Tribunal hands down another decision on Gold and input tax credits

In Cash World Gold Buyers Pty Ltd and Commissioner of Taxation [2020] AATA 1546 the Tribunal affirmed the decision of the Commissioner to deny the applicant’s claim to input tax credits of $6,936,947.00 with respect to acquisitions of gold during the quarterly tax periods ending 31 December 2014 and 31 March 2015. The Tribunal’s decision is another in a line of cases where the decision of the Commissioner to deny input tax credits to with respect to the acquisition of gold has been affirmed by the Tribunal. In particular, ACN 154 520 199 Pty Ltd (in liq) and Commissioner of Taxation [2019] AATA 5981, noting that the Full Federal Court heard the taxpayer’s appeal of that decision last week with judgment being reserved.

The disputed claims for input tax credits involved the acquisition (or purported acquisition) of significant amounts of gold from three individuals (referred to as Intermediaries). The applicant satisfied the Tribunal that the acquisitions of gold were made and that the Intermediaries were not acting as agents of the applicant. The real issue before the Tribunal was the form of the gold when it was acquired by the applicant, given that director of the applicant accepted at the hearing that the gold supplied to the applicant by the Intermediaries was sourced from gold bullion dealers and those supplies were treated as input taxed supplies of “precious metal”. The Commissioner submitted that the applicant was not entitled to input tax credits because the applicant purchased “precious metal” from the Intermediaries, an input taxed supply. The applicant contended that all of the gold it acquired was “scrap gold” and was taxable.

The Commissioner also issued assessments to the Intermediaries for unpaid GST with respect to the sales of gold to the applicant. Objections to those assessments were made, but no decision had been made on the objections. However, some amounts were recovered from the assessments pursuant to garnishee orders. As discussed at the end of this post, the applicant contended that the actions of the Commissioner gave rise to a double recovery of GST.

Substantiation and documentation

The Tribunal’s decision ultimately came down to a question of substantiation and documentation. After reviewing the evidence, the Tribunal was not persuaded about the extent to which the gold acquired by the applicant from the Intermediaries was scrap gold. The Tribunal considered that there many inconsistencies and gaps in the evidence, and some of the evidence was inherently implausible – there were too many shortcomings in the evidence.

The Tribunal also made the following observations:

  • That the applicant was in possession of a document entitled “tax invoice” was not sufficient to prove that a supply was a taxable supply. A tax invoice does not create a taxable supply, it records one. If a taxable supply did not take place, then a tax invoice stating that it did is meaningless
  • In response to the applicant’s contention that there was no commercial reason for it to pay 105 per cent of the prevailing spot price for gold bullion unless it was required to pay GST to the Intermediaries in respect of the taxable supply of scrap gold, the Tribunal considered that the applicant would have been on notice that subtracting GST from the price paid by the applicant to the Intermediaries left them with approximately 95% of the spot price of gold. Consequently, the Intermediaries would have made a loss of at least 5% each time they supplied gold to the applicant if they were making taxable supplies and remitting GST, as they were themselves acquiring gold bullion for the spot price plus a premium. The Tribunal considered that the applicant could not provide any satisfactory explanation for this proposition.

The Tribunal also agreed with the Commissioner that the applicant was not entitled to input tax credits because it did not hold valid tax invoices.  The Tribunal found that the invoices did not comply with the requirements of s 29-70(1) of the GST Act, nor was this an appropriate case for the tax invoices to be treated as a tax invoice under s 29-70(1B). This was because many of the invoices failed to describe the quantity or weight of the gold supplied and none of the invoices identify any amount of GST payable. All the invoices issued were headed ‘TAX INVOICE*/STATEMENT* (*DELETE AS APPROPRIATE)’ but in none of them had the word ‘STATEMENT’ been crossed out to make clear the document was intended to be a tax invoice. Instead, the invoices were, in the Tribunal’s view, deliberately ambiguous.

Other matters before the Tribunal 

In the course of the decision, a number of other matters were considered by the Tribunal. These issues appear to have arisen because of the actions of the Commissioner in issuing assessments of GST to the Intermediaries with respect to the sales of gold to the applicant, while at the same time denying the applicant’s entitlement to input tax credits.

Enterprise: The Commissioner contended that the supply of gold by the Intermediaries to the applicant was not a “taxable supply” because the Intermediaries were not carrying on an enterprise as their activities were not carried on with a reasonable expectation of profit or gain – as required by s 9-20(2)(c) of the GST Act given that the Intermediaries were individuals. The Tribunal found it unnecessary to explore this submission because of the conclusion that the applicant was not entitled to input tax credits for other reasons, but the Tribunal did observe that this contention was inconsistent with the fact that the Commissioner had earlier instigated the GST registration of one of the Intermediaries and had also issued assessments to each of the Intermediaries for net amounts of GST.

