The following GST/VAT cases were handed down in January 2012.  From my research there were no cases handed down in New Zealand or Canada.

United Kingdom

High Court

• Royal Bank of Scotland v Revenue and Customs [2012] EWHC 9 – decision of Tribunal appealed from [2008] UKVAT V20586 – sale of going concern, whether ongoing commission payments consideration for sale of going concern, effect of novation of contracts, whether commission payments exempt as payments for “related services performed by insurance brokers and insurance agents” – appeal dismissed

First Tier Tribunal

• Ist Contact Ltd v Revenue & Customs [2012] UKFTT 84 – recovery of input tax on exempt supplies pursuant to VATA s.26(2)(c) – Exempt supplies under VATA Schedule 9, Group 5, item 1 (“The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money”) – Supply of foreign exchange services (FOREX) to persons, principally from Australia, New Zealand and South Africa, who are in the United Kingdom on a “working holiday” or “overseas experience” – whether services “supplied to a person who belongs outside the member States”
• Aberdeen Sports Village Ltd v Revenue & Customs [2012] UKFTT 80 – Whether payment was a consideration for a supply of services or donation; amount of consideration; link between payer and payee; appeal against decision that services were supplied; Appeal refused
• Bunning (t/a Stafford Land Rover) v Revenue & Customs [2012] UKFTT 32 – zero-rating of the supply of a qualifying motor vehicle to a handicapped person who usually uses a wheelchair – whether two vehicles supplied were each (a) supplied to a handicapped person who usually uses a wheelchair, and (b) a qualifying motor vehicle – held in both cases both conditions were fulfilled and the supplies fell to be zero-rated – appeal allowed
• Bromley Emergency Training and Development Ltd v Revenue & Customs [2012] UKFT 30 – Registration – Supply of services – Training courses – Advance payments – Threshold for registration – Whether time of supply rules apply when deciding when threshold exceeded
• King v Revenue & Customs [2012] UKFTT 64 – claim for input tax credits for purchase of motor vehicles – whether used in enterprise
• Reddrock Ltd v Revenue & Customs [2012] UKFTT 46 – Input tax deduction claimed – supplies in respect of which input tax was claimed challenged by HMRC as not having taken place and the related 54 invoices as having been manufactured – burden of proof on Appellant to show that invoices were valid – Appellant failing to discharge that burden – Appeal dismissed

European Court of Justice

• Minister Finansow v Kraft Foods Polska (Taxation) [2012] EUECJ C-588/10 – Taxation – VAT – Directive 2006/112/EC – Article 90(1) – Price reduced after the supply has taken place – National legislation which makes the reduction of the taxable amount contingent on the supplier of the goods or services possessing acknowledgment of receipt of a correcting invoice by the purchaser of the goods or services – Principle of VAT neutrality – Principle of proportionality
• ADV Allround v Finanzamt Hamburg – Bergedorf (VAT) [2012] EUECJ C-218/10 – VAT – Sixth Directive – Articles 9, 17 and 18 – Determination of the place where services are supplied – Concept of ‘supply of staff’ – Self-employed persons – Need to ensure that a provision of services is assessed identically in relation to the provider and in relation to the recipient

In January 2012 the ATO published over 80 private rulings dealing with GST issues, a busy month given the holiday period.  The rulings can be accessed here and from the menu on this site.

Discussed below are some of the more interesting rulings.  They are all about real property, which continues to raise difficult issues.

Subdivision of Property and Enterprise

• The Private Rulings Register contains a large number of rulings dealing with the issue of whether a real property owner is required to register for GST where the owner looks to subdivide and sell the property.  There is no easy test to determine which side of the line the entity sits (i.e., whether there is simply the realisation of a capital asset in a profitable way, or the entity changes its purpose and commences to carry on an enterprise).  MT 2006/1 provides a helpful outline of how the Commissioner will approach such issues, but in each case it is a question of fact and degree, and it is something upon minds may differ.
• The following three rulings published in the same month show how difficult the issue is.

GST and subdivision of property – No 1011986198237

• When regard is had to the facts of this ruling, I consider that the matter is close to the line and while the Commissioner considered that an enterprise was carried on, it could well be argued that this was not the case.  The ruling is a good example of how difficult this area of the law can be – not just in GST, but also in the area of income tax.
• The facts can be summarised as follows:

1. the entity acquired the property pre-2000 for the purposes of constructing a family home and since than has used it as the principal place of residence.  Improvements were made to the property, including a family home, tennis court, swimming pool, and barn.  The entity is approaching retirement and is finding the broadacre lifestyle tiring.
2. The property has been recently rezoned from rural to residential and the entity has engaged a consultant to advise how to sell the property and realised the increased value
3. The entity decided to proceed with the subdivision, which will proceed in stages with the entity being required to construct an access road and to connect services to the lots.  Houses will not be constructed on the lots and the entity will not be involved in the sale or marketing of the completed lots.  The entity simply plans to sell the subdivided lots.
4. The entity has no history of property development and does not intend to undertake any further development activities in the future.
5. The entity will preserve the family home on one of the subdivided lots and continue to live there.

