Author Archives: chrissievers

Commissioner publishes GST Determination on failed payment fees and draft GST ruling on adjustment notes

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Yesterday the Commissioner published GSTD 2013/1 ‘Goods and services tax: when a payment for a supply fails, is a failed payment fee charged by the supplier consideration for a supply?’ and GSTR 2013/D1 ‘Goods and services tax: adjustment notes’

GSTD 2013/1

In the Determination the Commissioner considers that a failed payment fee (eg, a fee payable by a customer to an internet service provider paying by direct debit if there are insufficient funds in the customer’s account) is not consideration for either a financial supply or another supply (eg, a supply of administrative services). This is a different outcome to the previous published view of the Commissioner in Goods and Services Tax Advice (GSTA) Tax Practitioner Partnership (TPP) 065 which described the failed payment fee as consideration for an input taxed supply – that advice has been withdrawn.

The basis for the Commissioner’s view is that there is insufficient connection between a failed payment fee and anything supplied by the supplier. Whilst a failed payment may result in the supplier having to undertake additional actions, these are not services that are supplied to the recipient – they are simply a necessary part of the supplier ensuring it receives payments for amounts owed.

Further, the Commissioner does not consider that an “interest” in a financial supply is provided or created – this is because the supplier has not received any property in a debt or a new debt from the customer. The original debt never ceased to exist and remained the property of the supplier.

GSTR 2013/D1

The draft ruling sets out the requirements for adjustment notes under Division 29 of the GST Act, including:

  • when a document is in the approved form for an adjustment note
  • the information requirements that the Commissioner has determined under paragraph 29-75(1)(c) and an explanation of how those requirements in the A New Tax System (Goods and Services Tax) Adjustment Note Information Requirements Determination 2012 apply
  • when the Commissioner will treat a particular document as an adjustment note even though that document does not meet all of the adjustment note requirements under subsection 29-75(1)
  • an appendix summarising the circumstances when a decreasing adjustment can be attributed without an adjustment note as determined by the Commissioner under s 29-20(3)

Assistant Treasurer releases new draft legislation on GST refunds for consultation – now Division 142?

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Yesterday afternoon the Assistant Treasurer released new draft legislation dealing with refunds of overpaid GST for a second round of public consultation.  The previous draft legislation proposed to introduce Division 36 into the GST Act, whereas the current draft legislation proposes to introduce Division 142 into the GST Act. The amendments will apply to tax period commencing 17 August 2012.

The draft legislation can be accessed here and the Explanatory Memorandum here.

My initial analysis of the draft legislation can be found here.

The media release from Treasury acknowledged that the first round of consultation highlighted a number of concerns with the initial draft legislation, with the main issues being as follows:

  • the perceived inability to obtain a refund of overpaid GST would encourage taxpayers to shy away from adopting a conservative approach to their GST obligations;
  • a concern that rights to object to an assessment of GST would be removed as the relevant assessment would not be excessive as section 36-5 would deem the GST to have always been payable;
  • the restriction on refunds would override the operation of the adjustment provisions resulting in businesses not being able to get a refund in their dealings with other businesses;
  • the concept of passing-on was introduced without being adequately defined creating considerable uncertainty;
  • recipients that have excess GST passed on to them may not have an entitlement to an input tax credit on the excess GST as it may not be consideration for a taxable supply and therefore would not be a creditable acquisition for the purposes of Division 11; and
  • the Commissioner should be able to retain his discretion to pay refunds where appropriate e.g. where a taxpayer does not satisfy the requirements of Division 36 but there is no windfall gain to the taxpayer.

My analysis on the initial exposure draft of the legislation can be accessed here. Also, the submissions lodged by various professional bodies can be accessed here.

It appears that Treasury has listened and the new draft provisions try to address many of the concerns raised in the submissions. Nevertheless, this second raft of proposed amendments is likely to be controversial and one can expect significant comment from taxpayers and the profession as part of the consultancy program.  Comments are sought by 28 March 2013.

