Category Archives: Appeals

Commissioner issues Decision Impact Statement for Mathieson Truck Hire

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Today the Commissioner published his Decision Impact Statement for the decision of the Tribunal in Rod Mathieson Truck Hire Pty Ltd as trustee for the Mathieson Family Trust and Commissioner of Taxation [2013] AATA 496 where the Tribunal affirmed the decision of the Commissioner that the taxpayer was liable for GST on the entire amount of consideration payable for the sale of land, notwithstanding that part of the consideration was lent to the purchaser under a vendor finance arrangement and the loan was only partially repaid. My analysis of the decision can be accessed here.

The Statement considers that the findings made by the Tribunal are consistent with the principles set out in GSTR 2001/8, 2003/12 and GSTD 2004/4 and are consistent with the submissions made to the Tribunal, that:

  • for a taxpayer that accounts on a cash basis, attribution of GST or an input tax credit is determined by the meaning of ‘consideration’ and whether ‘consideration’ was received or provided and not by reference to the ordinary meaning of ‘cash’;
  • in a vendor financing arrangement, consideration is received by a supplier on a set-off of the loan against amounts owing to the supplier by the purchaser;
  • the postponement of payment of a debt does not constitute a loan where the recipient remains obliged to pay for the supply under the original supply contract; and
  • where there is a contract for sale of land and a vendor financing agreement, the financing agreement is not ancillary or incidental to the contract for the sale of land.

Tribunal decision on whether an acquisition was made – a question of evidence

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Yesterday the Tribunal handed down its decision in Confidential and Commissioner of Taxation [2013] AATA 624 where it affirmed the Commissioner’s decision that the applicant was not entitled to input tax credits in respect of the purchase from related parties of intellectual property and debtors. The Tribunal set aside the Commissioner’s decision that the an administrative penalty of 75% was to be applied for intentional disregard of the law, and found that the appropriate penalty was 25% for failure to take reasonable care.

The purported acquisitions arose from two agreements, both of which were in a similar form. The agreements provided for the purchase of certain assets from a related party and the terms included the following:

  • the assets were to be acquired under each agreement on completion;
  • title to the assets passed on completion;
  • the applicant agreed to pay the purchase price on completion
  • the applicant agreed to assume nominated liabilities at completion

Tax invoices were issued by the applicant with respect to both agreements.

The Tribunal found that the documents tendered and oral testimony did not establish that liabilities were assumed to the extent of the purchase price payable under the the agreements, nor did they establish that cash was paid. Further, beyond the assertion made by the applicant, the evidence that the applicant provided consideration for the assets to be purchased was limited – as a consequence, the Tribunal found that there was limited, weak and insufficient evidence on which to base the applicant’s claim that it made an acquisition under either agreement.

The Tribunal concluded that the evidence did not establish that the property to be sold passed from the vendors  to the Applicant in the relevant period, with the result that there were no supplies in that period and credits were not available.

The Tribunal made some adverse comment in response to the Commissioner’s contention that the:

[A]pplicant has failed to discharge even the most rudimentary step of proving it made a creditable acquisition because there is no evidence to indicate what was bought.

The Tribunal observed that this contention could not be accepted, noting that the agreements and tax invoices were included in the “T” documents filed by the Commissioner with the Tribunal, being documents which are relevant to the decision under review.

These observations of the Tribunal appeared to filter into the decision about penalties. The Commissioner imposed penalties of 75% on the basis of intentional disregard as the applicant maintained that each transaction occurred without any basis on which they could have occurred – the only reasonable inference was that the applicant knew that it had not made the acquisitions and yet proceeded with the claim for credits.

The Tribunal observed that it was apparent that the applicant was of the belief that the transactions had occurred and that the applicant had (potentially inadvisably) created transactional documents without understanding their effect and had acted in ignorance. In these circumstances, intentional disregard was not the appropriate standard – failure to take reasonable care was the appropriate standard.

The case is a good example of the onus of proof on the applicant to show that the assessment is excessive – in this case by showing, on the balance of probabilities that it made the acquisitions contended. The Commissioner did not appear to allege that the agreements were a sham, so the task before the applicant was to establish that the purchase price was paid (whether by the assumption of liabilities or the payment of cash). The applicant was not able to do so.

