Adcon Resources Vic Pty Ltd and Commissioner of Taxation (Taxation)

Adcon Resources Vic Pty Ltd and Commissioner of Taxation (Taxation) [2022] AATA 2629 (16 August 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Numbers:2021/0476
2021/4692

Re:Adcon Resources Vic Pty Ltd
APPLICANT

AndCommissioner of Taxation
RESPONDENT

DECISION
Tribunal:Member D Mitchell
Date:16 August 2022
Place:Brisbane

The Tribunal affirms the decisions under review.
....................[SGD]......................
Member D Mitchell

CATCHWORDS
TAXATION – goods and services tax – GST grouping –part of the same 90% owned group – whether the two companies proposing to form a GST group met the company ownership requirements – start date of GST group -– decisions under review affirmed
LEGISLATION
A New Tax System (Goods and Services Tax) Act 1999 (Cth)
A New Tax System (Goods and Services Tax) Regulations 2019 (Cth)
Corporations Act 2001 (Cth)
Taxation Administration Act 1953 (Cth)
SECONDARY MATERIAL
ATO Interpretive Decision 2004/201
REASONS FOR DECISION
Member D Mitchell
16 August 2022
INTRODUCTION

Adcon Resources Vic Pty Ltd (the Applicant) is seeking review of the objection decisions made by Commissioner of Taxation (the Respondent) on 27 November 2020[1] and

29 June 2021.[2]
[1] Exhibit 1, Tribunal Book, Tab 4, T Documents, T2, pages 11-14, Notice of objection decision.
[2] Exhibit 1, Tribunal Book, Tab 5, T Documents, T14, page 57, Notice of objection decision.
The objection decision dated 27 November 2020 disallowed the Applicant’s objection to the commencement date of its GST group being set as 1 July 2019 (Start Date Decision).[3]
[3] Exhibit 1, Tribunal Book, Tab 4, T Documents, T2, pages 11-14, Reasons for decision on objection.
The objection decision dated 29 June 2021 disallowed the Applicant’s objection to the revocation of its GST group registration (Revocation Decision).[4]
[4] Exhibit 1, Tribunal Book, Tab 5, T Documents, T2, pages 13-17, Reasons for decision on objection.
BACKGROUND
The Applicant is one of many companies that form part of the Adcon Group.[5]
[5] Exhibit 1, Tribunal Book, Tab 3, Statement of Mr Danny Isaac, Attachment A.
The Applicant was incorporated on 12 March 2018[6] and was registered for Goods and Services Tax (GST) on a cash accounting basis with quarterly reporting.[7]
[6] Exhibit 1, Tribunal Book, T Documents, Tab 4, T11, pages 49-50, ASIC organisational extract search results for the Applicant.
[7] Exhibit 1, Tribunal Book, Tab 4, T Documents, T3, pages 15-16, GST Registration of the Applicant.
On 10 July 2019, the Applicant gave the Respondent notice that it was seeking to form a GST group with Adcon Contracting Pty Ltd (Adcon Contracting) with a date of effect from

1 July 2018.[8]
[8] Exhibit 1, Tribunal Book, Tab 4, T Documents, T5, pages 19-30, GST group notification of forming, changing or cancelling.
On 25 July 2018, Adcon Contracting was registered for GST on a non-cash (accruals) basis with quarterly reporting effective from 1 July 2018.[9]
[9] Exhibit 1, Tribunal Book, Tab 4, T Documents, T4, pages 17-18, GST registration for Adcon Contracting Pty Ltd.
On 1 October 2019, the Respondent gave the Applicant notice that it had registered its GST group from 1 July 2019.[10]
[10]
On 20 November 2019, the Applicant, through its tax agent lodged an objection to the Respondent’s GST grouping decision.[11]
[11] Exhibit 1, Tribunal Book, Tab 4, T Documents, T7, pages 32-37, Objection form.
Australian Securities and Investment Commission (ASIC) organisational extract searches conducted on 7 April 2020[12] and 2 December 2020[13] showed that Danny Isaac (Mr Isaac) was the sole director and legal and beneficial shareholder of the Applicant since its registration on 12 March 2018.
[12] Exhibit 1, Tribunal Book, T Documents, Tab 4, T11, pages 49-50, ASIC organisational extract search results for the Applicant.
[13] Exhibit 1, Tribunal Book, T Documents, Tab 4, T16, pages 70-71, ASIC organisational extract search results for the Applicant.
ASIC organisational extract searches conducted on 7 April 2020[14] and 2 December 2020[15] showed that Mr Isaac was the sole director of Adcon Contracting and that Chale Pty Ltd (Chale) was the legal shareholder but not the beneficial owner of Adcon Contracting since its registration on 22 July 2016.
[14] Exhibit 1, Tribunal Book, T Documents, Tab 4, T10, pages 47-48, ASIC organisational extract search results for Adcon Contracting Pty Ltd.
