenced by the price received, net of GST. The Company relied on the following principles which it contended followed from applying the GST Act to the principles in Spencer:

  • assuming that the vendor of a property is registered for GST, that vendor is liable to pay that tax on all taxable supplies it makes in the course of business, including the sale of real property which constitutes a taxable supply (if not sold as a going concern);
  • as the vendor is only the collector of GST on behalf of the Australian Taxation Office, the GST component of the sale price does not represent value to the vendor;
  • on the assumption that the purchaser is also registered for GST, the purchase of the property is a “creditable acquisition” entitling the purchaser to an input tax credit with the result that the purchase price is “not a cost to the purchaser and does not therefore represent what the purchaser has to pay for the property, applying the test in Spencer’s case”

The Company also contended that the word “realise” in s 6A(1) should mean the net amount received by the vendor, after GST had been paid.

The Court rejected the Company’s arguments and concluded that the amount “realised” from the sale of land necessarily reflects “that sum of money that secures the entitlement of the purchaser to a transfer on title” and “regardless of any component of that sum that the vendor may be liable to pay as a consequence of realising it”.

The Court noted that its conclusion was consistent with the decision in CSR Ltd v Hornsby Shire Council [2004] NSWSC 946. In that case, the Supreme Court considered the question of whether the Council was entitled to deduct GST from the amount of GST required to be paid to CSR following the compulsory acquisition of land. The Court rejected the claim and also observed as follows:

As the Valuer-General has said, the market place as adjusted to the imposition of GST and imbedded it in the market value of land. The test of the price that a willing purchaser would have to pay to a vendor not unwilling, but not anxious to sell in Spencer v The Commonwealth (citation omitted) has been enshrined in the Land Acquisition (Just Terms Compensation) Act 1991 (NSW), s 56(1). If the vendor must pay GST on the consideration for sale, that impost will be included in the price the purchaser would have to pay. Thus the market value of the land was $25,000,000 and not $22,700,000 plus GST.

 

Victorian Supreme Court finds that a GST clause was void for uncertainty

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Late last week the Supreme Court of Victoria handed down its decision in Cityrose Trading Pty Ltd v Booth [2013] VSC 504 where the Court found that the GST Special Condition in a real estate contract was meaningless and should be severed from the contract. This meant that the price was GST-inclusive as there was no longer any GST clause. The decision illustrates the importance of drafting GST clauses that properly reflect the intentions of the parties, and also that not all GST disputes involve the Commissioner.

This proceeding has a very long (and very expensive) history, involving two hearings before the Victorian Civil and Administrative Tribunal and two appeals to the Supreme Court. The essential question was whether the purchaser was bound to pay, in addition to the stated purchase price of $2,250,000, an amount of $225,000 on account of GST. One would expect that the legal costs have long since overtaken the GST in dispute.

The history of the case is as follows:

  • In 2007 there was a hearing before the Victorian Civil and Appeals Tribunal (VCAT) which took 6 days and found in favour of the purchaser.
  • In 2008 the decision of VCAT was appealed to the Supreme Court, which allowed the appeal and referred the matter to the Tribunal for re-hearing: [2008] VSC 495
  • In 2011 VCAT re-heard the matter, over three days. The tribunal again found in favour of the purchaser: [2011] VCAT 278
  • In February 2012 the vendor sought leave to appeal from the decision of VCAT before an Associate Justice of the Supreme Court.  Leave to appeal was refused.
  • In July 2012 the vendor sought a rehearing of the application for leave to appeal the decision of VCAT before a Judge of the Supreme Court. That hearing was heard over 2 days. On 19 September Emerton J found that leave to appeal should be granted, the appeal allowed and the order of VCAT be substituted by the orders of the Court: [2013] VSC 504

I first discussed this decision as part of a paper I delivered earlier this year entitled “GST and Real Estate Contracts – when things go wrong”. This was just after the Tribunal had handed down its decision on the re-hearing. The Supreme Court allowed the vendor’s appeal but accepted the notice of contention of the purchaser that the GST clause was void for uncertainty and the clause should be severed from the contract.

My analysis of the decision can be found here.

