Introduction

This case involves the acquisition of a property by the Applicant in 2003 and raised the following issues:

• whether the Commissioner was out of time to recover what he considered to be over-claimed input tax credits (the “timing issue”);
• whether the Applicant was protected from the Commissioner’s proposed adjustment by a ruling that the Applicant claimed the Commissioner had made (the “ruling issue”);
• whether the Applicant was carrying on an enterprise at the time of purchase of the property (the “enterprise issue’); and
• whether the premises are properly characterised as “commercial residential premises” or “residential premises” (the “premises issue”).

The first two issues were dealt with by the Tribunal as preliminary issues and were resolved in favour of the Commissioner in Wynnum Holdings No 1 Pty Ltd and Commissioner of Taxation [2011] AATA 296.  If the Tribunal had resolved either of the preliminary issues in favour of the Applicant the matter would have been ended.  However, the Tribunal’s findings made it necessary to consider the remaining two issues.  These issues were resolved in favour of the Commissioner in Wynnum Holdings No 1 Pty Ltd and Ors and Commissioner of Taxation [2012] AATA 616.

The facts

A jont venture arrangement was established to invest in a Village Life retirement village.  On 15 August 2003 the property was purchased by “Wynnum Holdings No 1 Pty Ltd as trustee for the Wynnum Holdings No 1 Joint Venture Trust” for the price of $4.27m (inclusive of GST).  The contract described the “present use” of the land as “Residential Pensioner Units” and the “Nature of Buildings” as “Residential Pensioner Accommodation”.

At the time of the acquisition of the property, the Applicant was registered for GST and no later than 7 October 2003 the applicant lodged its BAS for the period 1 July 2003 to 30 September 2003 showing nil GST payable but claiming input tax credits of $388,182 being the GST included in the purchase price of the property.  The refund was credited to the Applicant’s Running Balance account on 31 October 2003.

On 23 October 2007, more than four years after the lodgement of the BAS, the Commissioner issued the Applicant with a “Notice to repay incorrectly paid refunds for the tax period 1/7/2003 to 30/9/2003” (“the Notice to Repay”) claiming a refund of the input tax credits previously claimed and paid.  On 28 April 2008 the Commissioner issued a “Notice of Assessment” of net amount for that tax period showing an assessed net amount of $0.

The timing issue

The Applicant submitted that the Notice to Repay and the Notice of Assessment were ineffective because of the operation of s 105-50 of schedule 1 to the TAA.  The argument was as follows:

• the “debt” claimed by the Commissioner became “payable” on the same date on which the Applicant became entitled to receive payment of the refund (i.e., the negative net amount) – i.e., on or before 7 October 2003
• the Notice to Repay did not, and could not, establish a liability on the part of the Applicant – the notice merely established the period in respect of which the Commissioner could raise an assessment
• the liability to repay was created by the Notice of Assessment
• the fact that the debt was created by an assessment means that the amount in dispute must either be a “net amount” or “an amount of indirect tax” – if so, the Commissioner must require its payment within four years or it ceases to become payable: s 105-50
• if the amount is neither a “net amount” or “an amount of indirect tax”, the Commissioner has no power to make the assessment

The Tribunal found that at the root of the Applicant’s argument was “the somewhat ambitious attempt” to characterise the amount claimed by the Commissioner as either a “net amount” or an “amount of indirect tax” and by extension an “unpaid net amount” or an “unpaid amount of indirect tax”.  In rejecting the Applicant’s contention, the Tribunal referred to the decision of Logan J in Russell v Commissioner of Taxation [2009] FCA 1224 where his honour said “Section 105-50 of Schedule 1 to the TAA has nothing at all to say where, as is now the case here, there is no controversy about an unpaid net amount, only a controversy about an entitlement to claim particular input tax credits”.

The ruling issue

The Applicant contended that the conduct of an investigation by the Commissioner and the decision to credit the input tax credits to the Running Balance Account after advising the Applicant by telephone of the successful completion of the investigation constituted the giving of a private ruling.  The Tribunal rejected this submission.

The enterprise issue

The parties agreed that someone was carrying on an enterprise at the time of the purchase of the property in 2003, but they disagreed on which entity was doing so.  The Commissioner submitted that it was the joint venture participants and the Applicant submitted that it did so.

The Commissioner relied on the documents and submitted that the Applicant was acting as a “nominee and bare trustee”.  The Applicant accepted that these documents were relevant, but contended that the characterisation of an enterprise will be determined by what it does.

The participants in the joint venture executed a Joint Venture Deed and a Deed Poll.   The recitals in the Joint Venture Deed included the following “The Joint Venturers have agreed to become joint venturers for the Joint Venture for the purchase by them (in the name of the Trustee as their nominee and bare trustee) of the Property and the management and leasing business and possible re-sale of the Property as joint owners as tenants in common in their Respective Proportion…”. The Deed Poll had a similar recital and clause 2.1 therein stated as follows “The Trustee declares that the Assets held by or registered in the name of the Trustee are held by the Trustee as nominee for and as bare trustee for all of the Joint Venturers as tenants in common in respect to their share as set out in Schedule 2”.