[15] Exhibit 1, Tribunal Book, T Documents, Tab 4, T15, pages 68-69, ASIC organisational extract search results for Adcon Contracting Pty Ltd.
ASIC organisational extract searches conducted on 7 April 2020[16] and 2 December 2020[17] showed that Mr Isaac was the sole director and legal and beneficial shareholder of Chale from 13 March 2020. A further search conducted on 3 May 2022 showed that Mr Isaac’s wife was the sole director of Chale from 19 February 2018 until 13 March 2020 and during that period, Mr Isaac was the legal and beneficial shareholder of Chale.[18]
[16]    Exhibit 1, Tribunal Book, T Documents, Tab 4, T12, pages 51-52, ASIC organisational extract search results for Chale Pty Ltd.
[17]    Exhibit 1, Tribunal Book, T Documents, Tab 4, T17, pages 72-73, ASIC organisational extract search results for Chale Pty Ltd.
[18]    Exhibit 1, Tribunal Book, Tab 11, ASIC organisational extract search results for Chale Pty Ltd.
On 26 June 2020, the Respondent wrote to the Applicant seeking further details in relation to the ownership structures of the Applicant and Adcon Contracting on the basis that it appeared that they were not part of the same 90% owned group as required by section

48-10(1)(b) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) in order for a GST group to be formed.[19] The Respondent noted that according to ASIC searches, the ownership structure appeared to be as follows:[20]
[The Applicant] – had issued 100 Ordinary shares and these shares are all beneficially owned by Danny Isaac. Danny is also the sole director of the company
Adcon Contracting Pty Ltd – had issued 24 Ordinary shares and these shares are owned by Chale Pty Ltd, but it is not the beneficial owner of the shares. Danny Isaac is listed as the sole director of Adcon Contracting, and
Chale Pty Ltd - had issued 100 Ordinary shares and these shares are all beneficially owned by Danny Isaac. Danny is also the sole director of the company.
[19] Exhibit 1, Tribunal Book, T Documents, Tab 4, T14, page 63, Email chain requesting information on GST group ownership structure and attachment.
[20] Exhibit 1, Tribunal Book, T Documents, Tab 4, T14, page 63, Email chain requesting information on GST group ownership structure and attachment.
The Applicant advised the Respondent that the ownership structure it had outlined was different to what they thought it was. The Applicant advised that it and Adcon Contracting were supposed to be owned by the same entity according to the internal group structure.[21]
[21] Exhibit 1, Tribunal Book, T Documents, Tab 4, T14, pages 57-61, Email chain requesting information on GST group ownership structure and attachment.
After undertaking investigations, the Applicant told the Respondent that an error had occurred and provided a copy of a Form 492[22] that it said it had filed with ASIC to request a correction to the ownership of its shares from 1 July 2018.[23]
[22] Exhibit 1, Tribunal Book, T Documents, Tab 4, T14A, pages 66-67, Attachment to email chain requesting information on GST group ownership structure and attachment.
[23] Exhibit 1, Tribunal Book, T Documents, Tab 4, T14, page 60, Email chain requesting information on GST group ownership structure and attachment.
On 27 November 2020, the Respondent refused the Applicant’s objection in relation to the date of effect of its GST group. The Respondent found that the Applicant and Adcon Contracting did not meet the requirements to account on the same basis as required by section 48-10(1)(e) of the GST Act until 1 July 2019 and as such, the earliest date at which the requirements to form a GST group were met was 1 July 2019.[24] The Respondent also put the Applicant on notice that it had identified issues around the GST group with regards to the ownership rules and that the matter had been referred for review.[25]
[24] Exhibit 1, Tribunal Book, T Documents, Tab 4, T2, page 12, Reasons for Objection decision.
[25] Exhibit 1, Tribunal Book, T Documents, Tab 4, T2, page 14, Reasons for Objection decision.
On 22 January 2021, the Applicant made an application to the Tribunal for review of the Start Date Decision.[26]
[26] Exhibit 1, Tribunal Book, T Documents, Tab 4, T1, pages 1-10, Application for Review.
On 19 March 2021, the Respondent gave the Applicant notice that it had revoked its GST group registration with effect from 1 July 2019.[27]
[27] Exhibit 1, Tribunal Book, T Documents, Tab 5, T10, page 41, Notice of GST group cancellation.
On 16 May 2021, the Applicant, through its tax agent lodged an objection to the Respondent’s group revocation decision.[28] The Applicant submitted:[29]
a)that the GST Group members did satisfy the requirements under s 48-5 of the GST Act;
b)that both the Applicant and Adcon Contracting were part of the same 90% owned group as a request for a correction to its shareholding had previously been submitted with ASIC; and
c)that the conditions considered in ATO Interpretative Decision 2004/201 applied to its circumstances.
[28] Exhibit 1, Tribunal Book, T Documents, Tab 5, T11, pages 42-51, Applicant’s objection and letter supporting objection.