Division 142: Division 142 deals with the entitlement of taxpayers to recover overpaid GST. Essentially, if a taxpayer has overpaid GST (referred to as “excess GST”), the taxpayer is not entitled to a refund of that GST if the GST has been “passed on” to the recipient and the recipient has not been reimbursed for the overpaid GST (for a detailed consideration of these provisions and the concept of “passing on”, see my paper here). If GST has been passed on, until such time that the recipient is reimbursed, the GST is deemed to have been properly payable: s 142-10.

The Tribunal observed that the Commissioner may trigger the application of Division 142 by causing an amount of “excess GST” to be included in a taxpayer’s “assessed net amount” by issuing an assessment even though the GST hasn’t actually been paid to the Commissioner. The applicant contended that by reason of the GST assessments issued to the Intermediaries, this GST was “passed on” to the applicant and even if the Intermediaries did not make taxable supplies to the applicant, the supplies were deemed to be taxable supplies pursuant to s 142-10.

The Tribunal considered that the applicant’s difficulty was that it had not demonstrated that the Intermediaries did in fact “pass on” any excess GST to it. The Tribunal found that there there was no GST passed on where the prices charged by the Intermediaries did not recover any amount on account of GST. In this regard, it was plainly uneconomic for the Intermediaries to sell gold at prices of approximately 105% of the spot price of gold having purchased the gold from bullion dealers for the spot price plus a margin, in circumstances where they were required to remit GST. Further, if there was excess GST, s 142-15(5) effectively denies the input tax credit if the applicant knew or could be expected to have known that the Intermediaries had not paid the excess GST.

Double recovery of GST: The applicant contended that the Commissioner has sought to recover GST from the applicant (by denying input tax credits) and at the same time was seeking to recover GST from the Intermediaries on the basis that they made taxable supplies to the applicant. The Commissioner had issued assessments to the Intermediaries that included the same GST. It also transpired that the Commissioner had recovered amounts owed by the Intermediaries from third parties pursuant to garnishee orders at the same time as he had sought to deny the input tax credits claimed by the applicant. The applicant submitted that the assessments were in fact cumulative assessments which were issued contrary to the Commissioner’s stated procedures regarding alternative assessments in the income tax context and impermissibly sought double recovery of GST on the same transactions. The Commissioner adopted the view that he is entitled to issue multiple assessments. Counsel for the Commissioner also submitted that the Commissioner would not seek to recover the GST twice.

While not determining the issue, the Tribunal made the following observation (at [225]):

Were the Commissioner to succeed against both Cash World and the Intermediaries, it appears that the Commissioner would be in a position to recover the GST amounts twice and, furthermore, may be required to do so without necessarily having a choice in the matter (leaving aside issues with respect to the good management rule and when it is appropriate for the Commissioner to settle tax disputes). In my view, there remains an unresolved issue as to the efficacy of the Commissioner recovering GST amounts twice. However, the double recovery of the GST is not determinative of this dispute and does not give rise to an issue for determination by the Tribunal.

The Tribunal appeared to accept that the conduct of the Commissioner could give rise to a double recovery of GST. This begs the question of what the Commissioner’s obligations now are with respect to the GST assessments issued to the Intermediaries (against which objections were lodged but no decision has been made), and the amounts recovered under those assessments pursuant to the garnishee orders.


GST decisions of the Federal Court and the Tribunal to see out 2019

As we come to the close of another year, the Federal Court and the Tribunal have handed down GST decisions. They are briefly discussed below.

In Melbourne Apartment Project Pty Ltd (as Trustee for Melbourne Apartment Project) v Commissioner of Taxation [2019] FCA 2118 the Federal Court found that the making of “supply of accommodation” in s 38-250(1)(b)(i) of the GST Act encompassed the supply of a freehold interest in an apartment. The proceeding was an appeal from a private ruling and the Court (at [1]) identified the question as whether the sale by a registered charity of an apartment to a person eligible to receive social housing on a non-commercial basis for consideration less than 75% of the GST inclusive market value of the property is exempt from the GST (as a GST-free supply).

Section 28.250(1) provides that a supply is GST-free if:

(a) the supplier is an endorsed charity…; and

(b) the supply is for consideration that:

(i) if the supply is a supply of accommodation – is less than 75% of the GST inclusive market value of the supply; or

(ii) if the supply is not of accommodation – is less than 50% of the GST inclusive market value of the supply.

The Commissioner contended that paragraph (b)(i) was not engaged because the expression “supply of accommodation” did not include the sale of a freehold interest in an apartment. This was because the word “accommodation” carried with it a temporal aspect that restricted the expression to a supply by way of lease or licence – it did not extend to a supply of a freehold interest. Therefore, paragraph (b)(ii) was the relevant paragraph and the sale would only be GST-free if the supply was for a consideration of less than 50% of the GST inclusive market value of the supply. The Applicant submitted that the expression “supply of accommodation” incorporated a spectrum of meaning, which includes the sale of an apartment.