Tribunal hands down decision on “increasing adjustments” under Division 135 on the purchase of apartments

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The decision of the Federal Court earlier this year in MBI Properties Pty Ltd v Commissioner of Taxation could be described as the “son of South Steyne”. Yesterday the Tribunal handed down its decision in The Hotel Apartment Purchaser and Commissioner of Taxation [2013] AATA 567 which involves the same apartment complex  and a decision which could be described a the “grandson” of South Steyne.

The case involved the taxpayer’s liability to “increasing adjustments” under Division 135 of the GST Act with regards to the purchase of two apartments in the Sebel Manly Beach Complex. The purchase was treated as a going concern and the Commissioner claimed that the taxpayer had increasing adjustments because of continuing input taxed supplies made in relation to the apartments. A further issue was whether the Commissioner was too late in making the assessment (the Notice to Pay was issued more than four years after the end of the tax period, but before the date of lodgement of the BAS). The Tribunal affirmed the Commissioner’s decision.

The Tribunal also briefly discussed the ability of a “partnership” (being an entity for the purposes of the GST law) to apply for review under Part IVC of the TAA.

My analysis of the decision can be accessed here.

International cases update – July 2013 – when is an asset owned by a partnership?

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In July 2013 the following cases dealing with VAT and GST were handed down in the UK and New Zealand.

This month I discuss the decision of the UK First Tier Tribunal in Wrag Barn Golf & Country Club v Revenue & Customs [2013] UKFTT 406 which involved the difficult question of determining what are the assets of a partnership and what is the property of an individual partnership. That is an important question in the context of Australian GST because the effect of s 184 of the GST Act is to make a partnership a separate “entity” for the purposes of GST and it is the partnership which is required to account for GST if those assets are disposed of (although the partners are jointly and severally liable). My analysis of the decision can be found here.

I also note the decisions of the Tax Court of Canada in Kaur v The Queen 2013 TCC 227  and McKenzie v The Queen 2013 TCC 239 which involved the question of whether the director was personally liable for the unpaid GST of a company. The basis of the claim is similar to the Director Penalty regime in Australian whereby directors can be personally liable for a company’s unpaid PAYG withholdings and superannuation contributions for employees. At present, the regime in Australia does not extend to unpaid GST of companies. One does wonder whether Treasury has plans to extend the regime to unpaid GST at some future date.

New Zealand

Taxation Review Authority

XX (An Exporter) v Commissioner of Inland Revenue [2013] NZTRA 4

  • whether the supply of stainless steel spheres to a UK based company zero-rated as an export of goods – whether goods exported or used in New Zealand first in the manufacture of a sculpture and subsequently exported to the UK by another party

United Kingdom

First Tier Tribunal

Astral Construction Ltd v Revenue & Customs [2013] UKFTT 374

  • VAT – zero rating – building work – construction of residential care home integrating existing church – whether taken out of zero rating by being works of enlargement, extension, or conversion – Value Added Tax Act 1994 Schedule 5 Group 8 Item 2 – appeal allowed

Basslabs Ltd v Revenue & Customs [2013] UKFTT 383

  • VAT – transfer of VAT registration number – s 49 VATA 1994 – Reg 6 General Regs 1995 – HMRC refusal to transfer VAT number – evidence of no transfer of a going concern – Appeal dismissed

Bryan Burton v Revenue & Customs [2013] UKFTT 401

  • VALUE ADDED TAX – DIY builders scheme – conversion of barn adjacent to a dwelling (a listed building) to enlarge the dwelling – whether the works were ‘a residential conversion’ within the meaning of section 35(1A)(c) VATA – whether works consisted in the conversion of a “non-residential building” or a “non-residential part of a building” into a building designed as a dwelling or a number of dwellings – held they were not – the works were therefore not a ‘residential conversion’ within section 35 VATA – whether the Tribunal could consider and give effect to any legitimate expectation of the appellant that he would qualify for a refund under section 35 VATA – held, following HMRC v Abdul Noor [2012] UKUT 071 (TCC), that the Tribunal had no jurisdiction to consider the question of legitimate expectation – appeal dismissed