[29]
An ASIC organisational extract search conducted on 9 June 2021 recorded that Mr Isaac continued to be the sole director and legal and beneficial shareholder of the Applicant, however his address was updated on 18 April 2021.[30]
[30] Exhibit 1, Tribunal Book, Tab 5, T Documents, T12, 51-53, ASIC organisational extract search results for the Applicant.
On 9 June 2021, in response to the Respondent seeking an update on whether ASIC had processed the Form 492, the Applicant said they had not received confirmation from ASIC as to whether the form had been processed and it looked like it had not. The Applicant provided:[31]
However, the issue for grouping is a little different. For grouping, you only need a nominee relationship, not strictly legal title. What we are saying is that we have a nominee relationship, because the form signed and provided to ASIC clearly indicates that the shares do not belong to the person who is the current shareholder, and therefore he is really holding them on behalf of someone else until ASIC processes the transfer.
[31] Exhibit 1, Tribunal Book, Tab 5, T Documents, T13, pages 54-56, Email from Applicant.
On 29 June 2021, the Respondent refused the Applicant’s objection in relation to the group revocation decision[32] on the basis that the Applicant’s GST group did not meet the ownership requirement in section 48-10(1)(b) of the GST Act. The Respondent found that the ownership structure of the Applicant and Adcon Contracting did not meet the definition of a 90% owned group as set out in section 190-1 of the GST Act nor the membership requirements where a non-company entity is part of the GST group in accordance with section 48-15 of the GST Act.[33]
[32] Exhibit 1, Tribunal Book, Tab 5, T Documents, T14, page 57, Notice of objection decision.
[33] Exhibit 1, Tribunal Book, Tab 5, T Documents, T2, pages 13-17, Reasons for Objection decision and Tab 8, Respondent’s updated Statement of Facts, Issues and Contentions, page 5, paragraph 23.
The Respondent also noted that the Form 492 which the Applicant claimed to have filed with ASIC had yet to be processed and ATO Interpretative Decision 2004/201 was not analogous to the Applicant’s circumstances.[34]
[34] Exhibit 1, Tribunal Book, Tab 8, Respondent’s updated Statement of Facts, Issues and Contentions, page 5, paragraph 24.
On 13 July 2021, the Applicant made an application to the Tribunal for review of the Revocation Decision.[35]
[35] Exhibit 1, Tribunal Book, Tab 5, T Documents, T1, pages 1-12, Application for Review.
The Applicant provided a statement of Mr Isaac dated 22 December 2021. Mr Isaac outlined:[36]
·     He was the director of Chale Pty Ltd as trustee of the Chale Asset Trust and Adcon Resources Vic Pty Ltd and was authorised to make the statement on their behalf.
·     An error was made by his then accountant when the accountant registered the Applicant.
·     He had instructed his accountant that in setting up the Applicant, the beneficiary should be Chale Pty Ltd as trustee of the Chale Asset Trust and the setup should be like his other companies and the director should be his wife.
·     He was incorrectly listed as the shareholder of the Applicant. The shares were not supposed to be his and he held them on behalf of Chale Pty Ltd as trustee of the Chale Asset Trust pending the transfer of legal title to Chale Pty Ltd as trustee of the Chale Asset Trust.
·     Under his instructions, a request for correction form was sent to ASIC requesting that the shareholder of the Applicant be changed from his name to Chale Pty Ltd as trustee of the Chale Asset Trust. ASIC rejected the form as he was not the director at the time of registration and asked for evidence that the situation should be the way he intended it to be. ASIC specifically requested consent of the director and the application for shares. He has not been able to provide the evidence requested by ASIC as he has not been able to obtain that consent from his wife since their separation.
[36]    Exhibit 1, Tribunal Book, Tab 3, Statement of Danny Isaac.
ASIC organisational extract searches conducted on 11 October 2021[37] and 3 May 2022[38] showed that as of 3 January 2022, Mr Isaac was no longer a director or shareholder of the Applicant. Another individual had subsequently been appointed as the Applicant’s director and legal and beneficial shareholder.
[37] Exhibit 1, Tribunal Book, Tab 6, Supplementary T Documents, ST4, pages 67-69, ASIC organisational extract search results for the Applicant.
[38] Exhibit 1, Tribunal Book, Tab 9, ASIC organisational extract search results for the Applicant.
ASIC organisational extract searches conducted on 11 October 2021[39] and 3 May 2022[40] showed that as of 31 August 2021, Mr Isaac was no longer a director of Adcon Contracting and that Chale was no longer the legal shareholder of Adcon Contracting. Another individual had subsequently been appointed as the director and legal shareholder of Adcon Contracting.
[39] Exhibit 1, Tribunal Book, Tab 6, Supplementary T Documents, ST5, pages 70-71, ASIC organisational extract search results for Adcon Contracting Pty Ltd. 1
[40] Exhibit 1, Tribunal Book, Tab 10, ASIC organisational extract search results for Adcon Contracting Pty Ltd.