The Court (at [68]) accepted the applicant’s submission that the ordinary and natural meaning of “accommodation” includes an apartment or any premises that are used by a person as their place of residence. The Court rejected the Commissioner’s submission that the ordinary and natural meaning of the word did not carry this meaning because of an inherent temporal limitation – the Court considered that in its ordinary sense, the word “accommodation” includes an apartment in which a person resides, whether their right of residency is conferred by licence, lease or ownership.

The Court found (at [78]) that there was nothing in the text of s 38-250 to support the Commissioner’s submission that the expression “supply of accommodation” was inapt to cover the supply of title to premises and instead contemplates only the supply of a right to occupy premises for the time being. The Court found (at [79]) that there was no contextual reasoning in the GST Act, read as a whole, that might suggest that this primary reading of the provision should not be applied.

In Jarvis-Lavery and Commissioner of Taxation [2019] AATA 5409 the Tribunal found that the applicant had not established that it was entitled to input tax credits for acquisitions from an associated entity and that the acquisitions were not of a private or domestic nature. The Tribunal observed (at [105]) that:

An applicant does not, by the mere production of a tax invoice issued by a supplier, prove an entitlement to an ITC for the acquisition of a supply. As already noted, there are other statutory requirements that must be satisfied including, relevantly here, that the acquisition was made in the course or furtherance of an enterprise and was not of a private or domestic nature.

The Tribunal observed that the applicant gave oral oral evidence that the acquisitions were for business and not private purposes but that evidence was uncorroborated by any contemporaneous records or by other witnesses. With respect to this statement, it is relevant to note the following observation of the Tribunal (at [107]):

All this is not to say that an applicant who produces a tax invoice and swears or affirms that the relevant supply was acquired for a creditable purpose may not by so doing prove their entitlement to an ITC without further corroborating evidence.

Accordingly, the Tribunal was not saying that a taxpayer can never discharge its onus of proof if it does not provide corroborating evidence. However, where, as here a taxpayer has a history of poor compliance with tax laws and has lodged returns and BASs in the past which he now says are inaccurate, the Tribunal considered that it was appropriate to approach his evidence with caution, In the particular circumstances of this case, where the applicant’s oral evidence was of a general nature, and without any business records relating to the acquisitions or more detailed explanation, the Tribunal was not persuaded that the acquisitions were creditable acquisitions.

I take this opportunity wish all my followers and readers the compliments of the season and I thankyou for your support.

Full Federal Court hands down decision on fuel tax credits and the four year rule in s 47-5 of the Fuel Tax Act

In Linfox Australia Pty Ltd v Commissioner of Taxation [2019] FCAFC 131 the Full Federal Court dismissed the taxpayer’s appeal against the conclusion of the Tribunal ([2019] AATA 222) that certain toll roads operated and maintained by a private operator were a “public road” for the purposes of the Fuel Tax Act. While the decision relates to fuel tax, one of the issues in the appeal was whether the taxpayer’s entitlement to claim the credits had expired due to the four year rule in s 47-5(1) of the Fuel Tax Act. This provision is analogous to s 93-5 of the GST Act.

As observed by the Full Court (at [122]), “the taxpayer made a self-assessment, deemed to be an assessment, under which it calculated (on this assumption incorrectly) its net fuel amount by assessing its total fuel tax credits by reducing the amount of its fuel tax credits ascertained under s 43-5(1) by the amount of the road user charge for the fuel pursuant to s 43-10(3). The taxpayer now contends that it should not have so reduced its fuel tax credits under s 43-10(3), with the result that the amount of its total fuel tax credits is increased and its net fuel amount is reduced.”

The Commissioner contended that the taxpayer’s entitlement to claim the fuel tax credits had expired by reason of the operation of s 47-5(1) of the Fuel Tax Act, which states as follows:

You cease to be entitled to a fuel tax credit to the extent that it has not been taken into account, in an assessment of a net fuel amount of yours, during the period of 4 years after the day on which you were required to give to the Commissioner a return for the tax period or fuel tax return period to which the fuel tax credit would be attributable under subsection 65-5(1), (2) or (3).

The Commissioner contended that the section was engaged because the taxpayer had not “taken into account” the additional fuel tax credits by claiming them in its BAS within four years. The Full Court rejected this contention and concluded as follows (at [129]:

We do not accept the respondent’s submission that the non-inclusion of amounts referable to the road user charge in the taxpayer’s BAS has the result that those amounts were not taken into account in an assessment, or what may be implicit in it, which is that the meaning of s 47-5 is controlled by what is in the integers of a taxpayer’s BAS. Nor do we accept the respondent’s submission that what is “taken into account” in an assessment of a taxpayer’s net fuel amount, for the purposes of s 47-5(1), is the specific elements of the statutory formula for net fuel amount in s 60-5, relevantly here “total fuel credits”, and does not encompass, as the Tribunal found, an (unreduced) fuel tax credit amount which is part of the calculation of the total fuel credits amount