Chelmsford College v Revenue & Customs [2013] UKFTT 400

  • Value added tax – construction of an annexe to an existing building –current use of the building – purpose for which it was designed – capacity for functioning independently – VATA 1994 Sch 8 Group 5 Item 2 – appeal dismissed

Everycar Contracts Ltd & Sabrina Hammon (t/a SJM Group) v Revenue & Customs [2013] UKFTT 405

  • VALUE ADDED TAX – irregular tax invoices evidencing the purchase of cars by the appellants – the tax invoices irregular in that instead of giving the appellants’ names and addresses they gave the names and addresses of third parties who were aliases for the appellants – whether HMRC’s refusal to exercise their discretion to accept alternative evidence of entitlement to input tax was reasonable as a matter of domestic public law – held on the facts that it was – whether HMRC’s refusal contravened the Community Law principle of effectiveness – held on the facts that it did not – appeal dismissed

Oliver’s Village Cafe Ltd v Revenue & Customs [2013] UKFTT 396

  • VALUE ADDED TAX – Cancellation of registration – whether registration correctly made originally – yes – whether cancellation of registration made effective from the correct date – no, it should have been effective from 11 June 2009 rather than 11 September 2009 because the appellant had made the request for cancellation on the earlier date – paragraph 13(1), Schedule 1, VATA 1994 applied – appeal allowed in part

Palatial Leisure Ltd v Revenue & Customs [2013] UKFTT 396

  • VALUE ADDED TAX – partial exemption – whether attribution of input tax under regulation 101 of the VAT Regulations 1995 can take account of a taxable use of goods in a period more remote than the end of the prescribed accounting period in question which is brought about by a change in the law making what were formerly exempt supplies taxable supplies – held it cannot – appeal dismissed

Silvergum Solutions Ltd v Revenue & Customs [2013] UKFTT 397

  • VALUE ADDED TAX – VAT on supplies made to appellant – whether input tax deductible by appellant – supplies not used by appellant in its business or for making taxable supplies – supplies instead used in the business of an associated company which was a partially exempt trader – held the VAT in these circumstances was not the appellant’s input tax – appeal dismissed

Wrag Barn Golf & Country Club v Revenue & Customs [2013] UKFTT 406

  • VAT – option to tax land – whether golf course land was asset of Appellant at time of election to waive exemption – yes – whether golf course land was asset of Appellant at later time – yes – whether Appellant made supplies of land – yes – whether supplies taxable by virtue of election to waive exemption – yes 

International cases update – June 2013

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In June 2013 a number of decisions dealing with VAT and GST issues were handed down in the UK and Canada. From my research there were no decisions in New Zealand dealing with GST.

This month I focus on the decision from the Federal Court of Appeal in Canada in Tele-Mobile Company Partnership and The Queen 2013 FCA 149. The Court dismissed the taxpayer’s appeal against the decision of the Tax Court of Canada (2012 TCC 256) which agreed with the decision of the Revenue to deny input tax credits in respect of various billing credits given to subscribers to phone service contracts. The decision illustrates that the Courts in Canada adopt a similar approach to statutory interpretation in the context of GST (indeed generally). While the words of the statute are the starting point (indeed the end point as well in many cases), it is necessary to also apply a contextual and purposive interpretation, particularly where the words can support more than one reasonable meaning. My analysis of the decision can be accessed here.

I also note some other matters of interest arising in the UK:

  • In my international cases summary for March 2013 I analysed a decision of the UK Supreme Court in Her Majesty’s Revenue and Customs v Aimia Coalition Loyalty UK Limited (formerly known as Loyalty Management UK Limited) [2013] UKSC 15 the Supreme Court considered the question of whether the taxpayer (as the operator of a loyalty scheme) was entitled to input tax in respect of payments it made to participants in the scheme who provided goods to members of the scheme in return for the redemption of points. My analysis of the decision can be accessed here. The Court had previously referred questions to the European Court of Justice and in the appeal the majority of the Supreme Court found that reference should not have been made, essentially disregarded the findings of the ECJ because the facts had not been fully disclosed and upheld the decision of the Court of Appeal in favour of the taxpayer. The Court allowed the parties to make submissions on the form of orders to be made. In the course of those submissions, the Revenue invited the Court to make a further reference to the European Court of Justice. In Revenue and Customs v Aimia Coalition Loyalty UK Limited [2013] UKSC 42 the Supreme Court unanimously said no. In doing so, the Court observed that it would have been unfortunate if the position was otherwise, bearing in mind that the litigation had already lasted since 2003.
  • I also note the decision in Colaingrove Limited (Verandas) v Revenue & Customs [2013] UKFTT 343 where the First Tier Tribunal considered the issue of whether the supply of a caravan with a verandah involved a single supply or two supplies. The decision illustrates that the issue of single/multiple supplies continues to be hotly disputed in the UK. Last month I discussed a decision of the Upper Tribunal involving the question of whether the supply of cold water to barristers’ chambers was a separate supply. In the same month a decision was handed down on whether the supply of disposable BBQs involved a separate supply of charcoal.

