Contractual and Commercial Disputes and GST – learnings from recent cases

(Presented at the TIA GST Conference 2024)

1. Introduction

At the National GST intensive in 2017 I presented a paper titled “GST in the real world – Contractual and Commercial Disputes”.^[1] The introduction to that paper included the following paragraph (footnotes omitted):

The Federal Court has described the GST as a “practical business tax” and being designed to operate “in a practical business context”. Unfortunately, any search of a legal database tells us that the application of the GST to commercial dealings has been far from smooth, with a number of disputes between commercial parties brought before the Courts.

The disputes generally do not involve the question of whether GST is payable, those disputes usually involve the Commissioner. Rather, the disputes are about who is to bear the ultimate liability for GST. Under the GST Act, the supplier incurs the liability to pay GST but the supplier has no statutory right to pass on that GST liability to the purchaser – this needs to be done as part of the contractual relationship. How this contractual relationship is recorded is critical and many of the commercial disputes involve a contest about the terms of the contractual relationship.

This paper continues the theme, with disputes between commercial parties as to GST continuing to be brought before the Courts. Unsurprisingly, these disputes generally involve real property transactions with the ultimate question involving which party is to bear the economic burden of any GST that is payable.

The first part of the paper looks at the Nerang Subdivision series of cases heard in the Supreme Court of Queensland between 2020 and September 2024. The proceedings involved a number of complex GST issues surrounding a large scale residential property development and the proper construction of agreements entered into between the owner and the developer. The issues included: whether the owner was required to register for GST; how the GST liability on the sale of the developed lots was to be addressed as part of the sharing of the proceeds; and whether the distribution of sale proceeds to the developer could be grossed up on account of GST. The proceedings are also noteworthy because the Commissioner was joined to the substantive proceeding as a necessary party given the GST registration issue.

The paper then looks at the scope for parties to impact the GST treatment of a transaction through the terms of the contractual arrangement. It is common for standard form Contracts of Sale to use a “tick the box” approach to GST, whereby parties trigger certain GST treatments and consequences. The approach has led to disputes.

My 2017 paper discussed such a dispute, with the proceeding ultimately finding its way to the Victorian Court of Appeal.^[2] The solicitor for the seller inserted the word “GST” in the relevant box in the Particulars of Sale of a Contract of Sale in circumstances where the general conditions stated that “The price includes GST (if any) unless the words “plus GST” appear in this box”. Was the insertion of this word to be construed as meaning “plus GST”, so that the stated sale price was to be grossed up on account of GST? At first instance, the primary judge found that the contract provided a clear mechanism for the parties to give effect to an agreement that the purchaser must pay GST on the purchase price – the mechanism was not employed in this instance and the burden of GST did not shift to the purchaser. On appeal, the Court of Appeal disagreed, finding that a reasonable business person^[3] would have understood the inclusion of the word “GST” was to involve the general condition in the Contract of Sale so as to transfer any GST liability of the vendor to the purchaser.

Further disputes have arisen in the context of “tick the box” contracts. Discussed in this paper are the decisions of the Victorian Supreme Court in Duoedge Pty Ltd v Leong [2013] VSC 36 and the Full Federal Court in Belconnen Lakeview Pty Ltd v Lloyd [2021] FCAFC 187. Both decisions consider the effect of the supplier ticking certain boxes in the contract and the scope of the relief available to purchasers where the actual GST position is different.

Disputes also arise in the complex arena of “tripartite agreements”, particularly in the context of third party consideration which can lead to the unfortunate outcome where GST is payable but the entity paying the consideration is unable to recover input tax credits because the taxable supply is made to a third party. A recent illustration is the decision of the Federal Court in Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2023] FCA 257.^[4] In that case, the Federal Court placed a particular focus on the contractual arrangement entered into between the parties to support its finding that the entity that paid lawyers that were acting for, and providing legal services to, third parties acquired a separate taxable supply from the lawyers. This decision may have important implications for the GST treatment of litigation funding arrangements.

2. The Nerang Subdivision proceedings

The Nerang Subdivision dispute involved five proceedings in the Supreme Court of Queensland between 2020 and September 2024. The decisions illustrate the complex GST issues that can arise where an owner of land enters into an agreement with a developer whereby the land is to be subdivided and the lots sold to purchasers. Under these type of development arrangements, generally:

The owner remains the registered proprietor of the land.
The developer undertakes the development and incurs the costs of the development, with the owner taking an essentially passive role in the development. The developer will recover input tax credits with respect to the costs of the development.
Upon the sale of the lots, the proceeds of sale will be shared between the owner and the developer in a manner set out in the development agreement.
If the owner is registered for GST, or is required to be registered, the sale of the subdivided lots will be a taxable supply by the owner, with the owner liable to pay GST.
The proceeds distributed to the developer will often be described as the “developer’s fee”, with the proceeds representing consideration for a taxable supply by the developer to the owner of development services. The developer will pay GST with respect to the proceeds and the owner (if registered or required to be registered) will be entitled to an input tax credit.

As a further complication, given the introduction of the “GST withholding rules” that apply to supplies made on or after 1 July 2018:^[5]

The purchasers of the subdivided lots will be required to withhold a proportion of the contract price on account of GST (1/11^th or 7% if the margin scheme is to be used) and to pay that amount to the Commissioner;^[6] and
The owner will be entitled to a credit in respect of the purchaser’s payment.^[7]

The decisions illustrate the various pitfalls that can arise if GST is not properly considered when drafting contractual documents. Given the scope of the development, which the Court observed was expected to generate more than $2 billion in revenue, the financial impact of GST was significant for the parties. Ultimately, after four hearings before the Supreme Court and one appeal to the Court of Appeal, the result appeared to be as follows:

The owner of the land was required to be registered for GST. The sale of the subdivided lots were therefore taxable supplies with GST payable by the owner.
The distribution of the sale proceeds to the owner (25% of the “Gross Sale Proceeds”) was to be calculated after the payment of GST – i.e., net of GST.
The distribution to the owner is 25% of the “Gross Sale Proceeds” was inclusive of any adjustments, including any land tax paid by the developer prior to settlement.
The distribution of the balance of the sale proceeds to the developer was to be calculated after the payment of GST – i.e., net of GST.
The distribution to the developer was not to be grossed up on account of GST. But the owner would presumably to be entitled to an input tax credit with respect to the sale proceeds distributed to the developer upon receiving a tax invoice.

2.1 The background facts

The Property comprised 312.3 hectares on the western side of the Pacific Highway on the Gold Coast. On 22 May 2008, the registered proprietor of the Property died and on 30 September 2009 the executors of the estate (Owner) entered into a development deed (Deed) with the Developer. The planned development was to comprise approximately 3,500 dwellings, a village centre, and an industrial precinct. It was anticipated that the development would likely take 10 to 15 years to complete, that it would be developed and sold in approximately 27 stages, and that it would ultimately involve the expenditure of in excess of $750 million in development costs and revenue of more than $2 billion.

The Deed contemplated that the Owner and the Developer would obtain their pecuniary recompense from the development via their entitlements to receive, respectively, the “Owner’s Return” and the “Developer’s Return”. Despite the parties’ agreement to associate together to carry out the Project, clause 2.3.1 of the Deed provided that the document did not create a partnership, joint venture, agency or fiduciary relationship between the Developer and the Owner.

The Development was to be undertaken on a staged basis. A “Stage” referred to that part of the Land that was designated as a stage of the Development in the Master Program. The Owner was required to grant a “Development Lease” for each Stage. The form of the Development Lease was prescribed in a schedule to the Deed.

Under the Deed, the Developer’s obligations included:

Subject to limited exceptions, to pay rates and charges and land tax levied on the Land.
To seek to obtain (at its cost) the approvals required to undertake the Development.
To undertake the Development in accordance with the Development Documents and its obligations under the Deed, and for that purpose could engage and instruct all necessary advisers, consultants, contractors and agents in connection with the exercise of its rights and the performance of its obligations under the Deed.
To provide a detailed report to the Owner on the progress of the Project within 14 days after the end of each quarter.
To provide a marketing and sales plan to the Owner, which included a list of Lots to be released for sale and their proposed sale price, prior to commencing marketing and selling of Lots.

The Deed further provided that:

The Developer had the sole and exclusive right to exercise control of the Project.
The Developer accepted all risks relating to the undertaking of the Development, including risks relating to the actual costs of the Development exceeding the cost estimated by the Developer, and the actual revenue and profit to be derived by the Developer from the Development being less than the revenue and profit estimated by the Developer.
The Owner agreed to co-operate fully with the Developer and use its best endeavours to bring about the successful performance and completion of the Project, to do all acts and things which were required for the purposes of carrying out and completing the Project in accordance with the terms of the Deed, including by allowing access to the Land and, as and when the Developer required full possession and use of a Stage to undertake the development work, to deliver up possession of the Stage and grant a Development Lease for it.

Under the Development Leases, between the Owner (as “Landlord”) and the Project Manager (as “Tenant” and nominee of the Developer):

The Project Manager was required to prepare a subdivision plan for the Lots to be created from the Stage and lodge that plan for registration, prepare a partial surrender of the Development Lease so far as it relates to the sale of a Lot to a third party and pay the Owner’s Return to the Owner upon settlement of the sale of each Lot.
The Owner was required to sign and return the subdivision plan to the Project Manager and do all things necessary to assist the Project Manager in obtaining approval and registration of that plan and sign and return to the Project Manager the partial surrender of the Development Lease relating to the sale of a Lot.

A dispute arose between the Owner and the Developer concerning how the possible incidence of GST might impact the calculation of the returns to which the Owner and Developer might eventually become entitled.

