In Sedgwick and Commissioner of Taxation [2015] AATA 690 the Tribunal found that the applicant was not entitled to claim input tax credits where the claim for credits was made after the four year statutory time period in Division 93 of the GST Act.

The Tribunal found that the operation of Division 93 was clear and unambiguous and the legislation left no room for the operation of a discretion. In coming to this view, the Tribunal relied on the decision of the Tribunal earlier this year in Re The Trustee for SBM Trust and Commissioner of Taxation  [2015] AATA 174. The Tribunal observed that this may be an unfortunate outcome, but there were policy reasons that underpinned the imposition of a decisive cut-off date.

As I noted in my post of last week, the Full Federal Court, in an ex tempore judgment, dismissed the taxpayer’s appeal of the decision of in Rio Tinto Services Ltd v Commissioner of Taxation [2015] FCA 94. The judgment is now available on austlii and can be accessed here.*

The Full Court described the issue in the appeal as whether Rio Tinto is entitled to credits for the GST paid on the acquisitions made by the members of the GST group in relation to the supply of residential accommodation to employees, contractors and ancillary service providers in the remote Pilbara region. Rio Tinto contended that GST was paid on acquisitions by Hamersley and PICS in connection with the provision of residential accommodation to which the group is entitled to credits. The Commissioner contended, as her Honour held at first instance, that credits were denied to Rio Tinto by operation of s 11-15(2)(a) of the GST Act.

The Full Court found that the effect of s 11-15(2), being an exclusion or blocking provision, was to exclude an acquisition to the extent that it relates to a supply that is input taxed from the ambit of “creditable purpose”. The statutory enquiry of s 11-15(2) was described as follows:

…the inquiry called for by s 11-15(2)(a) is not into whether something had been acquired in carrying on the enterprise (which would otherwise have acquired the thing for a creditable purpose within the meaning of s 11-15(1)) but, rather, irrespective of the extent to which the thing had been acquired in carrying on the enterprise, to what extent, if any, did the acquisition relate to making supplies that would be input taxed. The relationship to focus on, in other words, is the relationship between the antecedent acquisitions for which credit is claimed and the subsequent supply for which the credit is, in effect, lost.

The application of s 11-15(2)(a) requires, therefore, the precise identification of the relevant acquisition and a factual inquiry into the relationship between that acquisition and the making of supplies that would be input taxed. An acquisition will not be for a creditable purpose to the extent that the facts disclose that the acquisition relates to the making by the enterprise of supplies that would be input taxed. Some acquisitions may relate to the making of supplies that would be capable of distinct and separate apportionment as between an input taxed supply and an otherwise taxable supply. In that case it may be possible to divide the creditable purpose between the two. Other acquisitions may be indifferently both for supplies that would be both input taxed and otherwise taxable generally. In that case some fair and reasonable assessment of the extent of the relationship between the two may need to be made. But, as is the case here, an acquisition which relates wholly to the making of supplies that would be input taxed is not to be apportioned merely because that supply may also serve some broader commercial objective of the supplier.

The Full Court found that an examination of the acquisitions in question revealed unquestionably that they all relate wholly to the making of supplies that would be input taxed, albeit that they do so for the wider purpose of the enterprise. The terms of s 11-15(2)(a) do not depend on the reason or purpose of the enterprise in making the supply or making the anterior acquisition.

My discussion of the judgment of the primary judge can be accessed here.

* As I appeared for the Commissioner, in this post I have endeavoured to not provide any analysis or comment on the decision, but rather to summarise the reasons for decision of the Court.

Today the Full Federal Court, in an ex tempore judgment*, dismissed the taxpayer’s appeal of the decision of in Rio Tinto Services Ltd v Commissioner of Taxation [2015] FCA 94. In the decision below, the primary judge dismissed an application by the taxpayer for a declaration that it was entitled to input tax credits in respect of acquisitions made in the course of providing remote housing accommodation to its workforce in the Pilbara mining region of Western Australia.

I will post the written reasons of the Full Court when they become available on austlii. My discussion of the judgment of the primary judge can be accessed here.