United Kingdom

First Tier Tribunal

Alexandra Countryside Investments Ltd v Revenue & Customs [2013] UKFTT 348

  • VAT – property – zero-rating of residential conversion – s 30 and sch 8 VATA 1994 – conversion of pub to two residential units – pub containing manager’s flat that was incorporated into both units – whether note 9 to sch 8 denied zero-rating – HMRC v Jacobs considered – Appeal allowed

Colaingrove Limited (Verandas) v Revenue & Customs [2013] UKFTT 343

  • VAT – zero rating of caravans – supply of caravan with a verandah – whether a single supply or two supplies – test to be applied in context of zero rating

Deborah Lisbth La Roche v Revenue & Customs [2013] UKFTT 343

  • VALUE ADDED TAX – Cancellation of registration – whether an application stating a deregistration date of 20 December 2008 was received before that date – held it was – whether the appellant not liable to be registered with effect from that deregistration date – held she was not so liable – appellant’s appeal against decision not to deregister her with effect from that deregistration date allowed – paragraph 13, Schedule 1, VAT Act 1994 applied

Prescription Eyewear Ltd v Revenue & Customs [2013] UKFTT 357

  • VAT – exemption for medical care – whether applies to services provided by dispensing opticians in circumstances where spectacles are bought online – yes – whether single supply of spectacles subject to standard rate – no – or separate supplies of goods on the one hand and services amounting to medical care on the other – yes – Article 132(1)(c) Principal VAT Directive – Schedule 9 Group 7 item 1(b) Value Added Tax 1994 – appeals allowed

Canada

Tax Court

D-Win Computer Systems Inc v The Queen 2013 TCC 187

  • claim by joint venture partner for input tax credits in respect of money spent by joint venture partner for acquisitions made by joint venture operator – effect of joint venture rules and deeming provisions

Federal Court of Appeal

Tele-Mobile Company Partnership and The Queen 2013 FCA 149

  • entitlement to input tax credits as a result of Billing Credits and mail-in rebates provided to customers – whether credits and rebates a “coupon” or vouchers or simply a discount on the contract

Tribunal finds applicant not carrying on an enterprise

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Yesterday the Tribunal handed down its decision in Clayton and Commissioner of Taxation [2013] AATA 428 where the Tribunal affirmed the decision of the Commissioner that the applicant was not entitled to input tax credits because it was not carrying on an enterprise.

In 2003 the applicant purchased rural land with the intention to start a business of eco-tourism. A business plan was prepared, the applicant conducted market research and in 2004 a development application was lodged with the local council for permission to construct four cabins and a reception building. Consultants were engaged to advise on how to site the cabins and how they should be provided with services like power, water and sewerage. A website was established and the applicant started to make improvements to the property as well as studying a diploma course in conservation and land management.

Having regard to the above matters, the activities of the applicant certainly looked like an enterprise. However, progress towards establishment of the business was slower than hoped and the local council was slow in processing the development application, with a decision not being made until 2008. The global financial crisis then struck in 2008 and the applicant decided to change the focus of their efforts and re-wrote their business plan to focus more on organising tours of the property and to offer environmental consultancy services.

The applicant did not have any paying tourists until 2012, which was after the period under review (being 2007 to 2011). Also, no consultancy services were provided during the period under review. Further, the cabins had not been built and there were no plans to do so in the absence of fresh capital.