2.2 Application for declaratory relief

In Nerang Subdivision Pty Ltd & Ors v Robert Hutson in his capacity as Administrator of the Estate of Nancy Ullman Loeskow [2020] QSC 225, the Developer sought the following declarations:

Under the Deed and the Development Lease, the parties intended that the amount of any liability for GST on the Owner’s taxable supply of a Lot is to be met from the Owner’s Return; and
The amount of the Developer’s Return payable to the Developer is exclusive of GST.

The Owner submitted that both declarations should be refused, contending that the relief claimed by the Developer should be regarded as hypothetical because it is claimed in relation to circumstances that ha not occurred and might never occur. The Owner’s alternative position was that if, contrary to his primary position, declaratory relief was to be given, the declarations should be formulated with greater precision and to the opposite effect to those sought by the Developer.

At the time of the application, the development was not at a stage where the Owner had become obliged to grant any Development Leases. Rather, development had only progressed to the stage of preparation of the applications under the Planning Act 2016 (Qld) seeking approval for its initial stages. There was no evidence before the Court as to whether and, if so, within what time frame the Gold Coast City Council would approve the applications which were be before it.

The Court considered the terms of the Deed in some detail, observing (at 14]) that the Deed differentiated very clearly between the Owner’s essentially passive but facilitative role and the Developer’s controlling and active role.

The Court further observed that the Deed contemplated that the parties were to obtain their respective pecuniary returns from the Project out of the proceeds of sale of the subdivided Lots which may be created by the Development. The starting point was clauses 5.1 and 5.7 of the Deed, which provided as follows:

5.1 The Owner is to receive the Owner’s Return in accordance with the terms of each Development Lease.

…

5.7 The Developer is entitled to receive and be paid the Developer’s Return.

Clause 17.1 of the Deed provided the following definitions:

Owner’s Return means the amount payable to the Owner under a Development Lease, excluding rent, outgoings and monies paid by a tenant on account of GST.

Developer’s Return means all of the proceeds of sale of Lots and all other monies received in respect of the Project but excluding the Owner’s Return.

Once a Development Lease was entered into, clauses 5.1 to 5.4 of the lease provided as follows:

5.1 The Tenant will use reasonable endeavours to promote, market and sell Lots.

5.2 In order for the Tenant to satisfy its obligations under clause 5.1, the Landlord authorises the Tenant to:

5.2.1 engage real estate agents and lawyers;

5.2.2 negotiate contracts of sale on behalf of the Landlord;

5.2.3 collect and distribute the proceeds of settlement of Lots; and

5.2.4 do all [other] things reasonably necessary to satisfy the Tenant’s obligations under clause 5.1.

5.3 The Tenant will pay the Landlord on the date of settlement of each Lot, an amount equal to 25% of the Gross Sale Proceeds for that Lot.

5.4 The Tenant is entitled to receive and be paid all the proceeds of sale of Lots and other monies received in respect of the Works and the Development for the Stage, after payment of the amounts due to the Landlord under clause 5.3.

Clause 15.6 of the Deed dealt with GST and provided as follows:

15.6 Unless otherwise specified, any payment made by one Party to another under this document is exclusive of GST and:

15.6.1 A Party must pay to the other [Party] an amount equivalent to the GST at the time that that Party is required to make the payment.

15.6.2 The Party making the Taxable Supply must give to the other a tax invoice. If the Party does not provide a tax invoice then the other Party is not required to make any payment of GST under this clause until it has received a tax invoice.

15.6.3 When calculating the amount of:

(a) a Project Cost,

(b) any other reimbursement from one Party to the other under this document;

then that Party may include GST payable on the Taxable Supply giving rise to that amount but must deduct the amount of an input tax credit to which that Party is entitled.

And clause 20 of the Lease provided as follows:

20.1 The amount of rent and all other amounts payable under this Lease are exclusive of GST.

20.2 If the rent or any other payment obligation under or in connection with this Lease is a Taxable Supply, then the consideration for the Supply is increased by an additional amount equal to the amount of that consideration multiplied by the relevant GST rate. The additional amount is payable on receipt of a tax invoice.

20.3 Unless otherwise stated in this Lease, if a party is entitled to be reimbursed or indemnified by another party for an expense, claim, loss, liability or cost incurred in connection with this Lease, the reimbursement or indemnity payment must not include any GST component of the expense, claim, loss, liability or cost for which an Input Tax Credit may be claimed.

The Court also observed that the Owner was not presently registered for GST, and did not intend to register for GST now or in the future. This was because the Owner had formed the opinion that the Estate was not carrying on an “enterprise” and was thus not permitted to be registered for GST. In forming this view, the Owner relied on the following matters:

He did not consider that the Estate (as opposed to the Developer) was carrying on activities, or a series of activities, in the form of a business. Under clause 7.2 of the Development Deed, it was the Developer who had the sole and exclusive right to carry out the development and market and sell the resulting lots to third parties.
He did not consider that the Estate (as opposed to the Developer) was carrying on activities, or a series of activities, in the form of an adventure or concern in the nature of trade.
In coming to this view, he had taken into account the Commissioner of Taxation’s public rulings TR 97/11 (relating to businesses), TR 92/3 (relating to profitmaking undertakings and therefore adventures or concerns in the nature of trade) and MT 2006/1 (relating to enterprises).

The Owner was also of the view that even if the Estate was carrying on an enterprise and thus permitted to be registered for GST, it would not be required to be registered for GST because any sales that the Estate will make in the future in accordance with the Development Deed would be supplies of capital assets, which are disregarded for the purpose of calculating projected GST turnover. As an aside, I note that the Owner formed this view well before the Tribunal handed down its decision in Collins and Commissioner of Taxation [2022] AATA 628 where Senior Member Olding considered this issue.

The Court observed that if the Owner’s opinion was correct, there was no point to the application brought by the Developer. In this context, the Developer did not ask the Court to determine the correctness of the Owner’s opinion, but rather to proceed on the basis that there was no certainty as to whether GST would arise or apply to sales of Lots on behalf of the Owner/Landlord.

One further complexity identified by the Court was that if GST did apply to the sales of the Lots on behalf of the Owner/Landlord, the GST withholding provisions would apply to all those sales. Under those provisions, the person who receives the taxable supply would be the person liable to pay the Commissioner an amount in respect of GST at the time of settlement and the person who makes the taxable supply (i.e. the Owner) would be entitled to a credit in respect of the third party purchaser’s payment.

Ultimately, the Court determined that the application should be refused on the grounds that the question to be considered was hypothetical. The Court accepted that there was a genuine dispute between the parties and that the Developer (as applicant) had a sufficient interest in the outcome, however the application was asking the Court to resolve a controversy as to the way in which GST might impact on the moneys to be paid by the Developer and to be received by the Developer upon the sale of the lots. In this respect, those obligations and entitlements could only ever exist if there was a lease, and presently the Owner was not yet under an obligation to even grant a lease. Further, the question of how GST might impact those payments may depend upon the terms of the contracts of sale, which had not yet been determined.

The Court concluded that the application invited the Court to go beyond its role of finally determining the rights of litigants and into the impermissible role of giving an advisory opinion in relation to hypothetical and abstract circumstances.

2.3 Stay application

In around February 2021, a further dispute emerged, being whether the proposed form of contract to be used for the sale of lots to third parties that had been proposed by the Developer, was consistent with the terms of the Development Deed and the Development Lease. At this time, two stages were approved and the Owner (as Landlord) and the Developer (as Tenant) had entered into a Development Lease for each stage.

In Robert Hutson in his capacity as Administrator of the Estate of Nancy Ullman Loeskow v Nerang Subdivision Pty Ltd & Ors [2021] QSC 323 the Owner issued proceedings in the Supreme Court seeking the following relief:

The form of contract proposed by the respondents is not consistent with the terms of the Development Deed and the Development Lease (Contract Dispute).
In the alternative to the order sought in paragraph 1, a declaration that, in respect of each and every contract between the applicant (as landlord under the Development Lease) and a third party purchaser in the form of the proposed contract, the amount that the tenant under the Development Lease is otherwise entitled to receive in respect of such sale under the Development Deed and the Development Lease is not to be increased by 10% on account of the tenant’s liability for GST by operation of clause 20.2 of the Development Lease or clause 15.6 of the Development Deed or otherwise (GST dispute).

The Court observed that the GST dispute was whether the amount that the first and second respondents, as the developer, were to receive from the sales of the developed lots was to be increased by 10% on account of GST by operation of clauses in the Development Deed and the Development Lease.

The Developer made a cross-application to the Court, applying for a stay of the proceedings. This related to the Contract dispute, which the Developer had sought to refer to expert determination pursuant to the dispute resolution provisions of the Deed. In considering the stay application, the Court observed that it was clear that the form of the contract would be relevant to the question of the resolution of the GST dispute. And also, while the expert determination was final and binding upon the parties, it would not be binding upon the Court in the determination of the GST Dispute – so that it was not necessary, nor in the interests of expediency or consistency, that the two disputes be determined at the same time.

In all the circumstances, Court considered it to be appropriate that the parties be held to their bargain and that it was appropriate that a stay be granted pending determination of the Contract Dispute by an expert.

2.4 Substantive proceedings

In 2023, further proceedings were issued – Nerang Subdivision Pty Ltd & Ors v Robert Hutson in his capacity as Administrator of the Estate of Nancy Ullman Loeskow and Federal Commissioner of Taxation [2023] QSC 268. At the time the proceedings were issued, the Owner and Developer were parties to four Development Leases over different parts of the Property that reflected different stages of the Project.