The Full Court appeared to adopt a broad view of the meaning of the expression “taken into account, as reflected in the following observation at [131]: (emphasis added)

The statutory language is broad enough to encompass, as we would see no reason to exclude from its operation, credits the taxpayer has taken into account in working out its net fuel amount…Further, it is relevant that “assessment” is defined in s 110-5 of the Fuel Tax Act by reference to the meaning given to that term in s 995-1 of the Income Tax Assessment Act which is, in relation to an assessable amount such as a net fuel amount, the “ascertainment” of that amount. That term, as defined, describes not an outcome or an amount or a notice of assessment (or BAS), but a process the completion of which has the consequence that a specific amount becomes due…When the term “assessment” as used in s 47-5(1) is understood in this way, there is little difficulty in describing an integer representing the taxpayer’s unreduced credits as having been taken into account in an assessment by reason of it having formed part of a calculation (the process) which produced the net amount recorded in the taxpayer’s BAS that created an entitlement to a refund (the consequence) by the deemed assessment mechanism.

The decision has clear implications for the Commissioner’s draft Draft Miscellaneous Taxation Ruling MT 2018/D1 ‘Miscellaneous tax: time limits for claiming and input tax or fuel tax credit’, which was issued in November 2018 (my initial comments on the draft ruling can be accessed here). The underlying premise to the draft ruling is that fuel tax credits and input tax credits are only “taken into account” to the extent that the taxpayer actually claims the credits in its BAS.


Tribunal finds taxpayer not entitled to input tax credits for the purchase of vehicles and equipment from a related entity

In Byron Pty Ltd and Commissioner of Taxation [2019] AATA 2042 the Tribunal found that the applicant was not entitled to claim input tax credits with respect to the purchase of vehicles and equipment, most of which was said to have been acquired from a related entity. While the Tribunal was not satisfied that the applicant made the creditable acquisitions, in the course of its reasons the Tribunal made some observations about the breadth of  the concepts of “taxable supply” and “creditable acquisition” in the context of the GST Act. In particular, the Tribunal saw merit in the applicant’s contention that the vendor was required to own, control or possess the assets before it could make a taxable supply.

The Tribunal found that it was not persuaded that the applicant was entitled to claim the credits, essentially because of the lack of evidence put before the Tribunal. In this context, the Tribunal observed as follows (at [4]):

The factual details of the arrangements concerning the taxpayer, such as they were before the Tribunal, were sketchy and unreliable and, significantly, there was no written sale agreement nor evidence of the terms of any oral agreement about the supply and acquisition of the vehicles and equipment in question. The individuals who could have probably shed light on the agreement (if any) and what any payments made by the Company were for, did not give evidence in these proceedings. In all the circumstances, I am not persuaded that the Company is entitled to claim the ITCs as it failed to discharge the burden of proving that the assessments issued to it were excessive…

While the applicant was not able to adduce sufficient evidence to satisfy the Tribunal that it made the creditable acquisitions claimed, in the course of its reasons, the Tribunal made some observations about the broad scope of the concepts of “taxable supply” and “creditable acquisition” in the context of the GST Act.

The Commissioner contended that as the vendor was not the lawful owner of the of the vehicles and equipment, it was not able to on-sell the vehicles and equipment and thereby make a taxable supply to the Company. Consequently, the Company did not make creditable acquisitions. Additionally, the Commissioner contended that the Company did not have the capacity to pay for the vehicles and equipment and did not provide consideration nor was it liable to provide consideration.

The Tribunal referred to the following submission of the applicant (at [76]):

The Company’s counsel submitted that the requirements to establish a “taxable supply” set out in s 9-5 of the GST Act do not specify that the supplier must be the owner of the thing supplied, but that the provision relevantly focuses on whether there is a genuine agreement between the supplier and the recipient for the supply of anything for consideration. It was also submitted there is nothing in the definition of “consideration” in s 9-15 that entails ownership but that it is equally broadly defined, like the statutory definitions of “supply” and “acquisition”.

The Tribunal found there to be “considerable merit” as to the legal arguments of counsel for the Company as to the meaning of “supply”, “acquisition” and “consideration”. The Tribunal observed that:

77. Undoubtedly, the definition of “supply” in s 9-10 of the GST Act is extremely broad. Section 9-10(1) expressly states “[a] supply is any form of supply whatsoever” and s 9-10(2) then proceeds with the expression, “[w]ithout limiting subsection (1), supply includes any of these…” to list things which may not even be the subject of ownership or exclusive ownership. It specifically references in paragraph (e) of s 9-10(2) “a creation, grant, transfer, assignment or surrender of any right” and in paragraph (g) of s 9-10(2) “an entry into, or release from, an obligation: (i) to do anything: …” Section 9-10(3) further expands the boundaries of the definition of “supply” by expressly stating, “[i]t does not matter whether it is lawful to do, to refrain from doing or to tolerate the act or situation constituting the supply”.