Full Federal Court decision in AP Group appeal – case analysis now available

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As noted in my post last night, the Full Federal Court has handed down its decision in AP Group v Commissioner of Taxation [2013] FCAFC 105. The decision is still not available on Austlii, but my analysis of this important decision can be accessed here.

While the Court dismissed both appeals on the basis that no error of law of the Tribunal was identified, the judgment provides a detailed analysis of the construction of the phrase “supply for consideration” in s 9-5(a) of the GST Act and the interaction between sections 9-5, 9-10 and 9-15 of the GST Act. As noted in my earlier post, the Court considered that s 9-5(a) requires two elements to be satisfied, namely that:

  • the consideration must be “in connection with” the supply; and
  • the supply must be “for” the consideration.

The Court rejected the Commissioner’s contention that only first element needed to be satisfied. Accordingly, the Court appeared to support a narrower view of the requisite “nexus” between supply and consideration, so as to found a taxable supply.

News Flash! – Full Federal Court hands down decision in AP Group – appeals dismissed

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Today the Full Federal Court handed down its decision in AP Group v Commissioner of Taxation [2013] FCAFC 105. This case involved an appeal by the taxpayer and a cross appeal by the Commissioner against the decision of the Tribunal in AP Group Limited and Commissioner of Taxation [2012] AATA 617 (decision on principles [2012] AATA 409).

In an ironic twist, given the  anticipation that this decision would provide clear guidance as to the interaction between sections 9-5, 9-10 and 9-15 of the GST Act and the relevant “nexus” between supply and consideration, the majority of the Full Federal Court (Edmonds and Jagot JJ) dismissed both appeals on the basis that they did not raise an error of law because the Tribunal properly applied the statutory test in s 9-5. Bromberg J dismissed the taxpayer’s appeal for the same reason, but dismissed the Commissioner’s cross-appeal for different reasons.

Nevertheless, the Court made detailed obiter statements and it is quite clear that the Court agreed with the Tribunal’s decision and would have confirmed those decisions if the appeals had raised an error of law.

It is noteworthy that the Court rejected the Commissioner’s contention that the word “for” in the phrase “supply for consideration” in s 9-5(a) had no work to do when you considered the definitions of “supply” and “consideration”. The Court observed as follows (emphasis added):

The consideration must be “in connection with” the supply but the supply must also be “for” the consideration….It ensures that not every connection between the giving of consideration and the provision satisfy the first condition of making taxable supply. If it were otherwise, any form of connection of any character between the making of a supply and the payment of consideration would suffice.

This view appears to represent a fundamental shift away from the Commissioner’s view on the construction of  s 9-5(a) and how that section interacts with ss 9-10 and 9-15.

While not binding on future Courts and Tribunals (and indeed taxpayers and the Commissioner), these statements will likely be very persuasive going forward. It will be interesting to see whether one or both parties seeks to take the matter further and seek special leave to appeal to the High Court.

International Cases Update – August 2013 – focus on single/multiple supplies

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In August 2013 a number of decisions dealing with VAT and GST were handed down in the UK and also one in Canada. From my research, no decisions were handed down in New Zealand.

This month I focus on yet another decision in the UK dealing with the vexing issue of whether a transaction involves a single supply or multiple supplies. In Zoorpark Limited v Revenue & Customs [2013] UKFTT 440 the issue was whether the provision of birthday parties by a creche (which also ran a cafe)  involved a single  taxable supply of a birthday party, or the separate supply of food (taxable) and children’s play (exempt). My analysis of the decision can be accessed here.

It is expected that some guidance on the approach in Australia will be given by the Full Federal Court in the appeal in ATS Pacific Pty Ltd v Commissioner of Taxation [2013] FCA 341. One of the findings of the trial judge (see [144]-[152]) was that the contract between the taxpayer and a non-resident travel agent was for the taxable supply of the travel products but a separate (GST-free) supply of a booking service. In coming to this finding, the Court appeared to adopt the UK approach and asked the following questions:

  • was the booking service “merely ancillary or incidental” to the supply of the travel products?
  • was the booking service sought for its own sake, rather than “a means of better enjoying the principal service”?