The Court observed that the proceeding raised the following issues for determination:

Whether the Owner is presently required (or, alternatively, will be in the future be required) to be registered for GST pursuant to s 23-5 of the GST Act.
Whether the amount of the Owner’s Return which the Owner will receive on the sale of each Lot is to be reduced by any GST payable by the Owner on that sale, regardless of whether the purchaser of the Lot pays GST in relation to the supply under the GST withholding provisions in subdivision 14E of schedule 1 to the Taxation Administration Act 1953 (Cth).
Whether the Deed or the Development Leases bring about the result that the Developer’s Return from the sale of a Lot is to be increased by the amount of the Developer’s liability for GST.
Whether an adjustment that increases the amount to be paid by a purchaser at settlement of the sale of a Lot by reason of land tax having been paid prior to settlement is an adjustment within the meaning of that term in the definition of Gross Sale Proceeds in the Development Leases.

The Court noted that the Commissioner was joined to the proceeding because the first issue concerned the application of the GST Act. In this context, the role of the Commissioner was identified as follows:

The role of the Commissioner was limited to making submissions on the proper construction of the relevant provisions of the GST Act and the application of principles derived from relevant authorities to assist the court to determine whether to make the declarations sought in respect of the first issue and to ensure that such declarations as might be made do not inhibit the discharge of the Commissioner’s statutory duties in connection with the administration of the GST Act.

Joining the Commissioner as a party to the proceeding addressed the concerns identified by Gzell J in CSR Ltd v Hornsby Shire Council [2004] NSWSC 946 where the Court concluded that, in the absence of the Commissioner as a party to the proceedings, a declaration should not be granted that CSR was obliged to provide a tax invoice to the Council with respect to a compulsory acquisition of land. An issue between the parties was whether the compulsory acquisition of land gave rise to a taxable supply and an entitlement to an input tax credit.

2.4.1 Registration for GST

Enterprise

The Developer submitted that the activities undertaken by the Owner under the Deed and the Development Leases were being carried on in the form of the business and (or alternatively) in the form of an adventure or concern in the nature of trade. The Developer emphasised the scale of the Development, the change in the character and the physical form of the Land resulting from the Development, as well as the period over which the Project has been pursued to date and for which it will be pursued in future. The Owner submitted that the business of developing the Land was being undertaken by the Developer and not by the Owner, whose role was limited to realising a long-held family asset.

The Court looked beyond the income tax authorities dealing with the carrying on of a business and noted the decisions^[8] which recognised the definitions of “enterprise” and “carrying on an enterprise” in the GST Act appear on their face to be substantially broader than the concept of “carrying on a business” for the purpose of income tax. The Court observed that the parties’ agreement to undertake the Project was a commercial arrangement and that it was reasonable to infer that the Owner had entered the commercial arrangement and agreed to accept the fixed percentage of the Gross Sale Proceeds of each Lot in return for the Developer and Project Manager developing the Land with the intention of ultimately receiving more from the Owner’s Return on the sale of all of the Lots than would have been realised from a sale of the undeveloped Land. Further, although the Developer exercised control over the Project, undertook the development work and bore the risk associated with the cost of the development, the Owner’s role in the commercial arrangement was not entirely passive. The aims of the Project could not be achieved without the Owner granting the Development Leases and delivering up possession of the relevant parts of the Land to be developed as a Stage and, subsequently, executing contracts of sale for Lots pursuant to his obligations under the Deed and the Development Leases. The Court was satisfied that this conduct, which facilitated the Development and the ultimate sale of the Lots under the terms of the commercial arrangement with the Developer, amounted to a series of activities done in the form of a business and, accordingly, came within the broadly expressed definition of enterprise in s 9-20(a) of the GST Act.

The Court also found that the Owner satisfied the definition of enterprise through carrying on activities in the form of a lease: s 9-20(c). The Court rejected the Owner’s argument that as the rent paid under each Development Lease was $1.00, this activity was done “without a reasonable expectation of profit or gain” so that it was excluded from the definition of enterprise by the operation of s 9-20(2)(c) of the GST Act. The Court considered that looking at the broader arrangement, the Owner entered into the Development Leases in the expectation that the amount of the Owner’s Return from the sale of Lots, following development facilitated by the Development Leases, would exceed the proceeds of selling the undeveloped Land. In those circumstances, the activity comprised by the observation of the covenant of quiet enjoyment was done with a reasonable expectation of gain and was not excluded from the definition of enterprise under s 9-20(2)(c) of the GST Act.

GST turnover threshold

As no sale of lots had taken place, it was common ground that the Owner’s current turnover did not meet the current GST turnover threshold. The Developer sought a declaration that the Owner would be required to register for GST at the time of the sale of the first of the lots – thereby satisfying the projected GST turnover test. The Owner submitted that this was not the case on two grounds:

The sales of the lots are supplies by way of a transfer of ownership of a capital asset and therefore, pursuant to s 188-25(a) of the GST Act, are to be disregarded in working out the Owner’s projected GST turnover.
The sales of the lots are supplies that are not made in connection with the lease enterprise carried on by the Owner and therefore, pursuant to s 188-20(1)(c) of the GST Act, are excluded from the aggregated value of the supplies which comprises the Owner’s projected GST turnover.

The Court observed that the first contention had been considered by the Tribunal in Collins and Commissioner of Taxation (2022) 114 ATR 682. As in that case, the parties made detailed submissions on the application of s 188-25(a) by reference to the capital/revenue dichotomy addressed in the income tax jurisprudence. The Owner also argued that he agreed to sell the Land in exchange for a fixed percentage of the Gross Sale Proceeds which was not dependant on the success or otherwise of the business conducted by the Developer and Project Manager – all the risks and benefits otherwise lay with the Developer.

The Court accepted that the Owner was not engaged in the same business as the Developer, but nevertheless concluded that having regard to both the commercial nature of the arrangement with the Developer and the character, scale and duration of the Project, he was satisfied that, by making the Land available for the Development, the Owner had committed that land to a profit-making scheme or undertaking. Therefore, the lots which were to be sold in pursuit of the Owner’s profit-making scheme and did not fall within the term “capital assets” in s 188-25(a) of the GST Act.

The Court also rejected the Owner’s submission that the sales of the Lots would not be supplies made in connection with the lease enterprise. On the basis that the Owner granted the Development Leases and observed their terms for the purpose of achieving a gain from the sale of Lots following development facilitated by those leases, the Court was satisfied that the sales of Lots would properly be characterised as supplies made in the course or furtherance of the lease enterprise and therefore, even on the Owner submission, would be supplies made in connection with the lease enterprise.

The Court concluded by finding that it was satisfied that (when calculated from the date of the hearing), the sum of the values of all the supplies that the Owner had made, or was likely to make, during that month and the following 11 months exceeded $75,000. The Owner’s GST turnover therefore met the registration turnover threshold.

2.4.2 Calculation of the Owner’s Return

The parties’ return from the proceeds of sale was addressed in cll 5.3 and 5.4 of each Development Lease:

Return

5.3 The Tenant will pay the Landlord on the date of settlement of each Lot, an amount equal to 25% of the Gross Sale Proceeds for that Lot.

“Gross Sale Proceeds” was defined in cl 22.1 of each Development Lease to mean:

in the case of a vacant unimproved Lot the actual amount received at settlement from the sale of the Lot comprising the sale price plus or minus any adjustments to it (eg Rates or Charges) pursuant to the contract for the sale of the Lot less any GST payable on that amount;
in the case of any Lot which is sold or disposed with Building Improvements, an amount equal to that part of the sale price attributed to the unimproved value of the Lot (ie without any Building Improvements) as agreed between the parties, or failing agreement within 7 days after the contract or agreement for the sale of the Lot is signed, then as determined by the Valuer, and in either case less any GST payable on that amount.

The Developer submitted that the effect of these clauses was that under clause 5.3 the Owner received 25% of the “Gross Sale Proceeds”, being the sale price less GST, but due to clause 5.4 not adopting the concept of “Gross Sale Proceeds” the balance of “all the proceeds of sale” to be distributed to the Developer necessarily excluded any deduction on account of GST payable by the Owner’s taxable supply of the lots. This effectively left the Owner to pay the GST from his share of the sale proceeds – from which an amount equal to the GST had already been deducted.

The Court did not accept the Developer’s construction of the clauses. The Court considered that a reasonable business person in the position of the parties would have understood that the Owner’s Return was an amount calculated after payment of GST to the Commissioner. Further, although clause 5.4 was drawn in broad terms, the entitlement created by that clause for the Developer to receive an amount calculated “after payment of the amounts due to the [Owner] under clause 5.3” was properly understood to mean an amount remaining after payment of 25% of the Gross Sale Proceeds and after payment of GST to the Commissioner. That also accorded with the express exclusion of the Owner’s Return from the definition of Developer’s Return in cl 17.1 of the Deed.