Summary of the new provisions

In summary:

  • S 105-65 of Schedule 1 is to be repealed
  • The restriction operates on two types of refunds, excess GST unrelated to adjustments (subdivision 142-A) and excess GST related to cancelled supplies (subdivision 142-B)
  • Subdivision 142-A only applies to restrict refunds of “extra GST” – the provisions do not cover input tax credits, GST correctly attributable to a different period or deceasing adjustments attrtibutable to a later tax period (save for the operation of subdivision 142-B)
  • Subdivision 142-B applies to decreasing adjustments attributable to a later tax period as the result of the cancellation of the supply.
  • The Explanatory Memorandum states that the provisions are to ensure that overpaid GST is only refundable in certain circumstances and that the provisions apply irrespective of whether the overpayment arises as a result of a mischaracteriation or miscalculation of the GST payable. Further, the taxpayer is allow to self-assess their entitlement to a refund and the Commissioner will have a discretion to refund excess GST in exceptional circumstances where it would be appropriate.

Victorian Supreme Court hands down decision on GST and the construction of a real estate contract

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Last week the Victorian Supreme Court handed down its decision in Duoedge Pty Ltd v Leong & Anor [2013] VSC 36 which illustrates the continued difficulties (and disputes) with regards to GST and real property transactions. In this case the contract was stated to be inclusive of GST and upon discovering that GST was not payable by the vendor, the purchaser sought a refund of 1/11th of the purchase price. The Magistrates Court agreed with the purchaser, finding that it was an implied term of the contract that the vendor would refund the GST amount if GST did not apply to the sale and that the contract should be rectified accordingly.

The Supreme Court allowed the vendor’s appeal, finding that:

  • There was no term to be implied into the contract that the vendor would refund the GST amount. In coming to this finding the Court found it relevant that because the sale was not a taxable supply, the purchaser (being a developer) was able to utilise the provisions of the margin scheme with respect to the developed units.
  • There were no grounds for rectification of the contract because there was no common intention or common mistake recorded incorrectly in the written contract.

My analysis of this decision (including references to other decisions where parties have disputed the GST position in real estate contracts) can be accessed here.

ATO ID 2013/9 published on whether representative of incapacitated entity can register for GST

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On Friday, the ATO published ATO ID 2013/9 “GST and registration of a representative of an incapacitated entity when the incapacitated entity is neither registered nor required to be registered”.

The ID takes the view that a representative of an incapacitated entity cannot register for GST under s 23-10 of the GST Act in that capacity if the incapacitated entity is neither registered nor required to be registered.

Section 58-20 of the GST Act provides that a representative of an incapacitated entity is required to be registered in that capacity if the incapacitated entity is registered or required to be registered. Further, s 58-25(1) provides that the Commissioner must cancel the registration of a representative of an incapacitated entity if the Commissioner is satisfied that the representative is not required to be registered in that capacity. The intent of these provisions appears to be to ensure that the representative entity “stands in the shoes” of the incapacitated entity, so that the representative entity’s obligation to register for GST mirrors those of the incapacitated entity – the representative entity has no independent entitlement to register for GST.

International cases update – December 2012/January 2013

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In December 2012 and January 2013 the judgments listed below were handed down in the UK dealing with VAT. Of interest is the decision of the Privy Council in Director General, Mauritius Revenue Authority v Central Water Authority (Mauritius) [2013] UKPC 4 where the perennial issue of characterising a transaction as a single supply or multiple supplies was raised, this time in the context of the Mauritius VAT legislation which was largely based on the UK legislation.

The issue was whether the Central Water Authority was entitled to input tax credits for acquisition of water meters to fit in customers’ properties. This depended on whether CWA made a single taxable supply of water (with the supply of the meters being ancillary or incidental supplies) or the supply of water and a separate exempt supply of the supply of water meters. The Courts below found in favour of CWA by adopting the long standing approach to issue established in Card Protection Plan Ltd v Commissioners of Customs and Excise [1999] 2 AC 601. However, the Privy Council allowed the appeal by the Revenue on the basis that it was open to the legislature to identify a “concrete and specific aspect” of what would otherwise be a single supply and to impose a different VAT treatment on that separate aspect. My analysis of the decision can be accessed here.