A Hearing was held by Microsoft Teams on 25 May 2022. At the Hearing, the Applicant was represented by Mr Adam Ahmed of Adam Ahmed & Co and called Mr Isaac as its former director to give evidence.
THE LAW
The relevant law in this matter includes the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) and the Taxation Administration Act 1953 (Cth) (TAA 1953).
Where an entity disagrees with a decision made by the Respondent, they may object to that decision.[41] Following a review of the objection, an objection decision will be made by the Respondent.[42]
[41] Following the requirements set out in Part IVC of the TAA 1953.
[42] Section 14ZY of the TAA 1953.
Where a taxpayer is dissatisfied with an objection decision made by the Respondent, they may apply to this Tribunal for a review of the decision or appeal to the Federal Court against it.[43]
[43] Section 14ZZ of the TAA 1953.
The Applicant, in exercising its right to seek review of the Respondent’s objection decisions has, by virtue of section 14ZZK(b)(ii) of the TAA 1953, the burden of proving that the taxation decisions concerned should not have been made or should have been made differently.
Section 48-5(1) of the GST Act sets out that two or more entities may form a GST group if:
(a) each of the entities *satisfies the membership requirements of the group; and
(b) each of the entities agrees in writing to the formation of the group; and
(c) one of those entities notifies the Commissioner, in the *approved form, of the formation of the group; and
(d) that entity is nominated, in that notice, to be the *representative member of the group; and
(e) that entity is an Australian resident.
Section 48-10 of the GST Act outlines the membership requirements of a GST Group and relevantly provides:
(1) An entity satisfies the membership requirements of a *GST group, or a proposed GST group, if the entity:
(a) is:
(i) a *company; or
(ii) a *partnership, trust or individual that satisfies the requirements specified in the regulations; and
(b) is, if the entity is a company, a company of the same *90% owned group as all the other members of the GST group or proposed GST group that are also companies; and
(c) is *registered; and
(d) has the same tax periods applying to it as the tax periods applying to all the other members of the GST group or proposed GST group; and
(e) accounts on the same basis as all the other members of the GST group or proposed GST group; and
(f) is not a member of any other GST group; and
(g) does not have any branch that is registered under Division 54.
………
Division 190 of the GST Act outlines the meaning of 90% owned groups of companies and provides:
190‑1 90% owned groups
Two companies are members of the same 90% owned group if:
(a) one of the companies has *at least a 90% stake in the other company; or
(b) a third company has *at least a 90% stake in each of the two companies.
190‑5 When a company has at least a 90% stake in another company
A *company (the holding company) has at least a 90% stake in another company (the subsidiary company) if the holding company:
(a) controls, or is able to control, at least 90% of the voting power in the subsidiary company (whether directly, or indirectly through one or more interposed companies); and
(b) has the right to receive (whether directly, or indirectly through one or more interposed companies) at least 90% of any *dividends that the subsidiary company may pay; and
(c) has the right to receive (whether directly, or indirectly through one or more interposed companies) at least 90% of any distribution of capital of the subsidiary company.
Section 195-1 of the GST Act defines the meaning of company as a body corporate or any other unincorporated association or body or persons but does not include a partnership or a non-entity joint venture. This definition does not of itself include a trust.
ISSUES
The issues for determination by the Tribunal are whether the Applicant and Adcon Contracting met the GST grouping requirements and if so, from what date. In determining these issues, the Tribunal must consider:
1.Whether the Applicant and Adcon Contracting met the ownership requirements in section 48-10(1)(b) of the GST Act; and
2.If so, in which tax period did the Applicant and Adcon Contracting account on the same basis.
EVIDENCE OF MR DANNY ISAAC
At the Hearing, Mr Isaac gave evidence under affirmation by Microsoft Teams. In response to questions asked by Mr Ahmed, Mr Isaac told the Tribunal:[44]
[44]    Transcript, pages 19-22.
·     He no longer engaged the accountant that set up the Applicant.
·     He did not tell the accountant to set up the Applicant with Chale as the trustee of the Chale Asset Trust. All he said was that the shareholder of this business needs to be the same as the others.
·     They had tried to group the companies right up to when the Applicant was sold.
·     “The bloke made a mistake and I’ll tell you where the mistake was. He acts for small businesses and he thought, “Okay, he’s the director, therefore he’s the shareholder, therefore he’s the beneficiary”. He didn’t follow the org chart that was put to him.”
·     He had run the Applicant as if it was owned by Chale because otherwise “we’re going to have a huge GST return and there will be a payable for – because one offsets the other, in terms of one has a bit of – you know what I mean, the ins and the outs need to match.”
·     “…. but when I look at things I look at overall and then day-to-day operational. I’ll tell you why; you and I both know if there’s five or 10 mil refund with the ATO then you’re going to get an audit. They’re not going to hand that money over to you, right. At the same time, if you owe money they’re going to garnish you. So the powers are different, between an individual or a business owner and the ATO. So why would I set myself up in a way to fail that extremely bad? So it’s always supposed to be owned by Chale and it was always intended to be owned by Chale and that’s exactly where it should have been. It was only when you said that I owned it in my own right that I was a bit shocked. Then I done some research, I asked Vren(?) to do an ASIC search. Vren is our lawyer, and he said, “Yes, it’s in your capacity”. That’s when it’s been very difficult to get this grouping signed off.”