• In finding that the entity was carrying on an enterprise, the Commissioner adopted the approach of looking at “the overall impression gained after examining the activities as a whole and the intention of the taxpayer undertaking the activity.  The Commissioner found that it was relevant that the entity had engaged a project manager to oversee the subdivision process and had employed an agent to undertake the sale of the subdivided lots; and that the council had required that certain things be done as part of the subdivision; and that the entity will borrow money to undertake the project.
• It may be that borrowing money to undertake the project may indicate the carrying on of an enterprise, one may have cause to question the relevance of engaging an agent to sell the property or a project manager to assist a person to subdivide the property.  Also, that the council may impose conditions on the subdivision is also arguably of questionable relevance.  Based upon the facts, it would appear that the entity is doing the bare minimum to sell the lots in a subdivided form.  One could argue that the entity was a unlucky.

GST and subdivision of land No.101201445746

• the facts of this private ruling are almost identical with the Commissioner coming to the same finding.  One wonders whether this signals a tightening of approach by the Commissioner on what constitutes an enterprise where real property is subdivided and sold.

GST, taxable supplies and sale of subdivided property – No 1012020785328

• this application involved very similar facts, but the Commissioner found that no enterprise was carried on.  The similar facts are as follows:

1. the premises were used as the main residence and a decision was made to vacate the premises to reside in a smaller home
2. it is intended to submit a development application to the local council seeking permission to subdivide the property and sell as vacant land – nothing will be built on the land or works undertaken beyond the minimum requirements necessary to satisfy the development application
3. consultants and contractors will be engaged to perform the work

GST and attribution of input tax credits – No. 1012014812230

• the question here was whether the purchaser under a purchase of commercial property was entitled to attribute input tax credits on the whole of the purchase price upon the payment of the “deposit” payable under the contract, which was to be paid in two separate instalments
• not surprisingly, on the basis that the amounts constituted a valid deposit, the Commissioner found that Division 99 applied and attribution was deferred until the earlier of settlement or forfeiture
• what is interesting is that the amounts exceeded 10% of the purchase price and the ruling provides a helpful analysis of the Commissioner’s view of what constitutes a valid deposit (particularly where that amount exceeds 10% of the purchase price)
• also, the ruling notes that in GSTR 2000/28, the Commissioner considers that a contract for the sale of land does not constitute an invoice for GST purposes (which would trigger attribution) – this is a somewhat controversial view – now that taxpayers have objection and review rights on private rulings, it may not be too long before this issue is considered at a higher level

Today the Commissioner published two ATO IDs dealing with incapacitated entities and Division 58 of the GST Act.  Division 58 was introduced to replace Division 147 after the Federal Court found in Deputy Commissioner of Taxation v PM Developments Pty Ltd [2008] FCA 1886 that the Division effectively did not work.  The IDs are discussed below and they can also be accessed via the menu on this site.

ATO ID 2012/6 – GST and representative of an incapacitated entity acting as both supplier and recipient of the representative’s administration services

• This ID shows that a single entity may act in more than one capacity for the purposes of the GST Act and that can effectively conduct taxable transactions between itself
• A was acting as administrator for an incapacitated entity and as part of the administration paid administration fees to A in his capacity as the insolvency practitioner.  A is registered twice for GST, once as an entity pursuant to Division 58 and once as an entity pursuant to Division 23 – the incapacitated entity was also registered for GST
• In finding that A was entitled to input tax credits for the payment of the fees, the Commissioner noted that the same legal person acted in two different capacities and was treated as two separate entities for the purposes of the GST Act

ATO ID 2012/7 – GST and liability for a supply made by an incapacitated entity prior to the appointment of a representative

• The Commissioner found that the representative entity was not liable for GST under s 58-10 of the GST Act when it received consideration for a supply that was made by the incapacitated entity prior to the appointment of the representative – it was the incapacitated entity who was liable for GST.
• There is nothing particularly controversial about this conclusion – what may be controversial however is determining whether the supply was “made” prior to the appointment of the representative.  For example, in The Trustee for Naidu Family Trust and Commissioner of Taxation [2011] AATA 909 a mortgagee in possession who completed a contract of sale (which had been executed by the vendor) contended that the supply had been made on contract.  While that case related to s 105-5 of the GST Act, similar timing issues may arise with regard to Division 58.

On 18 January 2012 the Commissioner issued Addendum GSTR 2004/1A3 – reduced credit acquisitions.

The purpose of the Addendum is stated to be as follows:

In the 2010-11 Budget the Government announced that it will amend the financial supply provisions of the GST law to clarify the operation of the legislation and reduce compliance and administrative costs, particularly for many small businesses, with effect from 1 July 2012.

Amendments implementing three of the seven measures agreed to by the Government were contained in Schedule 3 to the Tax Laws Amendment (2011 Measures No. 9) Bill 2011, which was introduced into Parliament on 23 November 2011.

The Assistant Treasurer has now released draft regulations implementing the remaining four measures. These measures are:

• simplifying the treatment of hire purchase transactions by making them fully taxable;
• expanding the range of expenses qualifying for a reduced input tax credit to include superannuation funds providing life insurance products, lenders’ mortgage reinsurance and transactional fraud monitoring;
• changes to the reduced input tax credit for trustee and responsible entity services; and
• clarifying the language used in relation to guarantees and indemnities.

The closing date for submissions is Friday 24 February 2012

In January 2012 the ATO published the GST Property Tool on its website – the tool can be accessed here.

The website describes the tool as follows:

The interaction between GST and real property continues to pose real difficulties for clients and practitioners, and one can hope that a resource such as this may serve to alleviate some of those difficulties.