The Court provided the following examples that would arise on the Developer’s construction – whereby the amount received by the Owner from the sale of the Lot would be reduced, and the amount of the Developer’s Return would be increased, by the GST payable on the sale:

A sale of a Lot for a GST inclusive price of $220,000 with GST payable at the rate of 10%:
- the Gross Sale Proceeds would be $200,000, being the GST inclusive price received at settlement less the $20,000 GST payable on that amount;
- the Owner’s Return would be $50,000, being 25% of the Gross Sale Proceeds;
- the Developer’s Return would be $170,000, being the GST inclusive price received at settlement less the Owner’s Return;
- the Owner would then be required to pay $20,000 GST to the Commissioner from the Owner’s Return, effectively reducing that sum by the amount of GST payable on the sale of the Lot.
The result would be no different where the purchaser pays the GST amount of $20,000 to the Commissioner pursuant to the GST withholding provisions:
- the Gross Sale Proceeds would be $200,000, being the GST inclusive price less the $20,000 GST paid to the Commissioner by the purchaser;
- although the Owner’s Return would notionally be $50,000, being 25% of the Gross Sale Proceeds, the amount actually received by the Owner would be reduced by the $20,000 GST payable on the sale of the Lot, with that amount being included in the Developer’s Return even though GST had in fact been paid by the purchaser;
- the Developer’s Return would be $170,000, being the GST inclusive price received at settlement less the (notional) Owner’s Return.

2.4.3 Grossing up the Developer’s Return for GST

It was common ground that, in providing development services pursuant to the Deed and each Development Lease, the Developer made a taxable supply to the Owner, with the “Developers Return” being consideration for that taxable supply. The question was whether the Deed or the Development Leases provided for that amount to be increased on account of GST.

Clause 15.6 of the Deed provided as follows:

15.6 Unless otherwise specified, any payment made by one Party to another under this document is exclusive of GST and:

15.6.1 A Party must pay to the other [Party] an amount equivalent to the GST at the time that that Party is required to make the payment.

Clause 20 of the Development Leases provided as follows:

Rent and outgoings exclusive of GST

20.1 The amount of rent and all other amounts payable under this Lease are exclusive of GST.

Payment of GST

The Developer submitted that the effect of these clauses was that the Developer’s Return was exclusive of GST and the Owner must, upon receiving a tax invoice from the Developer, gross-up payment of the Developer’s Return by the amount of GST payable on that taxable supply. The Owner submitted that this argument should be rejected because the clauses applied upon the making of a payment, or an obligation to make a payment, by one party to the other. He argued that the process for distribution of the proceeds of sale of a Lot did not involve the Owner making, or being required to make, a payment to the Developer.

The Court observed that the issue turned on whether a reasonable business person in the position of the parties would have understood the Developer’s Return to be either: a payment made by the Owner to the Developer within the meaning of cl 15.6 of the Deed; or an amount payable by the Owner, or a payment obligation on the part of the Owner, within the meaning of cll 20.1 and 20.2 of each Development Lease.

The Court considered there to be significant force in the Owner’s submission that the words used in cl 5.7 of the Deed—that the Developer is “entitled to receive and be paid” the Developer’s Return—do not create an obligation on the part of the Owner to pay the Developer’s Return. In this context, under the mechanism agreed for the collection and distribution of the proceeds of sale of Lots, the Developer controlled the distribution of sale proceeds. By cl 5.2.3 of each Development Lease, the Project Manager (as the Developer’s nominee) was authorised by the Owner to collect and distribute the proceeds of sale. Consistently with that authority, the sales contracts for Lots included a requirement that the buyer pay the balance of the purchase price to the Project Manager in accordance with the Owner’s authority. The consequence of the Developer (through the Project Manager) controlling the distribution of the sale proceeds was that there is no occasion where the Owner was called upon or obliged to pay the Developer’s Return to the Developer. The only monies the Owner received from the sale of a Lot was the Owner’s Return and through clause 5.7 of the Deed and clause 5.4 of the Development Lease the Owner had expressly ceded its right to receive the proceeds of sale from a Lot beyond the amount of the Owner’s Return.

The Court also observed that at the time the Deed was executed, it would have been apparent to the parties that the provision of development services would be a taxable supply which would attract a GST liability. In those circumstances it would be expected that if the parties intended that either clause 15.6 of the Deed or clauses 20.1 and 20.2 of each Development Lease would be engaged to increase the Developer’s Return by the amount required to meet the Developer’s liability for GST they would have used clear language to signify that the Developer’s Return was a payment made by the Owner to the Developer.

Ultimately, the Court was not persuaded that a reasonable business person in the position of the parties would have understood the Developer’s Return to be either: a payment made by the Owner to the Developer within the meaning of clause 15.6 of the Deed; or an amount payable by the Owner or a payment obligation of the Owner, within the meaning of clauses 20.1 and 20.2 of the Development Lease.

2.4.4 Land tax adjustments

Clause 5.6 of the Deed provided that the Developer was responsible to paying land tax on the Property. The sale contracts for the Lots provided for an adjustment to the purchase price on account of land tax paid prior to settlement (thereby increasing the sale proceeds received).

Notwithstanding the definition of Gross Sale Proceeds in the Development Lease referred to the amount received at settlement from the sale of the Lot comprising the purchase price “plus or minus any adjustments to it (eg Rates or Charges) pursuant to the contract for the sale of the Lot”, the Developer submitted that the adjustment to increase the purchase price on account of land tax was not to be taken into account in determining the Gross Sale Proceeds under the Development Lease and, thereby, the Owner’s Return. The Developer submitted that given the definition of “Rates and Charges” in the Development Lease expressly excluded land tax, it was evident that the parties had specifically excluded land tax from the parenthetical phrase “(eg Rates or Charges)” in the definition of Gross Sale Proceeds.

The Court did not accept the Developer’s contention, noting that ultimately the Developer’s argument rested on their contention that a construction which included an adjustment for land tax in the calculation of Gross Sale Proceeds would lead to uncommercial results because the Owner would receive an arbitrary windfall benefit depending upon when, in a given financial year, settlement of a sale occurred. The Court did not accept that submission, observing that land tax was a cost of the Project to be met by the Developer and that neither the Deed nor the Development Lease provided the Developer with an entitlement to direct reimbursement for any of the costs of the Project. Rather, the agreements provided for an indirect mechanism for the Developer to recover the costs of the Project through its retention of the Gross Sale Proceeds after payment of the Owner’s Return.

2.5 Costs proceeding

The final proceeding before the primary judge addressed the question of which party was to pay costs. The Court observed that the Commissioner was a necessary party to the proceeding because, as the person responsible for the administration of the GST Act, his rights and obligations relating to the assessment of tax against the Owner were directly affected by the declaration made following determination of the GST registration issue.

The Developer submitted that in in circumstances where both they and the Owner ha enjoyed mixed success in respect of discrete issues which involved broadly equal time and cost in the proceeding, the Court should make no order as to costs between those partis such that the parties are left to bear their own costs. Further, the Owner should be ordered to pay the Commissioner’s costs of the proceeding.

The Owner submitted that as between himself and the Developers, he was the successful party to the proceeding such that the Developer should pay his costs. Alternatively, if the Court determined that the Developers’ success on the GST registration issue makes it appropriate to apportion costs between the parties, the Owner should pay 1/3 of the Developers’ costs of the proceeding and the Developers should pay 2/3 of his costs of the proceeding. As to the costs of the Commissioner, the Commissioner should bear those costs himself on the basis that, in substance, he appeared as amicus curiae. Alternatively, if the Court determined that the Commissioner was entitled to his costs, those costs should be paid by the Developers

The Commissioner submitted that he should not have to bear his costs of the proceeding which arose from the commercial dispute between the Developers and the Owner in which the Commissioner had no interest and where his presence as a party was only made necessary because that commercial dispute gave rise to the GST registration issue. The Commissioner’s primary position was that his costs should be paid by the Owner as the unsuccessful party on the GST registration issue. Alternatively, the Commissioner submitted it would be open to the Court to order that the Developers pay his costs or that the Developers and the Owner bear an equal share of his costs.

As between the Owner and the Developer, the Court concluded that the exercise of the discretion to order costs should reflect the parties’ mixed success in respect of those different events. The appropriate exercise of the costs discretion as between those parties was to set-off their respective entitlement to be paid 50% of their costs with the result that no order was made for costs as between those parties and they were each left to bear their own costs.

The Court observed that the Commissioner did not seek to appear on his own initiative or at the suggestion of the Court. Although he had no interest in the commercial dispute, the Commissioner was joined as a necessary party because his rights and obligations relating to the assessment of tax against the Owner were directly affected by the declaration made following determination of the GST registration issue. The Court did not accept the Owner’s submission that the Commissioner appeared as amicus curiae.

The Court was of the view that the Commissioner should not have to bear his costs of the proceeding which arose from a commercial dispute in which he had no interest and where his appearance was only necessitated because that commercial dispute gave rise to an issue concerning the application of the GST Act which would, once determined, directly affect his rights and obligations under that legislation. As between the Developers and the Owner, fairness dictated that it should be the Owner, as the unsuccessful party on the GST registration issue upon which the Commissioner was joined, to bear the Commissioner’s costs.

2.6 The Appeal

Shortly before this paper was finalised the Queensland Court of Appeal published its decision in the appeal brought by the Developer.^[9]

No cross-appeal appears to have been filed by the Owner (with respect to the GST registration issue) and the appeal brought by the Developer concerned the finding of the primary judge that the payment of the Developer’s Return was not to be grossed up on account of GST because distribution of that amount was not a “payment” by the Owner to the Developer and therefore did not fall within the general GST gross-up clause in the Deed.

The Developer submitted that the primary judge erred by focusing on what the Owner actually received and the Developer’s asserted “control” over the proceeds. The Developer submitted that the Owner held the legal and beneficial ownership of the Lots when sold and, as vendor, would ordinarily be entitled to the sale proceeds. The sale proceeds were to be distributed in accordance with the terms of the Development Leases, with that distribution being undertaken by the Developer as agent of the Owner. The Court of Appeal observed that the primary judge rejected similar submissions and considered that the terms of the Deed and the Development Lease did not support the agency construct because those terms expressly provided for the Owner and the Developer to receive their respective entitlement – the Owner’s Return and the Developer’s Return. There was simply no requirement under the terms of the documents for the Owner to make any payment to the Developer. The Court of Appeal found that no error had been demonstrated and dismissed the Developer’s appeal.