·     He has not been the shareholder of any of his own businesses and he does not own a single business in his own capacity. Approximately 57 companies are all in trusts so that if he gets hit by a bus tomorrow the business can continue.
·     “It’s not intended to be my business. Whether or not that’s enough to get it across the line, and maybe it’s not, because the fundamentals are that the shareholding was done this way. Now, if the whole of Australia came forward to the AAT and said, “I made a mistake, can you backdate, can you change?”, it’s not going to happen, so I understand there’s a mistake there. But what I’m worried about is, there’s a big refund and there’s a bit of a debt there, they’re not going to wash each other out, therefore the ATO are going to be more aggressive on collecting their money and I won’t be as aggressive, because I don’t have similar rights, it can effect the employment of six or 700 people. So we need to come to some type of conclusion or some type of arrangement that it’s dealt with un-aggressively because genuinely it was an error, absolutely.”
·     When Mr Ahmed said “what I’m trying to establish here is that while the shares might be in your name, that’s an error. The company”, said that: “That’s an argument and speculation. I don’t think it’s valid reasons to just backdate something. But I do hope that out of this the minimum we can get is some type of arrangement that it will be dealt with in accordance with what the original intention was. Not in terms of putting it in place, but in terms of, imagine ….”
·     He is interested in the business and the employees and the contractual obligations.
·     “I’ve got and the ASIC regulations I’ve got, as a director. If I’m hit with a two or $3 million garnishee, just coming out of COVID, it’s going to topple the business, so I need some type of understanding. If it’s not going to be allowed to be grouped, there’d be something there where we get a lot more leader, instead of, “Here’s the singular BAS or group BAS”. If it’s a group BAS, fantastic. If it’s a singular BAS it would be like two singular BAS’s ATO owes us $3 million, we owe them $3 million, but the collection from the ATO is going to trump the business because they’ve got a lot more powers than I do collecting mine. I can’t say to them, “I’m going to audit you to make sure that you’re owed the money”, they can with me. That’s the - that’s the issue.”
[Emphasis added]

When asked by the Tribunal whether he remembered writing and signing the witness statement dated 22 December 2021, Mr Isaac confirmed that he did and that to the best of his knowledge, what he said in his statement was true and correct.[45]
[45] Transcript page 22.
When asked by the Respondent when the Form 492 was completed and signed, noting that the form was released in 2019 but the completed form was dated 12 March 2018, Mr Isaac said he could not honestly say. However, if he signed the form on 12 March 2018, the issue before the Tribunal would not have arisen.[46]
[46] Transcript, page 27.
In response to questions asked by the Tribunal, Mr Isaac:[47]
·     Said that his EA typed up his witness statement and after looking at it, he agreed and signed it, but his wife was never meant to be the director of the Applicant, so it was not right that ASIC rejected the form because he was not the director at registration. The issue was that his wife was the director of Chale. That meant that she was the person who needed to confirm that Chale as the trustee for the Chale Asset Trust was the shareholder of the Applicant from 12 March 2018. It is difficult to get that consent from someone when you are in Family Court.
·     When it was drawn to his attention that there was no evidence before the Tribunal that ASIC had processed the Form 492, be that asking for further information or refusing to action it, however there was evidence that he had updated his address as the shareholder of the Applicant and later on that the shares got transferred from him to someone else, said, yes since the time they did not process the change of ownership to Chale, he had sold the Applicant and Adcon Contracting.
·     Said he understands the technical points of the grouping issue and that he has no grounds to get the group, what he wants is a way to work out the GST position with the Respondent without audit costs.
·     Said he knows he is not entitled to the grouping, but the reason they kept putting in the challenge is that the Acts get updated and they need to move on and see what can be sorted out together.
[Emphasis added]
[47]    Transcript, pages 35-39.
In response to Mr Ahmed seeking to ask Mr Isaac further questions, Mr Isaac stated:[48]
The facts are, [the accountant] made an error and I’ve got to live with it. So let’s get productive rather than just speculate on what may happen. Let’s get on the phone to the ATO and say, “what can we do to solve this? Here’s our issue.
[48] Transcript, page 40.
In closing submissions, Mr Ahmed, on behalf of the Applicant, contended that Mr Isaac’s evidence did not change the outcome of the matter. Mr Ahmed submitted that it was a fact that Mr Isaac was listed as the shareholder of the Applicant. Mr Ahmed contended that the question remains as to whether the Applicant and Adcon Contracting met the membership requirements of a GST group by virtue of the fact that Mr Isaac is clearly listed as the shareholder of the Applicant. Mr Ahmed questioned whether Mr Isaac, due to the circumstances, was really the shareholder of the Applicant or whether he essentially held the shares as nominee for Chale.[49]
[49] Transcript, page 42.