United Kingdom

Privy Council

First tier Tribunal

  • Cambrian Hydro Power Ltd v Revenue & Customs [2012] UKFTT 764 – VAT – effective date of registration – request to backdate – statutory power – HMRC administrative procedure – genuine error on part of applicant – error unknown to HMRC – whether HMRC acted reasonably – matter sent back for further decision
  • Groundwork Cheshire v Revenue & Customs [2012] UKFTT 750 – VAT –  consideration for supply – Article 73 Principal VAT Directive – subsidies directly linked to the price of the supply – provision  of free environmental consultancy services to businesses – funding from third party – whether payments  amount to consideration – yes –  appeal allowed
  • Hawes & Curtis Ltd v Revenue & Customs [2012] UKFTT 758 – VATA 1994 s24 – input tax – supplies not made to taxpayer – whether input tax reclaimable – whether supplies to agent on behalf of taxpayer – taxpayer ultimate beneficiary – absence of relationship between supplier and beneficiary –  appeal dismissed
  • Market & Opinion Research International Ltd v Revenue & Customs [2013] UKFTT 779 – VAT – INPUT TAX – Fleming claim for unclaimed input tax for period 1 January 1986 to 30 April 1997 on the fuel element of mileage allowances reimbursed to researchers engaged by the appellant – HMRC’s application to amend Statement of Case granted  – Tribunal’s jurisdiction was  appellate rather than supervisory on the  issue of whether appellant had  previously recovered the input tax which was the subject of the claim.
  • McAndrew Utilities Ltd v Revenue & Customs [2012] UKFTT 749 – VALUE ADDED TAX – input tax – section 24 VATA 1994 – regulation 29(2) VAT Regulations 1995 – whether there were taxable supplies by taxable persons – whether the appellant in possession of valid VAT invoices to support its input tax claim – discretion as to alternative evidence of the charge to VAT – appeal substantially dismissed but allowed in part
  • Nettermedia.com Ltd v Revenue & Customs [2013] UKFTT 50 – VALUE ADDED TAX — discounted price sales — customers paying monthly fee for right to buy at discounted price — whether fee taxable if no goods bought — yes — appeal dismissed
  • Noble v Revenue & Customs [2012] UKFTT 760 -Value Added Tax – Whether supplies made – Input tax recovery – evidence required to discharge burden – insufficient evidence – appeal dismissed
  • South African Tourist Board v Revenue & Customs [2013] UKFTT 780 – VAT – statutory body funded by government under performance agreement – whether supply for consideration – whether economic activity – no

Federal Court hands down decision in “son of South Steyne” case; update on appeal in “son of holdback”

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On Thursday last week the Federal Court handed down its decision in MBI Properties Pty Ltd v Commissioner of Taxation [2013] FCA 56 where the Court found that the applicant had an increasing adjustment under Division 135 in respect of the acquisition of a going concern, being the acquisition of residential premises subject to a lease. The Court found that Division 135 applied because the applicant intended that the supplies made through the enterprise to which the supply of the going concern relates will be supplies that are neither taxable nor GST free supplies. The Court rejected the applicant’s submission that the section only applied where the recipient of the going concern itself intended to make supplies that were neither taxable nor GST free.

The decision is related to the decision of the Federal Court in South Steyne Hotel Pty Ltd v Commissioner of Taxation [2009] FCA 13 (and on appeal [2009] FCAFC 155).

My analysis of the decision can be found here.

Update on appeal in AP Group

On 6 February 2013 there was a callover for the appeal by the taxpayer and the cross-appeal by the Commissioner in A P Group and Commissioner of Taxation. The appeal is to be heard by a Full Court rather than by a single judge. As the Tribunal was constituted by a Presidential Member, in appropriate matters the Chief Justice can order that the matter be heard by a Full Court rather than a single Judge. Both parties had been asked to provide reasons why the matter should be heard by a Full Court.

The appeal is listed for hearing in the sittings commencing 29 April 2013 with an estimate of 2 days. This will be an important appeal as it will give the Full Court an opportunity to grapple with the issue of the proper nexus between “supply” and “consideration”.

Tribunal finds applicants not entitled to input tax credits as they were not carrying on an enterprise

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In Bayconnection Property Developments Pty Ltd and Ors and Commissioner of Taxation [2013] AATA 40 the Tribunal affirmed the view of the Commissioner that the applicants were not entitled to input tax credits they had claimed.  This was because it was clear that none of the applicants were carrying on an enterprise, even taking into account the extended definition of “carrying on” that includes “doing anything in the course of the commencement or termination of the enterprise”. The Tribunal also upheld the imposition of penalties of 75% for intentional disregard of the taxation laws, plus an increase in penalties by 20%.

The input tax credit claims were made by a number of companies within a group and they related to the controller’s vision to establish an institution for vocational training. However, the applicant provided little, if any, evidence of the roles played by the applicants in the project which might suggest that they were carrying on an enterprise. The Tribunal found that the controller had merely formulated a structure as to where the applicants would “sit” within the structure if the project materialised – and that the applicants had not commenced any activities by the time they became registered for GST and had not done so during the period in which credits were claimed. The Tribunal was also concerned that the applicants had been generating refunds based on credit claims they knew to be unfounded and that the clear implication was that the payment of the credits was needed to assist the cash flow of the companies within the group.