*An ex tempore judgment is one that is made on the day of the hearing, as opposed to one made after the Court has reserved its decision.

As the number of cases dealing with GST issues continues to grow, I felt that it was time to put together an annotated GST Act to complement this site. This allows you to go to a section of the GST Act and see if any decisions have been handed down that relate to that section. I have also included an annotated Taxation Administration Act, for those sections that may relate to GST. This includes parts of Schedule 1 to the TAA, which contains the collection and recovery provisions.

The Annotated Legislation can be accessed through the Menu at the top of the page. There is also a drop down menu for the GST Act, which can take you directly to the particular sections of the Act. All you do it put the mouse over the menu item.

The legislation includes all of the Australian decisions (I may have missed one or two here or there) and a number of international decisions. The annotations will be updated progressively.

I hope you find this additional resource useful.

Yesterday the Commissioner published GSTR 2015/2 ‘Goods and services tax: development lease arrangements with government agencies’.

The ruling outlines the Commissioner’s views on the GST treatment of development lease arrangements between government entities and private developers that typically have the following features:

• the private developer undertakes a development on land owned by a government agency in accordance with the terms of a written agreement between the developer and the government agency; and
• the government agency supplies the land by way of freehold or grant of a long term lease to the developer, subject to the developer undertaking the development in accordance with the terms of the written agreement – that is, the developer becomes entitled to a transfer of the freehold or grant of a long term lease when the development is completed.

The ruling is comprehensive and considers the following matters:

• the relevant principles for identifying and characterising the various supplies that are made for consideration under a development lease arrangement, including:
  • whether the grant of a short-term lease or licence (development lease) by the government agency to allow the developer to undertake the development on land is a supply for consideration;
  • whether, in completing the words on land owned by the government agency, the developer makes a supply of development services to the government agency for consideration;
  • whether the sale of the freehold or grant of the long-term lease of land by the government agency is a supply for consideration, and whether any consideration the developer provides for supply of the land includes undertaking of the development words on land owned by the government agency;
• the extent to which the consideration for particular supplies made under a development lease arrangement includes consideration that is not expressed as an amount of money, that is, non-monetary consideration;
• how the value of any non-monetary consideration provided for supplies made in the context of a development lease arrangement may be determined; and
• the attribution, under Division 29, of the GST liabilities and input tax credit entitlements that may arise under development arrangements.

The summary of the GST outcome under the Ruling are as follows:

• the supplies made under a development lease agreement are as follows:
  • the government agency makes a supply of land to the developer by way of lease or licence; and
  • the developer makes a supply of development services to the government agency.
• the supplies made for consideration are as follows:
  • where the terms of the development lease arrangement makes the supply of the land subject to or conditional on the developer completing specified development works, the supply of the land by the government agency is consideration for the developer’s supply of development services and the supply of the development services is, in turn, consideration for the supply of land by the government agency.
  • where the developer completes additional works on land retained by the government agency, the developer makes a supply of development services to the government agency. The supply of the land by the government agency is consideration for this supply of development services if the terms of the development lease agreement make the government agency’s supply of land subject to or conditional upon the developer completing the additional works, and Division 82 does not apply.

The 2015 Budget includes three announcements which are connected with the GST. The first is the proposed extension of GST to the importation of digital products and other intangibles. The second is the proposed amendments to Part IVA of the Income Tax Assessment Act  to stop multinational entities using artificial or contrived arrangements to avoid a taxable presence in Australia. This announcement is relevant because the proposed amendments will apply to “supplies” of goods and services by foreign multinationals to Australian customers. The draft legislation incorporates the definition of “supply” in section 9-10 of the GST Act and the jurisprudence on what constitutes a “supply” will likely be relevant to the operation of the provisions. The third is that the proposed “reverse charge” amendments to the sale of going concern and farmland GST exemptions are not to proceed. These amendments were proposed in the 2009/10 Budget – a paper I presented on the proposed amendments can be accessed here.