CONSIDERATION
At the Hearing, the Applicant submitted that the period in contention was from 1 July 2018 to 30 June 2021.[50] The Applicant submitted that one of the issues to consider is whether the nominee type of relationship where someone is essentially holding shares on behalf of somebody else because they were not supposed to be in their name is sufficient to allow GST grouping to occur. The Applicant contended that it could occur, however, said it is a matter of fact to establish that is what had actually occurred.[51]
[50] Transcript, page 6.
[51] Transcript, page 10.
On 22 December 2021, in providing an updated Statement of Facts, Issues and Contentions, the Applicant for the first time asserted that Chale held shares in the Applicant and Adcon Contracting in its capacity as trustee for the Chale Asset Trust.[52]
[52] Exhibit 1, Tribunal Book, Tab 2, Applicant’s updated Statement of Facts, Issus and Contentions.
The Applicant contended that section 48-10(1)(a)(ii) of the GST Act extends the GST grouping rules to partnerships, trusts and individuals under Division 48 of the A New Tax System (Goods and Services Tax) Regulations 2019 (Cth) (GST Regulations) and the section was relevant to Chale as trustee for Chale Asset Trust in relation to the ownership requirements for the proposed GST group. [53]
[53] Exhibit 1, Tribunal Book, Tab 2, Applicant’s updated Statement of Facts, Issus and Contentions, paragraphs 19-27 and Exhibit 3, Applicants Submissions.
While the Tribunal notes that not all entities that may be entitled to be part of a GST group need to elect to be part of such a group, the Applicant was unable to clearly explain the relevance of that contention in circumstances where Chale was not seeking to be a member of the proposed GST group. Section 48-10 of the GST Act relates to entities seeking to join a GST group.
The Applicant’s contentions at the Hearing[54] were consistent with its previously filed updated Statement of Facts, Issues and Contentions[55] and Submissions.[56] The Applicant contended that:[57]
[54]    Transcript, pages 6-11 and 42-48.
[55]    Exhibit 1, Tribunal Book, Tab 2, Applicant’s updated Statement of Facts, Issus and Contentions.
[56]    Exbibit 3, Applicant’s Submissions.
[57]
28.      Chale Pty Ltd in its capacity as trustee of the Chale Asset Trust:
a)        Controls at least 90% of the voting power in both ARV and AC.
b)Has the right to receive at least 90% of any dividends in both ARV and AC.
c)Has the right to receive at least 90% of any distribution of capital of both ARV and AC.
29.Section 48.5(2) of the GST Act states that if two or more entities would satisfy the membership requirements for a GST group, the group need not include all those entities.
30.The control and rights referred to above are direct, in the case of AC, and either directly or through a nominee, in the case of ARV.
31.Direct ownership is evidenced by the signed document provided to ASIC and referred to on pages 66 and 67 of the T-documents and the signed Statement of Danny Isaac lodged in these proceedings. In the alternate, the documents establish at the very least a nominee relationship, with the shares being held by an interposed entity pending transfer.
32.With respect to the interpretation of section 190-5 of the GST Act, Interpretative Decision ID 2004/201 states:
‘The words 'whether directly, or indirectly through one or more interposed companies' do not extend or restrict the opening words. Rather these words are illustrative as to how the control of the voting rights, the right to receive the dividends and a distribution of capital might be achieved. The words do not imply that the requisite controls and rights must be satisfied in the manner mentioned. As such, it is accepted that the controls and rights can be achieved through an interposed entity other than a company.’ [emphasis added]
33.Therefore, Chale Pty Ltd has at least a 90% stake in both ARV and AC, and thus both ARV and AC satisfy the requirements for a 90% owned GST group.
The Tribunal outlined its concerns in relation to the lack of evidence before it to substantiate the Applicant’s contentions, especially in light of the evidence given by Mr Isaac at Hearing, that he himself did not think the Applicant was entitled to form the proposed GST group. The following exchange occurred between the Tribunal and Mr Ahmed for the Applicant:[58]
[58] Transcript, pages 43-46.
MEMBER: Do you understand, though, that, that wasn’t clearly articulated in the witness statement or the SFIC or the submission, and that there’s no evidence before me that shows that the form was lodged with ASIC, that the form was refused, that further information was requested. None of that sits before the tribunal.
MR AHMED: Well, I understand that, but does that mean that as far as the Tribunal is concerned there’s no evidence that it was not supposed to be the shareholder? I mean that was the point of his oral evidence, so that he could actually say that. I guess I would ask this question, and it would be, if I were to ask - based on what you’ve seen, if I were to ask who was supposed to be the shareholder of Adcon Resources Vic when it was incorporated, who was that? Who was that? Was it Dan Isaac personally or was it actually Chale, based on what you’ve seen?