2.7 Concluding observations

In its concluding comments, the Court of Appeal noted the observation of the primary judge that the terms of the Deed (cause 15.6.3) and the Development Lease (clause 20.3) evidenced that the parties had turn their minds to GST, but no mention was made of the Developer’s Return in either of those clauses. And the final paragraph of the decision extracts the following observation of the primary judge:

In my view, the private tax consequences for either party following receipt or payment of the amounts provided for the Deed and each Development Lease do not bear upon the resolution of the construction question raised by the Developer and Project Manager.

This observation highlights the care that needs to be taken when drafting clauses dealing with GST. As observed earlier in this paper, the outcome of this protected series of proceedings appears to be that the Developer is exposed to adverse financial consequences, with the Developer to receive its share of the sale proceeds (the Developer’s Return) after the payment of GST but being liable to pay GST on the receipt of the Developer’s Return without the ability to gross up that payment on account of GST. In contrast, the Owner receives its share of the sale proceeds (the Owner’s Return) after the payment of GST and can apparently claim an input tax credit of 1/11^th of the Developer’s Return distributed to the Developer upon receiving a tax invoice.

This is arguably a harsh outcome for the Developer, but one which both the Supreme Court and the Court of Appeal unanimously found was directed by the clear words of the contractual terms agreed to by the parties.

3. Can the parties determine the GST treatment of a transaction?

3.1 Characterisation of “entities” and relationships

In Owners – Strata Plan No 51487 v Broadsand Pty Ltd [2002] NSWSC 770 Hamilton J made the following observation (at [24]):

There is also a well established legal doctrine that, where a relationship of a particular sort is established by the ambit of the rights conveyed or duties imposed by an agreement between parties, then a declaration in the agreement that the relationship is not to have that legal characterisation will be ineffective: the characterisation of the transaction will be governed by the substance of the agreement and not by the parties’ declaration in such cases. A well known example which has been cited is the decision of the High Court in Radaich v Smith [1959] HCA 45; (1959) 101 CLR 209 relating to leases. If one party gives another exclusive occupation of premises for a term, this being the very nature of a lease, then a stipulation that the arrangement is one of licence and not of lease will be ineffective. As Windeyer J said at 222, if ”the rights that the instrument creates…be the rights of a tenant, it does not avail either party to say that a tenancy was not intended.

This observation equally applies in the context of GST and the identification of the relevant “entity” that makes a taxable supply or makes a creditable acquisition and as to the GST treatment of a transaction. Any label given to the relationship or the transaction in the contractual documents will not be determinative.
This question often arises in the context of partnerships^[10], which constitute an “entity” for the purposes of the GST Act. Where two or more parties enter into an arrangement whereby they seek to undertake a transaction for their mutual benefit, the relevant “entity” for the purposes of the GST Act could be constituted as:
A number of distinct entities and distinct enterprises, each with separate GST liabilities and entitlements.
A partnership, involving a single entity and a single enterprise, with a single GST liability and single entitlement to input tax credits – but with each partner jointly and severally liable for the GST liabilities of the partnership entity.^[11]

The difficulty with partnerships – and the potentially harsh consequences – is illustrated by the decision of the Federal Court in Yacoub v Commissioner of Taxation [2012] FCA 678. The applicants were husband and wife who worked as self-employed builders under a partnership known as M&M Yacoub Partnership (M&M). The applicants were carrying out contract building for EJ Constructions Pty Ltd (EJ) and were concerned that they would not be paid. The principal of EJ offered the applicants a share in a new development involving the construction of 30 villas on four properties. The four properties were then acquired by EJ as to 75% as tenants in common with the applicants as joint tenants as to 25% as tenants in common.

The parties entered into, without legal assistance, an agreement styled a “Syndicate Agreement”. Clause 3.1 of the agreement stated as follows:

3.1 No partnership shall exist between the parties and nothing contained in this agreement shall be construed as creating a partnership.

Subsequently, the parties entered into another agreement, this time with legal assistance. The agreement was expressed to supersede all previous agreements and included the following term:

2. AGREEMENT The First Party and the Second Party have agreed that notwithstanding their co-registered proprietor shares of the property, that they will have equal shares in the property as tenants in common and will share equally all costs, liabilities, mortgages and proceeds derived from any sale arising from the property.

An entity was then registered for GST (ML), with the registration form identifying ML as a limited partnership. The applicant’s evidence was that he was unsure how to define the business venture and ticked the limited partnership box because it seemed to most closely approximate the relationship between the M&M and EJ because these entities had only a limited involvement with each other and “were not in business together in a normal partnership” like M&M.

The construction of the development proceeded and ML lodged eight BASs. The Commissioner issued a notice of assessment of $611,203 for unpaid GST. The applicants paid 50% of the assessment in discharge for what they believed to be their liability. EJ did not pay the remaining 50% and went into external administration. The Commissioner commenced proceedings against the applicants for recovery of the unpaid balance of the GST. The Commissioner disallowed the applicants’ objections on the ground that the arrangements between the applicants and EJ’s made them partners for tax purposes, even if not partners in general law.

The Federal Court (Jagot J) dismissed the applicants’ appeal against the objection decision, observing (at [25]) that:^[12]

Statements of intention by the parties may be relevant but do not determine whether a partnership exists, as the issue is determined by reference to the “substance and reality of the transaction being adjudged to be a partnership”

In this context, her Honour observed (at [24]) that the indicia of a partnership included:

a mutual interest in the carrying on of the business for the purpose of proﬁt or gain (in this regard, it has been said that all partnerships involve a joint venture but not all joint ventures involve a partnership;
mutual conﬁdence that the parties will engage in the venture for joint advantage only
sharing of proﬁts and losses from the venture or a so-called community of proﬁt and loss
mutual agency in the sense that each party is a principal of the business and may bind the other

Her Honour observed that (as acknowledged by the Commissioner), there was not much doubt that when the applicants and EJ’s entered into the Syndicate Agreement in 2005 the legal relationship they thereby created did not exhibit any of the indicia of a partnership as deﬁned in s 995-1 of the ITAA 1997. However, the effect of clause 2 of the subsequent agreement – which included the clear words that the parties were to “share equally all costs, liabilities, mortgages and proceeds derived from any sale arising from the property”, was that as a matter of substance the parties thereby created between themselves a partnership both at general law and a tax law partnership as deﬁned in s 995-1 of the ITAA 1997.

Further, the two agreements were to be construed together, with the later agreement prevailing to the extent of any inconsistency because it represents the whole agreement of the parties in relation to its subject-matter. The legal effect of the contractual arrangements between the parties must therefore be determined in accordance with the Syndicate Agreement which was varied by the later agreement. In the context of the agreement as varied, the statement that no partnership exists in cl 3.1 was in the same position as the statement to the same effect in Fenston v Johnston. The statement was no longer consistent with the intention of the parties as objectively apparent from cl 2 of the later agreement.

3.2 The issue of tax invoices

A creditable acquisition will only be made if the entity acquires a taxable supply.^[13] A condition precedent to an entity being able to claim an input tax credit for the making of a creditable acquisition is the holding of a tax invoice.^[14] One of the requirements of a valid tax invoice is that is include enough information to enable the identification of what is supplied and the extent to which the supply is a taxable supply.^[15]

In this context, the Tribunal has described the role of tax invoices in the following terms:^[16]

…the tax invoice is the cornerstone of the GST regime. A tax invoice is a document that substantiates a creditable acquisition.

However, the issue of a tax invoice stating that a taxable supply has been made – in and of itself – is “meaningless” if a taxable supply did not take place. As observed by the Tribunal in Bayconnection Property Developments Pty Ltd and Commissioner of Taxation [2013] AATA 40 (at [86] per Senior Member Lazanas): ^{^[17]}

…the reality is that a tax invoice does not create a taxable supply; it records one. If a taxable supply did not take place, then a “tax invoice” is meaningless. In other words, documents that are so called “tax invoices” cannot substantiate a creditable acquisition if in fact there was no supply or acquisition.

Nevertheless, the information contained in a tax invoice provided by the supplier to the recipient – including a statement that the supply provided is a taxable supply is likely to provide supporting evidence that the supplier has made a taxable supply. In this context, in STNK and Commissioner of Taxation [2021] AATA 3399 the applicant submitted that tax invoices provided by the supplier to the applicant recording taxable supplies of gold were prima facie evidence that the transactions described in the document occurred in accordance with s 1305 of the Corporations Act 2001. It followed that the evidence must be accepted unless the Tribunal is satisfied otherwise by evidence adduced by the Commissioner. The Commissioner disputed this submission on the basis that this would effectively and impermissibly shift the burden of proof to the Commissioner, contrary to s 14ZZK of the TAA.

Senior Member Olding observed that, surprisingly, there appeared to be no authoritative decision in which the matter had been squarely raised and considered. In rejecting the submission, the Senior Member considered that it was important to bear in mind the distinction between the burden of proof and the means of discharging that burden. Section 1305 was concerned with the latter, providing a means by which a corporate applicant may prove a matter stated in a business record, the proof of which may discharge or assist in discharging its burden of proof. This approach was seen to be consistent with the remarks of Steward J, with whom Greenwood J and Logan J agreed, in Commissioner of Taxation v Cassaniti [2018] FCAFC 212 at [72] where, after determining that payslips and PAYG summaries were financial records for the purposes of s 1305, his Honour stated:^[18]

It follows that the payslips and the PAYG summaries are probably prima facie evidence of the matters stated in them by reason of s 1305 of the Corporations Act. That includes the respondent’s entitlement to gross salary, the payment to her of a net amount, and the withholding of amounts from her. If that is so, then for practical purposes, the onus probably shifted to the Commissioner to prove otherwise. On this basis, it would have been incumbent upon him to lead evidence showing that the matters stated in the business records were false or mistaken. This he did not do.