79. Correspondingly, the meaning of “acquisition” in s 11-10, which mirrors the definition of supply, is equally very broad and it also readily covers things where legal ownership is not required. Rather, applying the High Court’s interpretation, the acquisition could be the acquiring of anything of value received by the recipient, by any means. On the taxpayer’s submission, it was therefore, immaterial whether as a matter of fact the Byron Trust legally owned the assets that it purported to sell to the Company and all that was required was for the Byron Trust to genuinely agree to furnish the assets to the Company so that it had physical possession and or control over the assets.

The Tribunal also found that there was merit in the applicant’s submission that it had provided “consideration” for the supplies by making payment to the third party financiers – being payments “in connection with” the supply. The Tribunal observed that “consideration” in the context of the GST Act takes on a wider meaning than contractual consideration.

Government introduces Bill to combat illegal Phoenixing – including making Directors personally liable for unpaid GST

Yesterday the Government introduced the Treasury Laws Amendment (Combatting Illegal Phoenixing) Bill 2019 into the House of Representatives. The Bill implements four measures to combat illegal phoenixing activity that were announced in the 2018-19 Budget.The measures include three that impact GST:

    • extending the power of the Commissioner to make estimates of tax to include an entity’s “net amount” under the GST Act;
    • extending the Director Penalty Regime (DPR) to GST (and luxury car tax and wine equalisation tax) – making directors personally liable for the company’s unpaid tax;
    • expanding the ATO’s power to retain refunds where there are outstanding tax lodgements.

The documents can be accessed as follows:

My post discussing the Budget announcements can be accessed here.

Summary of the proposed legislation


The Commissioner currently has the power in Division 268 of Schedule 1 to the Taxation Administration Act (TAA) to make estimates of an entity’s liability to pay PAYG withholding and superannuation guarantee charge and to recover the amount of those estimates from taxpayers. A taxpayer becomes liable to pay an estimate when the Commissioner gives notice of the estimate to the taxpayer.

The Bill proposes to extend the estimates regime to include an entity’s “net amount” under the GST Act. This will include any applicable LCT and WET. Because an entity is not under an obligation to pay a net amount until it has been assessed (either by the lodgement of an activity statement or the making of an assessment by the Commissioner), the proposed amendments will deem the estimated net amounts to be payable. Further, the net amount is deemed to be payable on the day that the entity was required to lodge its GST return.

The amendments will apply to the first tax period after the date of royal assent.

Director Penalty Notices

The director penalty regime in Division 269 of Schedule 1 to the TAA makes directors of a company personally liable for specified taxation liabilities of the company in certain circumstances of non-payment by the company. The regime presently includes PAYG withholding, superannuation guarantee charges and estimates of those amounts made by the Commissioner under Division 268.

The Bill proposes to extend the regime to include a company’s unsatisfied liabilities to pay net amounts and GST instalments, including estimates of those amounts made by the Commissioner.

It will be a defence if the director was unable to comply with the obligation due to illness or other good reason, or that the director took all reasonable steps to comply with the obligation. It will also be a defence if the company adopted a reasonably arguable position and the company took reasonable care.

The amendments will apply to the first tax period after the date of royal assent.

Retention of refunds

The Commissioner is currently authorised to retain refunds where the taxpayer has failed to provide a BAS (s 8AAZLG of Schedule 1 to the TAA) or where the Commissioner is verifying information provided by the taxpayer (s 8AAZLGA). The Bill proposes to extend the circumstances in which the Commissioner may retain refunds to include where the taxpayer has failed to lodge a return (such as an income tax return) or provide other information that may affect the amount of the refund.

The amendments will apply to refunds the Commissioner is otherwise required to pay on or after the date of royal assent.

Tribunal finds sale of real property was eligible for the margin scheme

In The Trustee for the Seabreeze Estate Unit Trust and Commissioner of Taxation [2019] AATA 1395 the tribunal found that the taxpayer was entitled to apply the margin scheme to work out the GST payable on the sale of real property because the property was eligible for the margin scheme.

The issue before the Tribunal was whether the vendor, who sold the property to the taxpayer more than 10 years previously, chose to apply the margin scheme in working out the GST on the supply of the property. While there was no direct evidence available to support this conclusion, the Tribunal was nevertheless satisfied, on the balance of probabilities, that the taxpayer did acquire the property under the margin scheme and therefore the sale of the property was eligible for the margin scheme.

The decision provides a useful example of the operation of the legislative regime in Part IVC of the Taxation Administration Act, where the onus of proof falls on the taxpayer to establish, on the balance of probabilities, that the assessments made by the Commissioner are excessive. As observed by the Tribunal (at [5]), “the taxpayer must persuade the Tribunal of its position and show the assessments issued by the Commissioner are excessive or otherwise incorrect and what the assessments should have been”.

