Educational Pty Ltd and Commissioner of Taxation [2011] AATA 445

CASE ANALYSIS

Facts

The applicant acquired a large property, which used to be a fauna park, and the intention of the directors was to convert the property into an educational and accommodation centre.  The issue was whether, in the period after acquisition, the applicant was carrying on an “enterprise” for the purposes of the GST Act.

Consideration

In finding that no enterprise was being carried on, the Tribunal made the following findings of fact:

• it was impossible to discern any profit-making purpose in the applicant’s activities.  The applicant had spent considerable sums in capital and non-capital expenditure, but had received no payment for the provision of educational facilities (save for minuscule income from hiring out the premises for a birthday party)
• to date no students had been accepted and no courses offered and promotion of the facility was by word of mouth
• the evidence indicates that the venture, while well motivated, lacked commercial character – in the periods in issue, the applicant had receipts of some $6,000 and expenses in excess of $391,000
• there is no evidence of any system or any degree of planning

What is interesting from this case is the discussion of the Tribunal about the scope of “enterprise” .

The Tribunal found that there was support in the cases for the proposition that the words “in the form of” extend the reach of “enterprise” to activities which would not, in the ordinary meaning of business, be considered such and that “carrying on” and enterprise includes doing anything in the course of the commencement of the enterprise: referring to Toyama Pty Ltd v Landmark Building Developments Pty Ltd [2006] NSWSC 83 at [69] and FCT v Swansea Services Pty Ltd [2009] FCA 402 at [99].

The Tribunal noted that commencement of an enterprise is not necessarily the same thing as staking a step in preparation for such commencement: referring to Russell v FCT [2011] FCAFC 10 at [71].  In assessing the case before it, the Tribunal found that this was more about preparation for commencement, not commencement itself.

Finally, the Tribunal found that the decision of the High Court in Spriggs v FCT (2009) HCA 22; (2009) 239 CLR 1 provided helpful guidance as to the existence of a business, noting the following statement of the Court at [59]:

The existence of a business is a matter of fact and degree.  It will depend on a number of indicia, which must be considered in combination and as a whole.  No one factor is necessarily determinative.  Relevant factors include, but are not limited to, the existence of a profit-making purpose, the scale of activities, the commercial character of the transactions, and whether the activities are systematic and organised, often described as whether the activities are carried out in a business-like manner.

8 November 2011