Ultimately, the Senior Member considered the correct approach, consistent with the Tribunal’s common practice in tax cases, was to weigh up all relevant evidence to decide whether he was satisfied on balance that a fact is established by the evidence. That does not mean the tax invoices are to be disregarded – they are powerful probative evidence of the transactions they purport to record – but nor does it mean they should be accorded a special evidentiary status.

3.3 Real property and “Tick the box” contracts

It is common for “standard form” Contracts of Real Estate to include a number of “boxes” in the Particulars of Sale which deal with GST. Completion of one or more of these boxes triggers the operation of various General Conditions set out in the contract.

This form of Contract of Sale was at issue in A & A Property Developers, with the particulars of sale extracted in the judgment of the primary judge as follows (at [6]):

Payment (general condition 11)
Price	$ 2,900,000
Deposit	$ 290,000	10% by	(of which $5K has been paid)
Balance	$ 2,610,000	payable at settlement
GST (general condition 13)
The price includes GST (if any) unless the words ‘plus GST’ appear in this box				GST

If this sale is a sale of land on which a ‘farming business’ is carried on which the parties consider meets requirements of section 38-480 of the GST Act or of a ‘going concern’ then add the words ‘farming business’ or ‘going concern’ in this box
If the margin scheme will be used to calculate GST then add the words ‘margin scheme’ in this box

As discussed in the Introduction to this paper, the Court of Appeal concluded that a reasonable business person would have understood the inclusion of the word “GST” was to involve the general condition in the Contract of Sale so as to transfer any GST liability of the vendor to the purchaser.

The purpose of these provisions is to clarify which party is to bear the burden of GST if the sale of real estate is a taxable supply. But what if the seller represents in the contract (whether expressly or by implication) that the sale is a taxable supply and it turns of that the sale is not – at law – a taxable supply? The following cases considered that issue.

3.3.1 Duoedge Pty Ltd v Leong [2013] VSC 36

Duoedge entered into contract to sell a property to Mr Leong, a developer. Mr Leong subsequently nominated his building company, OCMC, as the purchaser. The property was a residential property with planning permission for the development of eight units. At settlement, the property was tenanted.

The standard form contract was in the same form as considered in A & A Property Developers, and relevantly included the following terms:

The particulars of sale stated the sale price as ‘$916,000 GST inclusive’ (handwritten addition).
The ‘plus GST’ was struck through in handwriting.
Clause 2 of the special conditions (added in handwriting) stated ‘Vendor to provide purchaser a tax invoice of the sale’.

The sale proceeded to settlement and Duoedge provided a tax invoice to OMC which specified the following breakdown:

To Contract/Purchase Price $832,727.27

PLUS GST $ 83,272.73

Total payable $916,000.00

After completion, OCMC commenced the property development and claimed an input tax credit of $83,272.73 in its BAS. The Commissioner rejected the claim on the basis that the sale was input taxed as the supply of existing residential premises. Both parties unsuccessfully sought to persuade the Commissioner that the decision was wrong and the supply was taxable. Duoedge did not remit any amount on account of GST.

OCMC issued proceedings in the Victorian Magistrates Court seeking a refund of $83,272.73, contending it was not part of the purchase price but was paid on account of GST. The magistrate found in favour of OCMC and ordered that:

The Contract of Sale dated 3 September 2009 is rectified as follows: (a) The purchase price of $916,000 GST inclusive is amended to read $832,727.27 plus GST of $83,272.73; (b) the words ‘Plus GST’ be inserted into the GST box on Page 2 of the Particulars of Sale.
Duoedge pay the OCMC the sum of $83,272.73.

The reasoning of the magistrate included that at the time of execution of the contract of sale, both Mr Leong and the director of Duoedge believed that GST was applicable to the sale, and that Mr Leong believed a GST input credit could be claimed and was not interested in purchasing the property without it. Further, it was an implied term of the contract that if the purchaser paid to the vendor a total price that included provision for GST of $83,272.73, and it was later discovered that GST was not assessable on the transaction, the GST component was refundable to the purchaser on demand.

The Supreme Court allowed Duoedge’s appeal, concluding that the magistrate erred in law in finding that there was an implied term of the contract that, if GST did not apply to the sale, Duoedge would refund the GST amount of $83,272.73 and then to rectify the contract to give effect to the implied term.

The Supreme Court considered that the language of the contract used in respect of GST had a plain meaning, being that the GST risk lay with the vendor. The Court observed as follows (at [23]):

The absence of the words ‘plus GST’ in the box confirms the handwritten addition of the words ‘GST inclusive’. The parties have expressed the intention that the purchaser has no obligation to make a further payment in respect of any GST assessment that might later follow. In other words, the parties plainly intended that the risk that GST might need to be remitted to the Tax Office lay with the vendor. If the transaction did not involve a taxable supply, that risk was abated to the benefit of the vendor, who retains the full price that it contracted to receive for the property. Objectively assessed, this is what the terms relating to GST show to be the intention of the contracting parties. This construction is neither uncertain, nor ambiguous. To reverse the allocation of that risk to the purchaser, the words ‘plus GST’ are added to the box.

The Court also considered that the obligation to give a tax invoice is meaningless and devoid of content if, as the ATO had ruled, the sale was not a taxable supply.

3.3.2 Belconnen Lakeview Pty Ltd v Lloyd [2021] FCAFC 187

This class action involved the sale of leases in a residential development in the Australian Capital Territory and the operation of the transitional arrangements introduced as part of the amendments to the GST Act as a consequence of the decision of the Full Federal Court in Federal Commissioner of Taxation v Gloxinia Investments Ltd [2010] FCAFC 420. As observed by the primary judge,^[19] the amendments meant that, subject to the transitional arrangements, sales of newly constructed residential premises, which were the subject of a development lease arrangement, are subject to GST. As further observed by the primary judge, for the developer sued in these class actions, this presented an opportunity – spurred on by an entrepreneurial accounting firm.^[20] The accounting firm was engaged to apply for a private ruling to the effect that sales to be made to purchasers were not taxable supplies, by reason of the operation of the transitional provisions contained in the Amending Act. The private ruling was received, to the effect that the sales were input taxed and not taxable supplies, subject to the developer amending its GST returns that had been lodged to ensure that all acquisitions were not treated as creditable acquisitions. Despite receiving the ruling, the developer entered into contracts of sale on the basis that the sales would be taxable supplies with the price inclusive of GST.

The primary judge observed (at [14]) that the allegation in the class action was that the developers implemented a scheme, motivated by profit and driven by self-interest, that allowed the developers to retain amounts which purchasers believed would be required to have been paid over by the respondents to the ATO to discharge the GST liability arising upon the taxable supply.

The main applicant (Mrs Lloyd) entered into a contract involving the sale of the unexpired term of a lease with respect to a residential unit for $554,900, inclusive of GST with the parties agreeing to apply the margin scheme. The Particulars of Sale to the Contract of Sale included the following “tick the box” provisions:

The Full Court observed (at [51]) that it was common ground that, to reflect the correct tax treatment of the supply, the two boxes that were crossed should not have been crossed; rather, the box alongside the words “Input taxed supply of residential premises” should have been crossed. As observed by the Full Federal Court (at [5]):

Despite the form of the draft contract (and the contract as entered into by the parties), in truth the sale was not a taxable supply. That is, no GST applied to the sale (and the margin scheme could not be applied). Indeed, some two years before the date of the contract with Mrs Lloyd, Belconnen had obtained a private binding ruling from the Australian Taxation Office (ATO) that sales of unexpired terms of leases with respect to residential units in the development were not taxable supplies. The draft contract was prepared on an incorrect basis.

The Full Court also observed (at [58]) that there was no dispute that the developer did not disclose to Mrs Lloyd that the private ruling had been obtained or that GST was not payable in respect of the sales – this was despite the fact that the developer intended, at all times following the receipt of the private ruling, to treat the sales as input taxed.

First Instance

Mrs Lloyd commenced proceedings, relying on a number of causes of action, but particularly the following:

The developer had engaged in misleading and deceptive conduct.
Recovery of money in restitution on the basis of money had and received – being the recovery of $46,000, the GST that would have applied to the sale of the unit had the supply been a taxable supply and the margin scheme.

The primary judge rejected the restitution claim but upheld the misleading and deceptive conduct claim. The primary judge found that the conduct of the developer in proffering the contract conveyed a misleading representation, that the representation continued to be made between the date of the contract and the date of settlement. That representation took two forms:

Having regard to the Contracts as a whole, the crossing of the boxes on the Contracts provided to the solicitors for the Buyer by the solicitors for the Sellers, conveyed: (a) a representation that at the time, it was the Seller’s opinion, that upon settlement, the supply would be as identified by the crossing of the GST Schedule and other relevant terms of the Contracts; and (b) impliedly, a representation that the Seller actually holds the opinion and that there was a reasonable basis for it (Completion Representations).
A further representation was made (again a statement of opinion) that on the basis of the information then known to the developers, it was likely, following settlement, an amount representing GST on the supply would, in due course, be paid to the ATO (Likely Payment Representation).