The making of inferences – some general principles

The decision illustrates that a taxpayer  does not necessarily require direct evidence to be successful in review proceedings and that it can be successful if sufficient evidence is produced whereby the Tribunal can draw the necessary inferences to support the taxpayer’s position. In McCormack v Federal Commissioner of Taxation (1979) 13 CLR 284 Murphy J said as follows (at 323):

A taxpayer might discharge the burden of proof placed on him by s. 190 (b) in any of several ways. He may prove all relevant circumstances and from these establish that an inference should be drawn that the property (from the sale of which by the taxpayer a profit arose) was not acquired by him for the purpose of profit-making by sale. Or he may prove by direct evidence that such a purpose did not exist. The burden might also be discharged by a combination of direct evidence and inference from other circumstances. He may, of course, rely upon any evidence or any inference from evidence adduced by the Commissioner.

Where direct evidence is not available, it is open to a Tribunal to make an inference that is a reasonable deduction from the evidence (Tisdall v Weber [2011] FCAFC 76 at [129]). In this context,  the following guiding principles were identified by the Tribunal in Armithalingam and Commissioner of Taxation [2012] AATA 449 at [119]:

  • The search is always for the existence of a body of evidence which might, reasonably, sustain a relevant finding of fact or conceivably, permit a particular inference to be drawn: Tisdall v Webber [2011] FCAFC 76 at [127];
  • It is important to bear in mind also that the inferential process is not one where speculation, guesswork or mere assumption is involved: Tisdall v Webber [2011] FCAFC 76 at [128];
  • A conjecture may be plausible, but it is effectively still a mere guess. An inference is a deduction from the evidence, and if reasonable can be treated as part of the legal proof to be considered in making a factual determination in any particular proceeding: Bell IXL Investments Ltd v Life Therapeutics Ltd [2008] FCA 1457 at [14];
  • In questions where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference – they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is one of conjecture. But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought, though the conclusion may fall short of certainty, it is not to be regarded as mere conjecture or surmise: Bradshaw v McEwans Pty Ltd [1951] HCA 480 quoted with approval in Luxton v Vines [1952] HCA 19; (1952) 85 CLR 352 at 358 per Dixon, Fullagar and Kitto J.

The facts

The property was acquired by the taxpayer in January 2005. The vendor had acquired the property in October 2003 for $1,200,000 and sold the property to the taxpayer in January 2005 for $1,080,000, therefore making a loss. The Activity Statement of the vendor was in evidence and it showed that no GST was reported by the vendor.

A copy of the front page of the contract was in evidence, in the form of the NSW 2000 edition of the standard contract of sale of land, but the balance of the contract was not available, despite searches being made. More than 10 years had passed and the vendor’s business records had been disposed of or could not be found. The Tribunal noted that the front page of the contract referred to a purchase price of $1,080,000 and that a note above the signature block stated “NOTE: Subject to Clause 13, the price INCLUDES goods and services tax (if any) payable by the vendor”.

The second page of the standard contract of sale included a box that could be ticked if the  margin scheme applied to the property. However, as noted by the Tribunal, that page was not available and a director of the taxpayer could not recall whether the box was ticked. The director also gave evidence that the only thing he ever looked at was “the top line”, and because GST was not payable he did not ask for a tax invoice. Evidence was also given that the taxpayer was not registered for GST until January 2006 because at that time the taxpayer started to incur expenses on the development of the property. The Tribunal found that the director was a reliable witness and was satisfied with his recollection that no GST was payable on the sale and there was no need to register the taxpayer to claim an input tax credit.

The contentions of the parties and the findings of the Tribunal

The taxpayer contended that the margin scheme must have been used by the vendor because there was no margin made on the sale, the property being sold at a loss. If GST was paid, this would have required the vendor to pay 1/11th of the sale price as GST. The taxpayer contended that this conclusion was entirely consistent with the evidence of the director. The taxpayer also relied on the fact that the vendor did not report GST in its activity statement.

The Tribunal observed that the Commissioner’s contentions centred on the onus of proof borne by the taxpayer as it was unable to adduce direct evidence of the vendor’s choice to use the margin scheme. The Commissioner also stated that, within supporting documentation, or any other evidence, it was impossible to know the basis of the vendor lodging a nil BAS.

The Tribunal noted that the unchallenged evidence was as follows:

  • the vendor sold the property to the taxpayer for less than it acquired it – in other words, it had a negative margin
  • the vendor did not report the sale in its BAS
  • the taxpayer did not register for GST at the time of the purchase of the property but did so approximately a year later

Having regards to these matters, the Tribunal concluded (at [58]) that “I was persuaded that the Trustee acquired the Land from the Partnership under the GST margin scheme on the evidence before me supported by the strong inferences able to be drawn from the conduct of the Partnership and the Trustee. Accordingly, my finding is that the Partnership chose to use the margin scheme in working out the amount of the GST on the supply”.





Tribunal denies taxpayer’s entitlement to input tax credits for the acquisition of gold

In Very Important Business Pty Ltd and Commissioner of Taxation [2019] AATA 1120 the Tribunal has affirmed the decision of the Commissioner to deny the applicant’s entitlement to input tax credits with respect to the purchase of gold.