Majority of UK Supreme Court finds that tax advice by accountants is not privileged

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In Prudential plc v Special Commissioner of Income Tax [2013] UKSC 1 the UK Supreme Court has determined (by a majority of 5:2) that the taxpayer was required to produce documents to the Revenue and that those documents were not covered by Legal Advice Privilege (LAP) where the advice was given by accountants in relation to a tax avoidance scheme.  The essential question in the case was whether LAP extends, or should be extended, so as to apply to legal advice given by someone other than a member of the legal profession (in this case to tax advice given by PwC), and, if so, how far the privilege thereby extends, or should be extended.

While the case does not deal with GST or VAT, it is an important decision because it had the potential to impact on the ability of the Revenue to obtain documents from taxpayers. It is established that the Revenue cannot obtain privileged documents (save for some exceptions, including where the privilege has been waived) – the extension of privilege to tax advice by accountants (which would include advice on GST) would greatly extend the scope to which taxpayers could refuse to disclose documents to the Revenue.

While the majority of the Lords found that LAP did not extend to the advice provided by PwC, the minority (Lords Sumption and Clarke) gave powerful dissenting judgments.  The majority essentially took the view that the issue was best left to Parliament. Nevertheless, the majority appeared to agree with the minority that, in principle, there was no difference between tax advice from accountants and lawyers.  As noted by Lord Hope (at [79]):

A search for a principled answer might well lead one to the conclusion that there was no good reason at all for holding that the tax advice of chartered accountants should be treated differently from similar advice given by a barrister or a solicitor, as Lord Sumption’s powerfully reasoned judgment so ably demonstrates. He starts from the position that the English law has always taken a functional approach to legal advice privilege, and that all one needs to do is recognise as a matter of fact that much legal advice falling within the principles governing legal advice privilege is given today by people who are not lawyers.

In Australia, Accountants have been pushing for legal privilege to be extended to tax advice. On 15 April 2011 the Assistant Treasurer released a discussion paper which explores this issue and sought submissions from interested parties.  I believe the submissions are still being considered.

My analysis of the decision can be found here.

Tribunal finds that applicant not entitled to GST refund where notification lodged out of time

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In Tom and Commissioner of Taxation [2013] AATA 28 the Tribunal found that the applicant was not entitled to refunds of GST as he had not notified the Commissioner of his entitlement to those refunds within the four year time limit stipulated in s 105-55(1) of Schedule 1 to the TAA. The applicant had lodged revised BASs outside the four year time period.

The Tribunal also found that the Commissioner had no discretion to extend the time provided for the Applicant to give notice of its entitlement to claim a refund, referring to Australian Leisure Marine Pty Ltd and Commissioner of Taxation [2010] AATA 1065.

ATO publishes ID on points fees for loyalty programs; Tribunal decision on GST refunds and time limits

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Earlier this month the ATO published ATO ID 2013/1 “GST and points fee in a loyalty program” which takes the view that a loyalty program operator is making a taxable supply to a program partner where it allocates points to members in return for a points fees and those points would be redeemed by members for vouchers which are subject to the voucher provisions in Division 100 of the GST Act. The ATO ID applies the views of the Commissioner in GSTR 2012/1 that the supply of points by the program operator to the program partner is a supply of rights, being the rights that program members obtain on receiving points.

In Dandenong Motors Unit Trust and Commissioner of Taxation [2012] AATA 920 the Tribunal found that the applicant was not entitled to a refund of overpaid GST paid in respect of holdback payments beyond the four year statutory time period to the extent that the applicant’s net amount was negative.  The case dealt with the construction of s 105-55 before its amendment in 2008.  The applicant contended that the effect of the decision of the Federal Court in KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159 was that the limitation period in s 105-55 (prior to its amendment) only had application to GST paid on supplies – the provision did not apply to GST paid in respect of arrangements which were not supplies.  The Commissioner accepted that the applicant was entitled to a refund of overpaid GST to the extent that it reported a positive net amount in its monthly GST returns, but contended that s 105-55 operated to restrict that entitlement to the extent that its net amount was a negative amount. The Tribunal found that the applicant’s contention was based on a misunderstanding of what the amendments in s 105-55 (and s 105-65) were intended to do.  Further, at all relevant times, s 105-55 limited the right to refunds of negative net amounts.