The primary judge also found that the developer’s misleading conduct was causative of loss of a non-negligible value, That loss was the loss of an opportunity to renegotiate the contract; the primary judge awarded Mrs Lloyd compensation of approximately $23,000 for the loss of this opportunity.

Appeal

The developer appealed to the Full Federal Court. Mrs Lloyd filed a Notice of Contention with respect to the finding of the primary judge on the restitution claim.

With respect to the restitution claim, the Full Court found that the primary judge was correct to reject the claim. The Full Court rejected Mrs Lloyd’s submission that there was a failure of consideration in respect of a severable component of the price payable under the contract as the developer was not liable to pay GST for two reasons. First, neither the contract nor any other contemporaneous document passing between the parties identified the amount that was referable to GST. This was not the ordinary case where GST of 1/11^th of the value of the supply, but a somewhat complicated calculation would need to be carried out to determine the margin applicable to the supply of the interest, and thus to determine the GST. There was no suggestion that that amount was known to, or even able to be calculated by, Mrs Lloyd at the time of contracting. Second, while the contract was prepared on the basis that the supply would be a taxable supply subject to the margin scheme, this was merely the anticipated nature of the supply. It was inaccurate to speak of there being a component of the purchase price referable to GST. Rather, it was anticipated that there would be a component of the purchase price that would be referable to GST.

With respect to the misleading and deceptive conduct claim, the Full Court rejected the developer’s contention that the primary judge erred in holding that the contract was misleading or deceptive, and that the relevant representation was a continuing representation. The Full Court found that the primary judge was correct to find that the developer conveyed the representation to Mrs Lloyd that:

it was likely GST was payable in respect of the sale of the relevant residential unit; and
it was likely an amount representing GST on the supply would, in due course, be paid to the ATO.

The Full Court (at [141]) accepted the developer’s submission that the function of the Schedule and the relevant clauses was to allocate risks associated with GST, if any was to be paid. However, the Full Court nevertheless considered that the contract, particularly the marking of the boxes relating to GST in the Schedule, also conveyed an opinion as to the likely tax treatment of the supply. And that it was open to the primary judge to find that these representations continued to be conveyed in the period between the date of the contract and the date of settlement given that it provided no correction, clarification or further information.

However, the Full Court found that the primary judge erred in concluding that Mrs Lloyd lost an opportunity of non-negligible value (namely the opportunity to renegotiate the contract). The Full Court considered that the finding did not sit comfortably with the findings of the primary judge that, had Mrs Lloyd been apprised of the true position before signing the contract, it would have made no difference to her and that Mrs Lloyd settled upon her intention to purchase her flat “without any reference whatsoever to GST”. The Full Court (at [118]) observed that these findings were logical and unsurprising in circumstances where Mrs Lloyd, as a private purchaser of a residential unit, could not claim an input tax credit for any GST payable on the supply. Therefore, assuming whether or not the supply was subject to GST had no bearing on the Price, it made no financial difference to Mrs Lloyd whether or not the supply was subject to GST. The Full Court concluded that it was not established on the evidence that, had Mrs Lloyd been apprised of the true position (namely that the supply would be an input taxed supply rather than a taxable supply) in the period between the date of the contract and the date of settlement, she would have taken steps to renegotiate the purchase price.

In the context of the rubric of causation and loss, the Full Court appeared to distinguish the position with one where the GST treatment of the supply had significance for the purchaser, such as a commercial purchaser who intended to apply the margin scheme, whose ability to do so depended on Belconnen applying the margin scheme to a taxable supply (at [144]).

3.4 Tripartite arrangements

In Secretary to the Department of Transport (Victoria) v Commissioner of Taxation [2009] FCA 1209, Gordon J observed (at [28]) that the two central concepts of the GST Act are “supply” and “acquisition”.

In a two-party transaction, identifying the supply and the acquisition (and the supplier and the acquirer) is usually straightforward. Party A makes a supply to party B in return for consideration. If the supply is a taxable supply, A pays GST and B is entitled to input tax credits if the conditions in s 11-5 are satisfied.

However, in an arrangement involving more than two parties (referred to as a “tripartite agreement”), the process is often more difficult. For these arrangements, two major difficulties may arise:

What is being supplied and by who?
Who is making the payment and what is the payment for?
Who is making an acquisition and can the acquirer claim input tax credits?

A tripartite agreement can lead to irrecoverable GST where the entity that pays for a taxable supply does not acquire the taxable supply – an outcome known as “third party consideration”.

3.4.1 Airtours Holidays Transport Ltd v Revenue & Customs [2016] UKSC 21

The issue of third party consideration in the context of tripartite agreements impacts the value added tax system globally. An arguably harsh example is the decision of the UK Supreme Court in Airtours Holidays Transport Ltd v Revenue & Customs [2016] UKSC 21. In October 2002, Airtours, which had borrowed money from around 80 financial institutions, and had further liabilities, was in serious financial difficulties and sought refinancing from the Institutions to enable it to restructure. It was suggested to Airtours that it should commission an accountants’ report to satisfy the Banks that its restructuring proposals were viable. The Institutions were agreeable to this, and two firms were approached, and, pursuant to a decision in which both the Institutions and Airtours were involved, PwC were appointed to produce a report. PwC carried out the work and produced a report, which satisfies the financial institutions. Airtours paid for the report and sought to deduct the VAT. The Revenue disputed this entitlement. The Revenue accepted that the contract was of commercial benefit to Airtours, but contended that PwC’s services were not “supplied” to Airtours and therefore Airtours was not entitled to deduct the VAT.

The First-tier Tribunal found for Airtours, finding that all it was required to establish was that it had “obtained anything at all that was used for the purpose of its business” and “a supply of a service may consist of a right to have the service supplied to a third party”. The Upper Tribunal allowed the Revenue’s appeal, finding that the under the contract the institutions had contracted with PwC for the supply of services and Airtours had contracted to pay PwC’s fees. Airtours did not receive anything of value from PwC to be used for the purpose of its business in return for the payment.

The Court of Appeal (by a 2:1 majority) dismissed Airtours appeal. All members of the Court agreed that the issue turned on the interpretation of the Contract. The majority agreed with the Upper Tribunal, finding that the effect of the Contract was that PwC’s services were provided to the institutions, and not to Airtours. The dissenting judge found that “as a matter of construction of the Contract, and on analysis of the surrounding commercial arrangements” Airtours had a contractual right to require the services to be provided by PwC to the institutions.

On appeal to the Supreme Court (a 3:2 decision), the majority noted that Airtours did not have to establish that PwC was an under a contractual obligation to supply any services directly to Airtours. It was sufficient for Airtours to establish that PwC was under a contractual obligation to Airtours to supply services to the institutions. After reviewing the terms of the Contract, the majority found that PwC’s obligation to provide the services was owed solely to the institutions, and Airtours was only a party for the purposes of agreeing to pay PwC’s fees. The dissenting judges agreed with the dissenting judge in the Court of Appeal and found that the approach of the majority was too narrow, in that it focused on the relationship between PwC and the institutions and gave too little attention to the legal relationship between PwC and Airtours and to the economic realities of that relationship.

The decision of the majority appears to give primacy to the terms of the contract between the parties. In particular, it does not appear sufficient for the contract to impose a contractual obligation on a party to make a payment for a supply. Rather, the contract must either establish an obligation for the supplier to make a supply directly to the party making the payment – or to make a supply to a third party.

3.4.2 GSTR 2006/9 and tripartite agreements

In GSTR 2006/9 the Commissioner makes the following observation in the context of tripartite agreements (paragraph 217):

Examining the levels of contractual or reciprocal relationships between the entities in a tripartite arrangement may reveal two or more supplies being made based upon the one set of activities.

The Ruling observes (at paragraph 217A) that the proposition was illustrated by the decision of the Full Federal Court in Commissioner of Taxation v Secretary to the Department of Transport (Victoria) [2010] FCAFC 84 (DOT), where the Court concluded that the activity of the taxi operator of transporting an eligible passenger^[21] resulted in two supplies being made: (i) the supply of transport to the passenger; and (ii) the supply to the Department of the service of transporting the passenger.

The Ruling (paragraph 221B) also identifies a number of factors which point to the conclusion that a supply may be made by the supplier to the payer under a tripartite arrangement that involves a supply by the supplier to a third party. Each factor has a focus on the nature (and presumably the terms) of a pre-existing framework or agreement under which the payment is made:

There is a pre-existing framework or agreement between the payer and the supplier which contemplates that the parties act in a particular manner in respect of supplies by the supplier to particular third parties or a class of third parties.
The pre-existing framework or agreement:
- identifies a mechanism by which the particular third parties or the class of third parties are to be identified such that the supplies made to them come within the scope of the framework or agreement; and
- specifies that the payer is under an obligation to pay the supplier if there is a relevant supply by the supplier to a third party and also sets out a mechanism by which such payment is authorised.
The framework or agreement and the mechanism for authorising the payment are in existence before the supply by the supplier to the third party (that is, the supplier knows in advance that the payer is obligated to pay some or all of the consideration in the event of the supply to the third party).
The supplier makes the supply to the third party in conformity with the pre-existing framework or agreement between the parties.
The obligation of the payer to make payment pursuant to the pre-existing framework or agreement is not an administrative arrangement to pay on behalf of the third party for a liability owed by the third party to the supplier.

These factors appear to seek to distinguish the position where the payer is merely party to an “administrative arrangement” where payments are made on behalf of a third party. In those circumstances, the payer would not be receiving any supply for which the payment is consideration.