The Tribunal acknowledged that a number of features of the applicant’s course of conduct had the hallmarks of a business, but found that the business had not come into existence by 2011. For a variety of reasons, some beyond the control of the taxpayer, the activities that occurred prior to 2011 were essentially preparatory in nature. Further, noting that the definition of “carrying on an enterprise” includes “doing anything in the course of the commencement or termination of the enterprise”, the Tribunal stated as follows:

17. Every business has to start somewhere. Where the business progresses from its foundations to operation within a reasonable time frame, it is easier to see how initial expenditures can be seen as part of a course of conduct that amounts to carrying on an enterprise. But where there is delay – where the momentum of the activities is lost – it becomes harder to make a connection between initial expenditure and the operations which result. That connection is even more difficult to establish where the business has not, or does not, commence trading in due course.

18. While there were some features of a business present during the period under review, the activities are better described as preparatory and exploratory in nature. They may yet lead to the establishment of an enterprise; one hopes so, for the taxpayers appear to be genuine in their desire to contribute to the growth of tourism in their local area. But that is not enough to meet the definition in the Act. I am not satisfied that they were carrying on an enterprise. 

Commissioner publishes Decision Impact Statement on Wynnum Holdings

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Yesterday the Commissioner published a Decision Impact Statement on the decisions of the Tribunal in Wynnum Holdings No 1 Pty Ltd and Commissioner of Taxation [2012] AATA 616 and [2011] AATA 296.

The Decision Impact Statement outlines the ATO’s response to the decision of the Tribunal and notes that the decision was consistent with the Commissioner’s submissions and with various GST rulings.

Comments on the Decision Impact Statement are invited by 14 August 2013.

My analysis of the decision of the Tribunal can be accessed here.

High Court dismisses taxpayer’s application for extension of time to seek special leave in Cyonara Snowfox

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Last week the High Court dismissed the taxpayer’s application for an extension of time to apply for special leave to appeal the decision of the Full Federal Court in Cyonara Snowfox Pty Ltd v Commissioner of Taxation [2012] FCAFC 177. The Court found that the applicant continued to advance grounds considered by the Full Federal Court and that the applicant failed to identify an error of law in the Full Court’s decision.  The decision dismissing the application can be accessed here.

My case analysis of the decision of the Full Federal Court can be accessed here.

International Cases Update – May 2013

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In May 2013 the following VAT decisions were handed down in the UK. My research disclosed no GST cases in New Zealand or Canada of significance.

It is noteworthy that each of the decisions handed down in the UK dealt with, in at least some way, the question of single/multiple supplies and the proper characterisation of transactions. An analysis of the cases shows that in the UK the legal principles to be applied appear to be reasonably settled, but what is clear is that each case is very fact sensitive.

This month I have looked in detail at the decision of the Upper Tribunal in HMRC v The Honourable Society of Middle Temple [2013] UKUT 250.

The issue in this case was whether the supply of cold water to barristers’ chambers (for which a separate supply was charged) formed part of a single supply of the leased premises or the separate supply of water. The case provides a detailed analysis of the legal principles to be applied in the UK with respect to the single/multiple supply issue. As noted by the Upper Tribunal, there is no absolute rule and each case is very fact sensitive.

Noting the reservations of Australia Courts with regard to relying on overseas authorities in taxation cases, these legal principles have been accepted and applied by the Federal Court in cases such as Saga Holidays and also by the Commissioner in various rulings. This decision helpfully brings those principles together and provides an update on the current position of the law in the UK.

My case analysis can be accessed here.

United Kingdom

Upper Tribunal

  • WM Morrison Supermarkets PLC v HMRC [2013] UKUT 247 – VAT – supply of disposable barbecues – whether VAT chargeable at a reduced rate on the charcoal element of the supply – reduced rate of VAT on solid fuel pursuant to Schedule 7A Group 1 Item 1(a) VATA 1994 – Commission v France Case C-94/09 considered – interaction with Card Protection Plan v C & E Case C-349/96 considered – significance of charcoal being a concrete and specific aspect of the supply – appeal dismissed.
  • HMRC v The Honourable Society of Middle Temple [2013] UKUT 250 – VAT – grant of lease of commercial premises with provision of cold water – whether single supply of leasing of immovable property or independent supplies of property and water – single supply of immovable property – appeal allowed