Extension of GST to the import of digital products and other intangibles

The Government has released an exposure draft Bill and associated explanatory material that would amend the goods and services tax (GST) law to ensure digital products and services provided to Australian consumers receive equivalent GST treatment whether they are provided by Australian or foreign entities.

The proposed amendments:

• make the supply of anything other than goods or real property to an entity that is not registered or required to be registered for GST potentially subject to GST if that entity is an Australian resident;
• provide that the GST will be payable on certain electronic supplies to which the above applies, by the operator of the service through which the supply is made to the consumer rather than the actual supplier; and
• allow for the making of regulations to provide simplified rules for registration, tax periods and GST returns for entities to which the proposed amendments apply.

The Exposure Draft can be accessed here. The Explanatory Material can be accessed here.

Amendments to Part IVA re multinational tax avoidance

The Government has released an exposure draft to amend Part IVA of the Income Tax Assessment Act to target the following situations:

• a foreign multinational supplies goods or services to Australian customers and books that revenue offshore;
• the activities of an Australian entity are integral to the Australian’s customer’s decision to purchase the goods or services;
• the profits from Australian sales are subject to low or no global tax; and
• one of the principal purposes of the arrangements is to obtain a tax benefit.

A central element in the proposed amendments is the concept of “supply”. This can be seen from the following extract from the proposed section 177DA (emphasis added):

Scheme for a purpose including obtaining a tax benefit etc

(1)   Without limiting section 177D, this Part also applies to a scheme if:

(a) under, or in connection with, the scheme:

(i) a non-resident makes a supply to an Australian resident who is not an associate of the non-resident; and

(ii) income the non-resident derives from the supply is not attributable to an Australian permanent establishment of the non-resident; and

(iii) activities are undertaken in connection with the supply; and

(iv) some or all of those activities are undertaken by an Australian resident who, or undertaken at or through an Australian permanent establishment of an entity who, is an associate of or is commercially dependent on the non-resident; and

(b) it would be reasonable to conclude (having regard to the matters in subsection (2)) that the scheme is designed to avoid the non-resident deriving income, from such supplies, that would be attributable to an Australian permanent establishment of the non-resident; and…

The definition of “supply” in the exposure draft incorporates section 9-10 of the GST Act. The Explanatory Material at paragraph 1.48 states as follows:

In Millington v Waste Wise Environmental Pty Ltd [2015] VSC 167 the Supreme Court of Victoria found that an award for damages to compensate the respondent for damage to the respondent’s vehicle should be exclusive of GST where the respondent was entitled to claim input tax credits in respect of the repairs to the vehicle. The Court allowed the appeal against the decision of the Magistrates Court that the order should be for a GST-inclusive amount of damages with a further order that at a subsequent date the respondent repay an amount equal to the input tax credits which could be claimed.

The Court adopted the finding of the NSW Court of Appeal in Gagner Pty Ltd trading as Indochine Cafe v Canturi Corporation Pty Ltd [2009] NSWCA 413 that an an award of damages properly calculated should not include an amount for GST where the plaintiff is entitled to claim input tax credits for that amount. However, the Court noted that a key element in this proposition is the concept of certainty, as the loss suffered could be easily quantified and an order for a fixed sum can be readily made. Where the amount of loss is not easily quantified, the principle may not be available – the Court referred to the decision of the Victorian Supreme Court in Peet Limited v Richmond (No.2) [2009] VSC 585 as an example.

The Court also found that the orders of the Magistrate were structured in the manner in which they were was because of the erroneous view taken that there existed a positive duty upon the respondent to mitigate its loss by claiming the input tax credits to which it was entitled. The Court considered that no such positive duty exists and the correct view is that  a person who claims a loss must take all reasonable steps to mitigate the loss consequent upon the defendant’s wrong and will not be entitled to recover an amount for damages for any such loss which he, she or it could have avoided, but has failed to avoid through their own unreasonable action or inaction. The claiming of input tax credits could not be seen as an unreasonable imposition.