MEMBER: But the question isn’t who should have been it’s who was, and who was, was Danny Isaac. Who disposed of those shares was Danny Isaac. So the answer is, the shareholder appears to have been Danny Isaac. There is no corroborating evidence, at the moment, here before the Tribunal, that attempts were made to change the register, other than a form that is dated before the creation of the form. There is no documents, there’s no minutes from Chale or from Adcon Resources Victoria that deals with any of this. There is no shareholder records of the company itself that deals with any of this.
There is no corroborating evidence, or documentary evidence, that goes to Mr Isaac holding those shares, in any capacity, for Chale. This morning my understanding and interpretation of Mr Isaac’s evidence seems to be a little different to yours but was that he acknowledged, “Yes, it was a mistake, and I need to get on with it because how do I make this work from a business perspective?”. So his evidence wasn’t disputing the fact that he, in his own name, owned the shares, disposed of the shares. Is that what he necessarily wanted? No. But that’s what occurred because someone made a mistake and he couldn’t rectify it.
I don’t see anything here that supports the case for there being any other arrangement in place, that’s how the ownership went along and to the point of last year the details for Mr Isaac were updated in the applicant’s ASIC register, or details, to correct him as the shareholder, his address.
MR AHMED: Well, that doesn’t require the cooperation of his ex-wife. His ex-wife’s cooperation was needed because she is the director of the company that was supposed to be the shareholder. If you’re simply updating your own details you don’t need anyone else’s cooperation to do that.
MEMBER: Yes. There’s been no evidence that I would have expected could have been provided to flow through to substantiate that this - that it was corrected, even if not with ASIC that otherwise it was corrected. It seems to be that Mr Isaac was the shareholder and the beneficial shareholder. Earlier, in that ASIC form, the change form, says that Chale should be the non beneficial shareholder and that Mr Isaac should be the beneficial shareholder.
MR AHMED: I’m not sure if he was supposed to be the beneficial shareholder.
MEMBER: If you look at the document, that’s what it says, “Danny Isaac, who holds the shares beneficially”. So:
The company seeks to amend the share allocation provided on the form 201. The relevant amendment the company seeks to make includes substituting the name “Danny Isaac”, who holds shares beneficially, with “Chale” who holds the shares unbeneficially.
MR AHMED: That’s right.
MEMBER: That indicates that, potentially, Mr Isaac would continue to hold them beneficially, but Chale would hold them non beneficially.
MR AHMED: No, hang on. When you register the shareholding in ASIC you have to nominate whether shares are held beneficially or unbeneficially. The form originally had Danny Isaac holding the shares beneficially, so it would have marked, “Beneficially held: Yes”. What they’re saying is it should say “Chale” and the marking for beneficial should be “No”, because it’s a trustee. It’s not saying that Danny Isaac is still going to be holding it beneficially. That’s how you - - -
MEMBER: Can you see, though, that so far Mr Isaac told us that there’s errors across everything and what you are explaining there, in relation to what’s on that document, goes far beyond what’s there. Nowhere here does it say that Chale is going to hold it on trust for anyone, or in their capacity as trustee for whatever the trust’s name is, okay? So the burden of proof here lays with the applicant to establish that the decision made by the Commissioner was wrong and what that decision should be.
My concern is, that the evidence here doesn’t support - yes, Mr Isaac would have liked it all to have gone through smoothly, all the paperwork to have gone across? Yes, but it didn’t. He, himself, accepted it didn’t and so he, himself, said, “We don’t meet the grouping requirements”, that was his evidence.
MR AHMED: Okay. If his word on something like that was sufficient, he could have simply said, “I do meet the grouping requirements”, and it wouldn’t have been the truth.
MEMBER: Except he told the truth, Mr Ahmed. He told the truth, as he saw it, and he’s your witness.
MR AHMED: He did tell the truth. The point is, he did tell the truth. I think the fact is, he’s not a lawyer, he doesn’t know the vagaries of the ASIC form, okay. But when a company is registered on ASIC and you nominate who the shareholder is, it asks you, on that form, “Are these shares beneficially held, yes or no?”. So when the form was first lodged, it was lodged with Danny Isaac as the owner and on the box which asks, “Is it beneficially held or not?”, it’s ticked, “Yes”.
Now, the point of that question is because you’d have to distinguish between whether the shareholder has full legal and beneficial ownership of the shares, or whether they’re just a trustee. So whenever I set up a company, for example, if it’s held by somebody; legal, title and beneficially, and there’s no trust, I will always mark, “Beneficially held: Yes”. If I have a trustee company I will always mark, “Beneficially held: No”.
The form doesn’t ask you, “What’s the name of the trust?”, or anything like that, it just wants to know whether you own the shares beneficially or non beneficially, which means you’re a trustee, that’s all it asks.
So when you submit a correction form, ASIC needs to know, “Okay, what box am I going to change?”, and there are two boxes that need to change. The first box is the name of the shareholder, which is now going to be Chale and the second box is the beneficially held yes or no box. If they didn’t write this, then Chale would own Adcon Resources Vic in it’s own right, not as trustee for the Chale Asset Trust. So they have to say that it’s unbeneficial because it owns it as a trust, otherwise it would not work, then it would just be a direct parent.