The Ruling appears to adopt a similar approach to the majority of the Supreme Court in Airtours, by focusing on the pre-existing arrangement between the parties to identify a supply made to the payer. However, the Ruling arguably departs from this approach by accepting that – as appears to have been found in DOT – there could be a supply to the payer even if there was not binding obligation between the supplier and the payer for the supplier to make a supply to the third party. Nevertheless, the existence of such an obligation would appear to provide powerful evidence of the making of a supply by the supplier to the payer. This can be illustrated by the recent decision of the Federal Court in Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2023] FCA 257 (Konebada).

3.4.3 Konebada v COT

The taxpayer was the trustee of a family trust. The trust was at all relevant times controlled by WL, who was a “specified beneficiary” of the trust. The “general beneficiaries” included WL’s family members and other related entities (described as “the Lewski Family Group”). The trust paid a number of invoices issued by solicitors, barristers and accountants with respect to litigation to which members of the Lewski Family Group were parties (the “Beneficiaries”). The trust claimed it was entitled to input tax credits with respect to amounts it had paid.

The Federal Court accepted that WL instructed the lawyers acting in the proceeding and that the trust paid the invoices. However, the Federal Court rejected the claim that WL instructed lawyers and received legal advice on behalf of the trust. Rather, the Federal Court concluded that WL did so for and on behalf of the Beneficiary that was a party to the relevant proceeding. The Federal Court accepted the evidence of the legal service providers that they issued invoices to the trust, and they considered the trust to be liable for payment of their fees.

The Federal Court observed that the entitlement of the trust to input tax credits involved the determination of two sub-issues:

Whether the trust acquired anything by way of taxable supplies; and
Whether the trust’s acquisitions were made in carrying on an enterprise.

With respect to the first sub-issue, the Federal Court (at [97], referring to DOT) observed that one set of acts may constitute two or more different supplies of services and may give rise to two or more acquisitions.

The Commissioner sought to distinguish DOT^[22], contending that the payments made by the trust were consideration for the legal services provided to the Beneficiaries and that there was merely an administrative arrangement with those members whereby the trustee would pay the invoices. The Court rejected the Commissioner’s contention, concluding (at [113]) that the trust made an acquisition for the purposes of section 11-5(a) and a taxable supply to the trust within the meaning of section 11-5(b). In coming to this conclusion, the Court found (at [105) that there was evidence of a pre-existing framework between the trust and the legal service providers under which the trust was liable to make payments to the legal service providers as consideration for services provided to the Beneficiaries. The trust was a party to this pre-existing framework and there was more here than the fact that, as a practical matter, the legal service providers looked to the trust for payment of their fees. The Court also found (at [106]) that the trust had a contractual right to request that the lawyers provide legal services to the Lewski Family Group member who was the party to the relevant transaction or court proceeding.

The Court made the following observations on the pre-existing framework involving the trust, the beneficiaries and the lawyers (at [112]):

By the terms of the arrangements with the advisors, the trust acquired a right to require the legal advisor to provide legal services to the Beneficiaries.
The trust acquired from the legal advisers a service being the provision of legal advice or services by the legal service providers to the Beneficiaries. That service was acquired by the trust in implementation of the arrangement it had agreed with the legal service providers.
When the legal services were provided to the Beneficiaries and invoiced to the trust, the trust became liable for the payment. There was an acquisition by the trust each time legal services were provided to the Beneficiaries. The occasion for the payment was the provision of legal services to the Beneficiaries. It was at this point that the trust may be said to have assumed a liability to pay for the legal services.

With respect to the second sub-issue, the Court found that the trust did not make a “creditable acquisition” because, while it acquired a taxable supply from the legal service providers and paid the consideration for those taxable supplies, the acquisitions were not made in carrying on the trust’s enterprise. The Court found that the trust did not carry on “a business of providing litigation consulting services” or “a business of receiving and disseminating advice or formulating recommendations based on advice it received to members of the Lewski Family Group in respect of litigation proceedings”, as contended by the trust. On appeal, the Full Court confirmed that decision.

It should be noted that the Commissioner filed a Notice of Contention with the Full Court to the effect that the primary judge erred in finding that the trust acquired a taxable supply from the legal service providers and paid the consideration for those taxable supplies. A ground of the Notice of Contention was that the primary judge erred in finding that the trust had a contractual right to request that the lawyers provide legal services to the Lewski Family Group member who was the party to the relevant transaction or court proceeding. The Full Court did not find it necessary to determine this issue.

3.4.4 Litigation Funding Agreements

The decision in Konebada is relevant to the GST treatment of litigation funding agreements. Under those agreements, the funder will generally agree to pay the lawyers for the provision of legal services to the participants in the litigation. This can raise the question whether the funder is entitled to claim input tax credits with respect to those payments – on the basis that the payments are consideration for a taxable supply by the lawyers to the funder.

In August 2024, the Commissioner published a Decision Impact Statement with respect to Konebada. The Commissioner made the following observations on the GST treatment of litigation funding agreements generally:

Input tax credits are not claimable on the facts of this case and in materially similar situations. Whether or not the payment of invoices issued by lawyers in litigation funding situations gives rise to any acquisition for GST purposes will depend on the facts and evidence of the particular case.

We do not consider as a general proposition that a ‘litigation funder’ necessarily makes an acquisition when it pays invoices issued by lawyers. Nor do we consider that, where acquisitions are made, they necessarily give rise to creditable acquisitions. Nexus and enterprise requirements must also be satisfied for input tax credits to be lawfully claimed.

Further, we do not consider that the present case broadens the principles established in the Department of Transport litigation relevant to tripartite arrangements.[8] In particular, we do not consider that any ‘pre-existing framework’ in the Department of Transport sense will necessarily exist in litigation funding situations, or in other contexts where one entity merely pays for acquisitions made by another entity.

Given the Full Federal Court in the present case declined to consider the notice of contention, we will seek to clarify, by way of further judicial guidance, the scope and application of the Department of Transport principles to litigation funding arrangements and tripartite arrangements when a suitable case presents itself.

Given the grounds set out in the Commissioner’s Notice of Contention in Konebada, which were not considered by the Full Court, one can readily understand these observations. Nevertheless, where there is a pre-existing contractual framework between the parties and the payer has a contractual right to request the supplier to make supplies to a third party – it would appear to be strongly arguable that this would be sufficient to evidence the making of a supply by the supplier to the payer for which the payments are consideration. This would likely cover many litigation funding agreements, given that it would be in the commercial interests of the payer to have a contractual right to request the lawyers to provide services to the participants in the proceeding.

Chris Sievers

9 October 2024

^[1] 2017 TIA National GST Intensive, 14-15 September 2017.

^[2] A & A Property Developers Pty Ltd v MCCA Asset Management Ltd [2016] VSC 653, and on appeal [2017] VSCA 365.

^[3] Applying the analysis of the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [46]-[47] per French CJ, Nettle and Gordon JJ who described the principles as follows:

The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

In determining the meaning of the terms of the commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

^[4] The Full Court dismissed the taxpayer’s appeal: Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2024] FCAFC 42. This paper focuses on the decision of the primary judge.

^[5] Sections 14-250 and 14-255 of Schedule 1 to the Taxation Administration Act 1953 introduce by the Treasury Laws Amendment (2018 Measures No 1) Act 2018 (Cth) sch 5 items 26 and 27.

^[6] Section 14-250 of Schedule 1 to the TAA.

^[7] Section 18-60 of Schedule 1 to the TAA.

^[8] Federal Commissioner of Taxation v Swansea Services Pty Ltd [2009] FCA 402; Toyama Pty Ltd v Landmark Building Developments (2006) 197 FLR 74.

^[9] Nerang Subdivision Pty Ltd v Hutson [2024] QCA 174. The appeal was heard on 6 August 2024, with the decision handed down on 17 September 2024.

^[10] Defined in s 195-1 of the GST Act by reference given by s 995-1 of the Income Tax Assessment Act 1997.

^[11] Section 444-30 of Schedule 1 to the TAA.

^[12] Referring to Fenston v Jonhston (1940) 3 TC 29 at 35-36.

^[13] Section 11-5(b) of the GST Act.

^[14] Section 29-10(4) of the GST Act.

^[15] Section 29-70(1)(c)(iii) and (iv) of the GST Act.

^[16] Huynh & Nguyen and Commissioner of Taxation [2008] AATA 305 at [32] per Senior Member McDermott.

^[17] See also Cash World Gold Buyers Pty Ltd and Commissioner of Taxation [2020] AATA 1648 at [194] per Senior Member Lazanas.

^[18] The Senior Member noted that this case concerned proceedings for declaratory relief and did not address the interaction between s 1305 of the Corporations Act and s 14ZZK of the TAA.

^[19] Lloyd v Belconnen Lakeview Pty Ltd [2019] FCA 2177 at [4], per Lee J.

^[20] The judgment of the Full Court notes (at [42]) that the accounting firm issued an invoice “for $712,250, being an amount it calculated as 15% of the benefit obtained by Belconnen from treating the sales as input taxed, plus GST”.

^[21] Under a scheme administered by the Department whereby eligible persons were entitled to receive concessionary taxi travel up to certain limits.

^[22] And relied on the decision of the Federal Court in Professional Admin Service Centres Pty Ltd v Federal Commissioner of Taxation [2013] FCA 1123 which similarly involved the claim for input tax credits by a taxpayer who paid for the legal services provided to a third party. The Court denied the entitlement, finding that it was not sufficient that, as a practical matter, the legal service providers looked to the taxpayer for payment of their fees.

Contractual and Commercial Disputes and GST – learnings from recent cases

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