First Tier Tribunal

  • National Exhibition Centre Ltd v Revenue & Customs [2013] UKFTT 289 – VAT – financial services – exemption – Article 13B(d)(3) Sixth VAT Directive –  Group 9 sch 5 VATA 1994 – booking fees on concert ticket purchases – identity of supplier – nature of services supplied – whether for processing of payment by credit and debit cards  –  whether debt collection service
  • Nuffield Health v Revenue & Customs [2013] UKFTT 291 – VAT – Whether provision of pharmaceutical supplies and/or supply of and surgical fitting of prosthesis to patients were part of a single exempt supply or zero-rated for the purposes of the legislation (Value Added Tax Act 1983) – If a single exempt supply whether the provision of drugs and prosthesis should nevertheless be zero-rated as a result of the application of the legislation and Talacre Beach Sales v Customs and Excise Cmmrs. (C-251/05)

Tribunal hands down decision on “Multiflex” amendments allowing retention of refunds

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In Sanctuary Australasia Pty Ltd and Commissioner of Taxation [2013] AATA 371 the Tribunal has handed down what I believe to be the first decision relating to s 8AAZLGA of the TAA, which allows the Commissioner to retain refunds (including GST) pending an investigation.

Section 8AAZLGA was introduced in 2012 after the decision of the Full Federal Court in Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142, where the taxpayer successfully applied for an order of mandamus requiring the Commissioner to pay a negative net amount reported in the taxpayer’s BAS. My analysis of that decision can be found here.

The facts of the case can be shortly stated. The taxpayer lodged an amended BAS which showed a refund entitlement. The Commissioner retained the refund and the taxpayer had applied to the Tribunal for a review of the Commissioner’s decision to disallow the objection against the decision to retain. However, before the application had been made, the Commissioner  issued an assessment to the taxpayer amending its net amount to “NIL”.

The Tribunal found that the taxpayer was not entitled to make the application because, upon the assessment being made, the taxpayer was no longer “a person dissatisfied” with a decision of the Commissioner. This was because once the assessment issued, there was no amount which the Commissioner was required to refund and so no “net amount” that the Commissioner was retaining under s 8AAZLGA. The proper course of action for the taxpayer was to object to the assessment.

The conclusion that the assessment overrides any refund entitlement by virtue of lodging a BAS is consistent with the view of the Full Federal Court in Multiflex where the Court observed as follows (at [26]):

The answer which the legislation provides to the Commissioner’s disquiet as to being obliged to make a refund based on a claimed net amount in a business activity statement which he knows to be wrong is straightforward. In such circumstances, he is entitled at any time to make an assessment of that net amount: s 105-5 of Sch 1 to the TAA. The net amount so assessed by the Commissioner necessarily supersedes whatever amount the entity earlier worked out on its approved form, if indeed it lodged such a form…Subject to the outcome of any subsequent objection or later appeal or review proceeding, the entity’s net amount will be the amount as assessed by the Commissioner.

That the taxpayer must now go to the time and expense of lodging a further objection (this time to the assessment) illustrates one of the difficulties of s 8AAZLGA. Also, the decision shows that the prospects of the Tribunal actually hearing an application to review a decision to retain a refund under s 8AAZLGA may be low, given that by the time the matter actually gets to hearing, the Commissioner will likely have completed his investigations and determined whether to issue an assessment or release the refund.

One matter which does raise some concern is the apparent contention of the applicant that the Commissioner did not give the applicant a notice of retention of refund as required by s 8AAZLGA(3). That sub-section states that the Commissioner “must inform the entity that he or she has retained the amount under this section”. The taxpayer lodged its amended BAS on 29 August 2012 and the Commissioner made a decision on 4 September 2012 to retain the refund. On 10 September 2012 the Commissioner informed the taxpayer that he was conducting an audit of its BAS for the relevant period – however, it is unclear whether the Commissioner expressly informed the applicant that it was retaining the refund pursuant to s 8AAZLGA. If the matter had proceeded to hearing, the Tribunal may have had to decide the difficult question of whether the failure to comply with the notice requirement invalidated the retention of refund.