The appeal has been scheduled for November this year.

United Kingdom

Upper Tribunal

HMRC v Arkeley Limited (in liquidation) [2013] UKUT 393

  • VAT – zero-rating – evidence of export of goods – whether First-tier Tribunal erred in law in finding that the conditions for zero-rating were met in respect of certain invoices – Principal VAT Directive, articles 131 and 146 – VATA 1994, s 30 – VAT Regulations 1995, reg 129 – VAT Notice 703 – appeal dismissed

London College of Computing Ltd v HMRC [2013] UKUT 404

  • VAT – Exempt supplies – education – whether provided by “eligible body” – whether college of a university – tests to be applied – appeal dismissed

First Tier Tribunal

Chelham Ltd v Revenue and Customs [2013] UKFTT 418

  • VALUE ADDED TAX – input tax claimed by a company in relation to a supply of services to it by a subsidiary – the company making only exempt supplies to which the services were attributable – whether input tax deductible – held, no – whether decision to deregister the company ought to be upheld – held, yes – whether refusal of the company’s application for backdated VAT group treatment unreasonable – held, no – whether penalties chargeable – held, yes – appeal dismissed

Christadolou v Revenue & Customs [2013] UKFTT 425 

  • VAT – Whether the turnover of two separate businesses had to be aggregated – Whether one of the businesses was conducted by a sole trader and the other by joint proprietors – In the particular circumstances of this case, yes – Appeal allowed

General Motors UK Ltd v Revenue & Customs [2013[ UKFTT 443

  • VAT – self supply of cars used by car manufacturer in its business-Art 5(7) Sixth directive – value of supply: purchase price or cost- meaning of cost and purchase price – effect of UK provisions – determination of purchase price and cost – use of macroeconomic data to estimate cost in periods in which no direct evidence available.

Noble International Exchange Ltd v Revenue & Customs [2013] UKFTT 428

  • VAT – whether business made taxable supplies – no  – whether input tax allowable – no – appeal dismissed

Rapid Sequence Ltd v Revenue & Customs [2013] UKFTT 432

  • VAT – exemption for medical care – whether applies to services provided by company acting as a principal in providing medical doctors on a locum basis to hospitals – no – Article 132(1)(c) Principal VAT Directive – Schedule 9 Group 7 Item 5 Value Added Tax Act 1994 – appeal dismissed

Sunnyside Property Company Ltd v Revenue & Customs [2013 UKFTT 447

  • VALUE ADDED TAX – refurbishment of nursing home premises – lease of premises by company to subsidiary – services provided under separate agreement – whether single exempt supply of property together with services or independent supplies of property and services – held, single composite exempt supply of property and services – similar conclusion on basis of manner in which arrangements implemented in practice – deductibility of input tax – held none of input tax on construction costs attributable to taxable supplies – appeal dismissed

University of Cambridge v Revenue & Customs [2013] UKFTT 444 

  • Value added tax – whether input tax recoverable – tax incurred on non-business investment activity raising income used by University to facilitate and support its other activities both taxable and exempt – whether fees incurred on management of fund an overhead for input tax to be treated as residual – yes – tax  recoverable under Appellant’s partial special exemption

Wildfowl and Wetland Trust v Revenue & Customs [2013] UKFTT 423

  • VAT– Exempt Supplies – Cultural services – preliminary issue as to  whether certain sites of the Wildfowl and Wetland Trust comprising  captive collections of animals and nature reserves were  “zoos” within the meaning of Item 2 of Group 13 of Schedule 9 VATA 1994 – each site was a “zoo” – preliminary issue determined in appellant’s favour

Zoorpark Limited v Revenue & Customs [2013] UKFTT 440

  • VAT – whether birthday income constituted a single composite or separate supplier for VAT – appeal allowed in part – adjustment to best judgment assessment

Canada

Yevzeroff v The Queen 2013 TCC 268

  • whether taxpayer is entitled to input tax credits – whether taxpayer carried on any commercial activity – whether acquisitions substantiated – whether acquisitions incurred for the purpose of making taxable supplies

Commissioner issues Decision Impact Statement for Mathieson Truck Hire

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Today the Commissioner published his Decision Impact Statement for the decision of the Tribunal in Rod Mathieson Truck Hire Pty Ltd as trustee for the Mathieson Family Trust and Commissioner of Taxation [2013] AATA 496 where the Tribunal affirmed the decision of the Commissioner that the taxpayer was liable for GST on the entire amount of consideration payable for the sale of land, notwithstanding that part of the consideration was lent to the purchaser under a vendor finance arrangement and the loan was only partially repaid. My analysis of the decision can be accessed here.

