I am in the process of incorporating a link to the current ATO GST Rulings and GST Determinations into this site. These documents can be accessed by the drop-down menu. Simply hold the curser over the menu item and a drop down list will appear. This function has been incorporated into the GST cases section as well.
At the time of this post the current ATO rulings from 2004 have been added. This project should be completed in the next few days.
The decision two days ago of the Full Federal Court in Mount Pritchard & District Community Club Limited v Commissioner of Taxation [2011] FCAFC 129 confirms that the Commissioner can disregard a private ruling if there has been a “material change” to the arrangement which was the subject of the ruling. The decision shows the importance of getting the arrangement right initially and also the dangers to the client if circumstances change down the track. While the decision related to the private ruling regime for income tax, the lessons are equally applicable to private rulings sought in respect of GST.
The decision has rather an unfortunate history, but the essential facts are that in February 2004 the taxpayer obtained a private ruling that it would be exempt from income tax for the 2003 to 2010 income years. In 2007 the Commissioner contended that due to a material change in the arrangement (as a result of the amalgamation of the club with another), the Commissioner was not bound by the ruling and proceeded to issue income tax assessments for the 2006 income year.
The taxpayer objected to that assessment but issued these proceedings under s39B of the Judiciary Act seeking to effectively quash the assessments on the basis that the ruling regime placed a duty on the Commissioner not to raise assessments in a manner contrary to the ruling. The Full Federal Court found that such a duty did not exist. Further, due to the “material change” in the arrangement, the Commissioner was free to issue the assessments and the taxpayer had recourse to review of the assessment under Part IVC of the Taxation Administration Act.
The decision is yet another example of the difficulties involved in attacking assessments through means other than Part IVC.
A review of the Commonwealth Courts portal shows that the callover for the taxpayer’s appeal of the decision of Justice Gordon in Central Equity Limited v Commissioner of Taxation [2011] FCA 908 has been adjourned to 17 April 2012.
Also, the portal shows that the Commissioner filed a Notice of Contention on 4 October 2011. When one has regard to the judgment, it is this likely that the Notice of Contention was filed in respect of the finding (albeit strictly obiter) that the refund notification lodged by the taxpayer was a valid notification for the purposes of s 105-55 of Schedule 1 to the Taxation Adminstration Act and the transitional provision in sub-item 16(2) of the Taxation Laws Amendment (2008 Measures No.3) Act 2008. Notwithstanding the very clear finding of her Honour, it appears that the Commissioner is not willing to admit defeat on the notification issue. The reasoning behind the Commissioner’s views on the validity of a notification can be found at MT 2009/1 ‘Miscellaneous taxes: notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953″.
On 30 September 2011 the ATO issues a Decision Impact Statement for the decision of Jessup J in International All Sports v Commissioner of Taxation [2011] FCA 824.
While the decision relates to gambling supplies and Division 126 of the GST Act, the real impact of the Decision Impact Statement is the apparent concession that the application of the Commissioner’s “discretion” to refund refunds in s 105-65 of Schedule 1 of the Taxation Administration Act 1999 is limited to cases where a supply or arrangement was wrongly treated as a taxable supply. In the All Sports case, and in a number of cases involving the margin scheme, the Commissioner was arguing that the discretion extended to where a taxpayer treated a supply as taxable, but nevertheless paid too much tax (eg, because of using an incorrect valuation methodology under the margin scheme).
The basis for the Commissioner’s view was set out in MT 2010/1. In essence, the Commissioner argued that the words “treated as a taxable supply…to any extent” in s 105-65(1)(a) were broad enough to capture circumstances where a taxpayer correctly treated a supply as taxable, but paid too much GST on that taxable supply. The Commissioner now accepts that MT 2010/1 must be amended. I would contend that that the majority of that ruling should be amended.
I have always regarded the view of the Commissioner as “ambitious”, to say the least. Further, the view appears to be founded upon the belief that the Commissioner’s discretion to refuse to pay refunds under s 105-65 is to be given a broad scope of operation. The decision of Jessup J in AllSports is arguably another nail in the coffin of that view. As noted by Emmett J in KAP Motors Pty Ltd v Commissioner of Taxation [2008] FCA 159 (at [33]): “Section 105-65 should not be given an expansive construction. While its object may be commendable, in seeking to avoid windfall gains for taxpayers, it is, in a sense, a paternalistic interference with the rights of taxpayers. It proceeds on the basis that GST that should not have been paid has been paid by a taxpayer. It operates to ensure that the Commissioner receives a windfall rather than a taxpayer.”
These sentiments were approved of by the Tribunal in Luxottica Retail Australia Pty Limited and Commissioner of Taxation [2010] AATA 22 (at [59), a case where the Tribunal found it appropriate that the refund be paid. While the Commissioner did appeal that case ([2011] FCAFC 20), it is unfortunate that he did not feel the need to appeal the issue relating to s 105-65, notwithstanding his statement in the Decision Impact Statement for the Tribunal decision that it “respectfully disagreed” with the reasoning of the Tribunal.
The checkered history of s 105-65 continues. So far it is taxpayer 3, Commissioner nil.
On 13 October 2011 the Commissioner lodged a Notice of Discontinuance of Appeal in his appeal of the decision of Emmett J in Reglon Pty Limited v Commissioner of Taxation [2011] FCA 805.