Yesterday the Commissioner published GSTR 2013/2 ‘Goods and services tax: adjustment notes’ which replaces GSTR 2000/1 (which has now been withdrawn). A number of Legislative Instruments were also made dealing with issues relating to adjustment note requirements, being:

• A New Tax System (Goods and Services Tax) Waiver of Adjustment Note Requirement (Decreasing Adjustments Relating to Reimbursements of an Employee etc) Legislative Instrument 2013 – the instrument states that for the purposes of attributing a decreasing adjustment to a tax period in respect of an acquisition that is covered by section 111-5 of the GST Act, an entity is not required (under subsection 29-20(3) of the GST Act) to hold an adjustment note if the requirements of this instrument are satisfied.
• A New Tax System (Goods and Services Tax) Waiver of Adjustment Note Requirement (Decreasing Adjustments Relating to Supplies made by or to a Partnership) Legislative Instrument 2013 – the instrument states that for the purposes of attributing a decreasing adjustment (arising from an adjustment event) to a tax period, a supplier or recipient that has a decreasing adjustment in relation to a supply or an acquisition made by a partner in their capacity as a partner of the partnership, is not required (under subsection 29-20(3) of the GST Act) to hold an adjustment note if the requirements of this instrument are satisfied.
• Goods and Services Tax: Adjustment Note Information Requirements Amendment Determination 2013 – the instrument states that the purpose is to clarify the operation of certain paragraphs of A New Tax System (Goods and Services Tax) Adjustment Note Information Requirements Determination 2012 and to insert a new clause.

GSTR 2013/2 – Adjustment notes

The Ruling sets out the requirements for adjustment notes under Division 29 of the GST Act, in particular:

• when a document is in the approved form for an adjustment note;
• the information requirements that the Commissioner has determined under paragraph 29-75(1)(c) of the GST Act, and an explanation of how those information requirements in the A New Tax System (Goods and Services Tax) Adjustment Note Information Requirements Determination 2012 apply; and
  
• when the Commissioner will treat a particular document as an adjustment note even though that document does not meet all of the adjustment note requirements under subsection 29-75(1).

Also, the Ruling includes a helpful appendix summarising the circumstances when a decreasing adjustment can be attributed without an adjustment note as determined by the Commissioner under subsection 29-20(3).

Yesterday the Commissioner published PSLA 2013/2 (GA) “GST treatment of Australian fees or charges under Division 81 of the GST Act”

The practice statement applies from 1 July 2013 to Australian government agencies (local and shire councils, state and territory entities and Commonwealth entities) who self assess the GST classification of supplies under s 81-10 of the GST Act. The statement applies to Australian fees or charges listed in the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2011 (No.1) which are received as consideration for the supplies they make.

By way of background, Division 81 of the GST Act outlines the GST treatment of Australian taxes and Australian fees or charges received by Australian government agencies. From 1 July 2011 Division 81 was amended to enable Australian government agencies to self-assess the GST treatment of taxes, fees and charges. As from 1 July 2013, agencies must self-assess the GST treatment of all fees and charges (including those listed in the Treasurer’s Determination referred to above, which ceases to have effect from that date).

In Commissioner of Taxation of the Commonwealth of Australia v Ludekens [2013] FCA 142 the Federal Court dismissed the Commissioner’s claim that the respondents were subject to penalties as “promoters” of a tax exploitation scheme pursuant to Division 290 of the Taxation Administration Act 1953 (Cth). This is the first case where the Federal Court has heard an application by the Commissioner for the imposition of penalties under the “promoter penalty regime”. This decision is relevant to GST, because the regime extends to schemes involving GST.

In a blow to the Commissioner, the Federal Court found that while there was a “tax exploitation scheme”, the respondents were not a “promoter” of the scheme within the elements of the definition. This was because not all of the conduct of the respondents necessary to satisfy the definition occurred within the last four years.  Further, the Commissioner failed to establish that the respondent received (either directly or indirectly) consideration in respect of the marketing or encouragement of the scheme.

This is an important decision with significant implications on the scope and application of the “promoter penalty regime”.  The judgment is extensive, running to over 300 paragraphs. My analysis of the decision will follow soon.