The applicant claimed to operate a precious metal refinery during the last quarter of 2015 and during that period claimed it was entitled to input tax credits with respect to purchases of scrap gold. The basis of the claim was that it was “a refiner of precious metals”, as defined in the GST Act. The applicant also claimed that the acquisitions were made for a creditable purpose as its subsequent supplies of precious metal (that is, gold it had refined into bullion) were GST-free supplies pursuant to s 38-385 of the GST Act.

The Commissioner questioned whether many (or any) of the acquisitions of scrap gold occurred, in part due to the lack of independent evidence that the applicant had the financial capacity to pay for the gold, and the applicant’s record keeping was seriously deficient. The Commissioner also contended that the applicant was not a refiner of precious metals, and therefore was not making GST-free supplies.

The Tribunal discussed the relevant provisions of the GST Act as they related to the gold industry. The observations of the Tribunal included the following:

    • The GST Act provides that a supply of “precious metal” is:
      • a GST-free supply if it is the first sale of the refined metal after its refining by, or on behalf of, a supplier to a dealer in precious metal, provided that the entity that the refined the metal is a refiner of precious metal: s 38-385; or
      • otherwise, an input taxed supply of precious metal: s 40-100.
    • The combined effect of ss 9-5, 9-30(1), 9-30(3) and s 38-385 is that the first sale of “precious metal” by “a refiner of precious metal” to a dealer in precious metal will be GST-free. This special arrangement was established because gold refined in Australia is sold into what is effectively a world-wide market. Australia’s gold refiners would be at a commercial disadvantage if they had to pay GST to the Commissioner on the first sale of precious metal or were unable to claim input tax credits on their feedstock.

The Tribunal agreed with the Commissioner and concluded that the applicant was not a refiner of precious metals during the quarterly tax period at issue as it had not commenced carrying out sufficient refining operations to be considered “a refiner” (the Tribunal left open the question of whether the applicant was a refiner at a later point). The Tribunal further concluded that the applicant was unable to explain how it could fund the acquisitions and had failed to satisfy the Tribunal that it had provided consideration for all of the acquisitions or was liable to pay such consideration.

The Tribunal found that in making these conclusions it was unnecessary to consider whether the supplies of gold by the applicant were input taxed supplies of precious metals pursuant to s 40-100 of the GST Act or were taxable supplies. The Tribunal also expressed no view on whether the activities conducted by the applicant constituted “refining” in the sense intended by the legislation. I understand that a matter is currently reserved before the Tribunal in which these issues may be addressed.


Commissioner publishes GST ruling on supplies of goods connected with the indirect tax zone

Yesterday the Commissioner published GSTR 2018/2 ‘Goods and services tax: supplies of goods connected with the indirect tax zone’. The ruling outlines the Commissioner’s views on when supplies of goods are connected with Australia under s 9-25(1), (2) and 3 of the GST Act.

The ruling is the second of a suite of rulings  that are to replace GSTR 2000/31 ‘Goods and services tax: supplies connected with Australia’. The first ruling was GSTR 2018/1 ‘Goods and Services tax: supplies of real property connected with the indirect tax zone (Australia)‘ which outlines the Commissioner’s views on when a supply of real property is connected with the indirect tax zone under s 9-25(4) of the GST Act. My post on that ruling can be accessed here. I understand that a third ruling will follow that addresses the supply of “anything else” under s 9-25(5) – which includes intangible property and services.

The provisions involve a number of “connection tests”, which connect supplies of goods to Australia. Various “disconnection tests” in s 9-26 may then apply to remove that connection, which removes the transaction from the GST net. Also, some supplies of goods will remain connected with Australia but will be GST-free – such as exports.

The ruling illustrates that the provisions are to operate in the following way.

Connection tests – s 9-25(1), (2) and (3)

A broad test is applied to determine whether supplies of goods are connected with Australia. The place the supplier or recipient carries on business is not relevant to this test (although it may be relevant to the disconnection test discussed below) – rather, the focus is on the three following circumstances:

  • Supplies of goods wholly within Australia – s 9-25(1)

This test applies if the goods are physically delivered or made available for collection in Australia. This can occur where the supplier delivers the goods from a place in Australia to the recipient’s nominated place in Australia. Or alternatively where the supplier has the goods imported into Australia, shipped to themselves, and then delivered or made available to the recipient in Australia.

Where the recipient imports the goods into Australia, the supply is not connected under this test. However this may be a taxable importation by the recipient.

  • Supplies of goods from Australia – s 9-25(2)

This test applies to a supply involving the removal of goods from Australia. However, the supply may be GST-free as an export.

This test also applies to the lease of goods where the goods may be removed from Australia. However, the supply will be GST-free to the extent that the goods are used overseas.