The Statement considers that the findings made by the Tribunal are consistent with the principles set out in GSTR 2001/8, 2003/12 and GSTD 2004/4 and are consistent with the submissions made to the Tribunal, that:

  • for a taxpayer that accounts on a cash basis, attribution of GST or an input tax credit is determined by the meaning of ‘consideration’ and whether ‘consideration’ was received or provided and not by reference to the ordinary meaning of ‘cash’;
  • in a vendor financing arrangement, consideration is received by a supplier on a set-off of the loan against amounts owing to the supplier by the purchaser;
  • the postponement of payment of a debt does not constitute a loan where the recipient remains obliged to pay for the supply under the original supply contract; and
  • where there is a contract for sale of land and a vendor financing agreement, the financing agreement is not ancillary or incidental to the contract for the sale of land.

Tribunal decision on whether an acquisition was made – a question of evidence

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Yesterday the Tribunal handed down its decision in Confidential and Commissioner of Taxation [2013] AATA 624 where it affirmed the Commissioner’s decision that the applicant was not entitled to input tax credits in respect of the purchase from related parties of intellectual property and debtors. The Tribunal set aside the Commissioner’s decision that the an administrative penalty of 75% was to be applied for intentional disregard of the law, and found that the appropriate penalty was 25% for failure to take reasonable care.

The purported acquisitions arose from two agreements, both of which were in a similar form. The agreements provided for the purchase of certain assets from a related party and the terms included the following:

  • the assets were to be acquired under each agreement on completion;
  • title to the assets passed on completion;
  • the applicant agreed to pay the purchase price on completion
  • the applicant agreed to assume nominated liabilities at completion

Tax invoices were issued by the applicant with respect to both agreements.

The Tribunal found that the documents tendered and oral testimony did not establish that liabilities were assumed to the extent of the purchase price payable under the the agreements, nor did they establish that cash was paid. Further, beyond the assertion made by the applicant, the evidence that the applicant provided consideration for the assets to be purchased was limited – as a consequence, the Tribunal found that there was limited, weak and insufficient evidence on which to base the applicant’s claim that it made an acquisition under either agreement.

The Tribunal concluded that the evidence did not establish that the property to be sold passed from the vendors  to the Applicant in the relevant period, with the result that there were no supplies in that period and credits were not available.

The Tribunal made some adverse comment in response to the Commissioner’s contention that the:

[A]pplicant has failed to discharge even the most rudimentary step of proving it made a creditable acquisition because there is no evidence to indicate what was bought.

The Tribunal observed that this contention could not be accepted, noting that the agreements and tax invoices were included in the “T” documents filed by the Commissioner with the Tribunal, being documents which are relevant to the decision under review.

These observations of the Tribunal appeared to filter into the decision about penalties. The Commissioner imposed penalties of 75% on the basis of intentional disregard as the applicant maintained that each transaction occurred without any basis on which they could have occurred – the only reasonable inference was that the applicant knew that it had not made the acquisitions and yet proceeded with the claim for credits.

The Tribunal observed that it was apparent that the applicant was of the belief that the transactions had occurred and that the applicant had (potentially inadvisably) created transactional documents without understanding their effect and had acted in ignorance. In these circumstances, intentional disregard was not the appropriate standard – failure to take reasonable care was the appropriate standard.

The case is a good example of the onus of proof on the applicant to show that the assessment is excessive – in this case by showing, on the balance of probabilities that it made the acquisitions contended. The Commissioner did not appear to allege that the agreements were a sham, so the task before the applicant was to establish that the purchase price was paid (whether by the assumption of liabilities or the payment of cash). The applicant was not able to do so.