In this case, the Court found that no taxable supply was made by the taxpayer by reason of a Supreme Court judgment for conversion of scaffolding owned by the taxpayer. As noted by the Court (at [26]) “The effect of the payment in full by Citidel of the judgment in conversion against it was to vest in Citadel the ownership of the Taxpayer’s scaffolding. However, the mere obtaining of judgment in conversion against a defendant does not of itself affect the ownership of the coverted goods. Nor does the formal entry of judgment. It is the satisfaction of the judgment that effects a transfer to the defendant of property in the goods that were the subject of the conversion.” and further (at [32]) “The payment made in satisfaction of that judgment resulted in ownership and was triggered by the payment of the judgment sum by Citadel. That payment did not depend upon any action of the Taxpayer. I do not consider that, in those circumstances, the Taxpayer may be said to have made a supply. There was no taxable supply by the Taxpayer.”
The Commissioner’s appeal to the Full Federal Court from the decision of Jessup J in Multiflex Pty Ltd v Commissioner of Taxation [2011] FCA 112 is to be heard on 28 October 2011 before Justices Stone, Edmonds and Logan.
Given that the decision was only handed down on 30 September 2011, there is less than a month between judgment and the appeal to the Full Court. That very short time frame is consistent with the application made by the applicant at first instance for an expedited hearing (see [2011] FCA 789)
The ATO has issued TR 2011/4 ‘Income tax and fringe benefits tax: charities’ which sets out the Commissioner’s views on the meaning of ‘charitable’ in the terms of ‘charitable institution’ wherever those terms are used in the Income Tax Assessment Act 1997 (Cth), the Income Tax Assessment Act 1936 (Cth) and the Fringe Benefits Tax Assessment Act 1986 (Cth). The ruling is very extensive and runs to some 106 pages!
While the ruling does not expressly say that it deals with the term ‘charitable institution’ in the GST Act (e.g., see subdivision 38-G Activities of charitable institutions etc), the term ‘charitable institution’ is not defined in the GST Act and one would expect that the views stated in the ruling would also be relevant in the GST context.
The ATO has issued ATO ID 2011/76 which takes the view that ss 29-10(4) of A New Tax System (Goods and Services Tax) Act 1999 does not prevent an entity from revising a GST return for an earlier tax period so as to take into account an input tax credit for that earlier tax period. The ID appears to confirm that where an entity discovers that it failed to claim an input tax credit for an earlier tax period, it can elect to either amend the GST return relating to that earlier tax period or claim the credit in the current GST return.
While this may be a reasonable outcome, it is one which is not readily apparent from the terms of the statute. As noted in the ID, a literal reading of ss 29-10(4) might lead to the conclusion that the entity cannot revise the earlier period and must attribute the credit to the later period. The ATO appears to take the view that an election by the entity to amend the previous GST return somehow overrides the mandatory language in ss 29-10(4). While the extracts of the Explanatory Memorandum referred to in the ID may support the Commissioner’s construction, the dangers of relying on extrinsic materials to base a statutory construction contrary to the words of the statute were outlined by Logan J in Deputy Commissioner of Taxation v PM Developments [2008] FCA 1886. As noted by his Honour (at [47]) “An assertion as to its meaning and effect in an explanatory memorandum circulated by or with the authority of the Minister introducing a Bill into Parliament, like the Second Reading Speech in respect of that Bill, is not a substitute for the language employed by the Parliament in the Bill as enacted…It is the duty of the courts to construe enactments, not to make them. If, truly, the language of an enactment does not translate into law a meaning and effect that one might apprehend from secondary materials was intended it is for the Parliament to rectify that by further legislative provision”.
In International All Sports Ltd v Commissioner of Taxation (No.2) [2011] FCA 1027 the Federal Court has ordered the Commissioner to pay indemnity costs from the date that an Offer of Compromise was made by the taxpayer. This is an important decision, as it shows that the Commissioner is not immune from the operation of the Federal Court Rules, including those relating to Offers of Compromise and their heavy costs consequences.
In making the order, Jessup J rejected the Commissioner’s submission that the provisions of Order 52B (those relating to appeals of objection decisions) amounted to a code, and did not include the provisions of Order 23 dealing with offers of compromise. In doing so, his Honour noted (at [5]) that the Commissioner had made the very same submission in Clark v Commissioner of Taxation [2010] FCA 415 and was rejected.
The Federal Court has ordered that the Commissioner must “forthwith” pay refunds of a negative “net amount” to a taxpayer, notwithstanding that the Commissioner was conducting an investigation to establish whether the applicant relied on fraudulent tax invoices to claim input tax credits.
In Multiflex Pty Ltd v Commissioner of Taxation [2011] FCA 112, Jessup J ordered a writ of mandamus directing the Commissioner to comply with s 35-5 of the A New Tax System (Goods and Services Tax) Act 1999 and s 8AAZLF of the Taxation Administration Act 1953 by forthwith paying to the applicant the net amount notified in the GST return for each of the relevant tax periods.
In making the order, the Court rejected the Commissioner’s submission that the obligations to make refunds is subject to an implied proviso that those refunds need not be paid instantly, but must be complied with within a reasonable period. In this case, the “reasonable period” would take into account the time to conduct an investigation into the tax affairs of the taxpayer, assuming that investigation was progressed with expedition.
The Court also rejected the Commissioner’s submission that the Court should not exercise the discretionary relief of mandamus because of his suspicions as to the fraudulent nature of the tax invoices and also the risks of having to seek to recover those payments from the company through the assessment process.
A more detailed analysis of this important case will follow shortly.
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