  • Supplies of goods to Australia – s 9-25(3)

A supply of goods is connected with Australia if the supply involves the goods being brought to Australia and the supplier imports the goods into Australia. This may involve both a taxable supply under s 9-5 and a taxable importation under s 13-15 – however, if the supplier makes a creditable importation the supplier will be entitled to an input tax credit for the importation.

If the supply of goods involves the goods being brought into Australia and the supplier installs or assembles the goods in Australia (for example, a large piece of mining equipment), the supply is treated as the supply goods and a separate supply of the installation. However, where the supplier is a non-resident the services component may be disconnected under Item 1 of the table under s 9-26.

Disconnection tests – s 9-26

The ruling observes that ordinarily, a supply of goods that is delivered or made in Australia is connected with Australia – even where the supply is between two non-residents, neither of which makes the supply or acquisition in the course of an enterprise carried on in Australia.

Two exemptions can operate to disconnect certain supplies between non-residents for supplies that involve the transfer of ownership of goods that the subject to a lease – for example the sale of aircraft with an underlying lease:

  • Supply between non-residents of leased goods – Item 3 of the table under s 9-26

This exemption applies to a supply of goods subject to a lease involving a transfer of ownership from one non-resident lessor to a new non-resident lessor where: the supplier does not make the supply through an enterprise they carry on in Australia, the recipient does not acquire the goods to any extent for the purpose, and the goods will continue to be leased on substantially similar terms.

  • Supply by way of continued lease of goods – Item 4 of the table under s 9-26

This exemption applies to new lease arrangements entered into between the non-resident that acquired the goods and the entity that continued to lease the goods. The lease must be on substantially similar terms or conditions. The ruling accepts that the terms need not be identical, some variations are permissible.

Commissioner publishes public ruling on supplies of real property connected with the indirect tax zone (Australia)

Yesterday the Commissioner published GSTR 2018/1 ‘Goods and Services tax: supplies of real property connected with the indirect tax zone (Australia)‘. The ruling outlines the Commissioner’s views on when a supply of real property is connected with the indirect tax zone under s 9-25(4) of the GST Act. The ruling replaces the Commissioner’s views set out in GSTR 2000/31 ‘Goods and Services tax: supplies connected with Australia” and GSTD 2004/3 ‘Goods and services tax: is a supply of rights to accommodation a supply of real property for the purposes of the A New Tax System (Goods and Services Tax) Act 1999. 

Section 9-25(4) as follows:

A supply of *real property is connected with the indirect tax zone if the real property, or the land to which the real property relates, is in the indirect tax zone.

The ruling states that the reference in s 9-25(4) to “land which the real property relates” means that an interest in, or a right over land, is connected with Australia if the physical land to which the interest or right over it relates, is in Australia. The test is the location of the land and not the location of the right.

The ruling also states that the supply of rights to accommodation will be a supply of real property connected with Australia when the accommodation is in Australia. This is irrespective of whether the supply of rights to accommodation provides any actual accommodation to the guest. For example, the supplier could be a tour operator which grants a traveler the right to stay at a hotel in Australia, where the hotel is operated by a different entity. The tour operator is making a supply of rights to accommodation in Australia which is a supply of real property connected with Australia.

The ruling applies from 22 August 2018. 

Inspector General of Taxation publishes report on GST Refunds

Today the report from the Inspector General of Taxation (IGOT) on GST refunds was released to the public. The report was provided to the Minister in March 2018.

The IGOT reviewed the end-to-end process involved in refund verification including from initial case selection through to the review and audit activities. Overall, the IGOT found that the ATO’s administration of GST refunds operated efficiently with the vast majority of refunds released without being stopped for verification. Some opportunities for improvement were identified and the IGOT identified that the ATO can streamline its instructions and guidance to staff when interacting with taxpayers, taking into account their circumstances and the adverse financial impacts that delayed refunds can have on their cash flow.

The IGOT made 5 recommendations (comprising 16 parts) to the ATO which were aimed at:

  • developing a framework for continuous improvement of its automated risk assessment tools;
  • streamlining its guidance to staff and implementing tools to assist them in complying with their obligations under section 8AAZLGA of the Taxation Administration Act 1953;
  • enhancing its information requests to taxpayers and providing a channel for pre-emptive provision of such information;
  • improving its notification of when taxpayers’ objection rights to the retention of refunds has been triggered and assisting them to lodge such objections effectively; and
  • raising awareness of staff and taxpayers about financial hardship issues, appropriately considering them and enabling automated partial release of refunds.

The ATO has agreed in full or in part with all 5 recommendations (11 out of 16 parts).

Particular concerns emerged in relation to the ATO’s use of refund retention to address risks of serious fraud within the precious metals industry. The IGOT acknowledged the seriousness of these fraud risks but also noted the prolonged timeframes to finalise such cases. The IGOT has recommended the Government consider amending the relevant provision to allow the ATO to effectively investigate and address risks of fraud the seriousness of which has been established.

The report can be accessed here.

The response by the ATO can be accessed here.

The response by the Government can be accessed here.