In a letter to the ATO dated 29 November 2006 a representative of the Applicant told the ATO the following:

[Wynnum] is the bare trustee for a small private property syndicate trust, [the Trust], which is a bare trust.  As such the bare trust and bare trustee merely act as a clearing entities (sic) and do not have any interest in the syndicate property, loan or equity.  The property is owned by the syndicate members as tenants in common and as such each member reports their share of income and expenses in their own income tax returns.

Oral evidence was given on behalf of the Applicant as to duties performed by the Applicant in addition to those which had been formally documented.

The Tribunal found that the answers given by the Applicant to the Commissioner in 2006 and 2007 were consistent with the documents and they were more reliable than the oral evidence, which was inconsistent with the documents.  These earlier answers (and the documents) did not support the contention that the Applicant was the entity carrying on the enterprise.

When one considers the content of the “foundation documents” prepared by the parties, and the initial responses to the ATO enquiries, the Applicant was always faced with a difficult task in showing that the Applicant was more than a bare trustee or nominee.

The commercial residential premises issue

The Applicant contended that the property was “commercial residential premises” within the meaning in s 195-1 of the GST Act.  The Commissioner contended that the property was “residential premises”.

The property was comprised of six buildings, five of which comprised accommodation units.  The sixth building contained a community centre and the manager’s apartment.  Covered walkways connected each building.  There was extensive landscaped groups and a car park with 10 parking spaces.  The community centre comprised a dining area with adjoining commercial kitchen, a TV area, library, office and commercial laundry.

The Tribunal considered whether the property answered the description in (a) or (f) of the definition, being either a hotel, motel, inn, hostel or boarding house – or similar to any of those types of premises.  In doing so, the Tribunal followed the recent judgment of Nicholas J in ECC Southbank Pty Ltd as trustee for Nest Southbank Unit Trust v Commissioner of Taxation [2012] FCA 795 where the following test was adopted:

The test to be applied for the purpose of determine whether [the premises] are commercial residential premises involves asking whether [it] is a hotel, motel, inn, hostel or boarding house or whether it is similar to – in the sense that it has a likeness or resemblance to – any of those types of establishment.  The application of this test necessarily raises questions of fact involving matters of impression and degree.

The Tribunal found that the property could not fairly be described as a hotel or motel – they are generally patronised  by travellers who ordinarily have their principal place of residence elsewhere and who need or desire accommodation while away for business or pleasure.  In the present case, those who occupied the accommodation units did so on a permanent (or at least long-term) basis, apparently as their principal place of residence.

The Tribunal did find that the property had some of the attributes of a “hostel” – with an on-site manager, a commercial kitchen and a communal area suitable for, and used as, a dining area for residents, a communal laundry.  The existence of segregated sleeping areas (rather than a dormitory) might be regarded as unusual in a hostel, but the Tribunal noted that this factor was not fatal to the taxpayer’s claim in ECC Southbank.  Also, that the property is occupied by “residents” was unremarkable.

However, the Tribunal also noted that here were factors that tended away from the conclusion that the property was residential premises, including:

• the occupants agreed to occupy the units for a “Periodic Term”, often for months or years at a time;
• a condition report is prepared at the commencement and conclusion of the term of occupation
• a cleaning fee is imposed when an occupant leaves
• the possibility of alterations of the unit by the occupant is contemplated
• the possibility of the keeping of pets is contemplated
• the occupants must separately arrange and pay for the connection of telephone, electricity and gas services to the units

Taken together, these factors were found to be “quite out of place” in the context of hotels, motels, inns, hostels and boarding houses, or premises similar to them.  While the Tribunal did not expressly find, it appears that the Tribunal considered that these factors were more connected with non-commercial “residential” premises where the occupant has more extensive rights over the premises (e.g., keeping pets, making alterations to the premises, exclusive possession) but also more extensive obligations (e.g. making good damage, cleaning expenses, connecting utilities).

The Tribunal also noted the Commissioner’s public ruling GSTR 2000/20 dealing with commercial residential premises.  Without reviewing the ruling in any detail, the Tribunal noted the difficulty in prescribing those factors which are relevant to the enquiry (GSTR 2000/20 sets out 8 “attributes” of commercial residential premises), where the enquiry is one of “impression” and “degree”.

The decision of the Tribunal, along with that in ECC Southbank, shows that it is often difficult to determine whether premises are “commercial residential premises” or “residential premises”.  Also, it is not appropriate to limit the enquiry to those attributes set out in GSTR 2000/20 (which mirror those in the Explanatory Memorandum).