MEMBER: Sure. Yes, I can understand that, but I guess I just want to point out to you that the applicant’s witness was Mr Isaac, he gave the evidence that he did. My concern is that there’s no corroborating evidence that sits behind any of this. Those shares have now been sold, what involvement that Chale had in that sale is not before this Tribunal, so what ended up happening with those shareholdings and how they were treated and everything else, is not here before this Tribunal.
So in no way, other than it being, “It shouldn’t have happened”, there’s nothing else here supporting it. And then you’ve got Mr Isaac’s evidence of, “We don’t meet the grouping requirements, it’s a mistake that I now have to work my way through”.
MR AHMED: He’s just getting angry, obviously, but the fact is, I’d ask only one thing. He either is credible or he’s not credible. If you say that he told the truth, then the onus is on us to provide evidence. So the way we’ve tried to provide evidence is this; if the company has been set up incorrectly, from the beginning, then we need to provide evidence of that. The only person who can do that is Danny Isaac, because he was there. I don’t think the accountant, is going to come and say, “Hey, I made a mistake”, that’s not realistic. So he has come and he’s said, “Okay, this is what happened at the time, this is the chain of events”.
He subsequently discovers, obviously at a later point in time, that the shareholding is not as the group structure indicates that it’s supposed to be. He subsequently obviously discovers that. He contacts his solicitor friend who filled in this - made the form for him, sent it to him, obviously filled in the document number and all of the other stuff on there, and he’s just signed it and then handed it in, in the best way that he thought, as we’ve established, okay. The date and all that kind of stuff matters to some degree but the fact is, obviously, he’s engaged someone to correct it and then he’s signed it and he’s handed it in and he’s thought he’s done it correctly.
So we know, at least, that we can at least establish, from his point of view, that he didn’t think that he was supposed to own these shares, but he still does. So what does that mean when it comes to GST grouping, when someone has shares in their name and they know that they’re not supposed to have it in their name? All he can do is operate as though the shares are with Chale, which is where they’re supposed to be. As far as he knows, this form is going to be processed. Obviously it didn’t, okay, that’s what ended up happening. But as far as he knows it would go through.
So he’s operating and treating his shareholding, which is in his name, as though it’s really Chale’s shareholding. He’s essentially a nominee or, at best, maybe holding it on trust or something, but it’s not traditional full ownership, obviously, because he acknowledges these are not his shares. He’s holding them, obviously, pending correction of a mistake.
Is that level of - does that give Chale enough ownership to meet the GST grouping requirements, as between Adcon Resources Vic and Adcon Contracting, that’s the question.
MEMBER: Yes, that is the question.
The Respondent’s contentions at the Hearing[59] were consistent with its previously filed updated Statement of Facts, Issues and Contentions[60] and Submissions[61], and reflected that up until the time of the Hearing, the Applicant had not advised that it sought that the GST grouping period to end on 30 June 2021, nor had the Applicant addressed any of the director or ownership changes that occurred after that date in relation to the Applicant or Adcon Contracting.
[59]    Transcript, pages 11-18 and 48-52.
[60]    Exhibit 1, Tribunal Book, Tab 8, Respondent’s updated Statement of Facts, Issues and Contentions.
[61]    Exbibit 2, Respondent’s Submissions.
The Respondent contended that the Applicant and Adcon Contracting at no stage met the 90% owned group requirements.[62]
[62] Exhibit 1, Tribunal Book, Tab 8, Respondent’s updated Statement of Facts, Issues and Contentions.
The Respondent submitted that at all material times, Mr Isaac was the sole shareholder of the Applicant and Chale was the non-beneficial shareholder of the shares in Adcon Contracting and as such, no single company held 90% stake in both the Applicant and Adcon Contracting.[63]
[63]
The Respondent contended that at best, the evidence shows that Chale is a legal but not beneficial owner of Adcon Contracting. The Respondent submitted that it cannot be said that Chale had a management stake in the voting rights, dividends or distributions of Adcon Contracting as that flowed to some other entity, be that Chale Asset Trust or some other person or entity.[64]
[64] Transcript, pages 48-49.
The Respondent contended that the Applicant did not clearly establish that it was the Chale Asset Trust that in some way influenced votes in Adcon Contracting, or that dividends or distributions flowed to it. The Respondent submitted that regardless of that point, the GST Act does not allow a trustee for a trust to be the 90% owner, instead, it requires a company as defined in the GST Act.[65] In relation to the non-company entity provisions in the GST Act and ATO Interpretive Decision 2004/201, the Respondent contended:[66]
42.The Applicant’s updated Statement of Facts, Issues and Contentions makes reference to the provisions in the GST Act for non-company entities to be part of a GST group. The Commissioner does not consider that any of these provisions apply in this matter, as both members of the Proposed GST Group are companies. Section 48-10(1)(a)(ii) of the GST Act provides that a trust, partnership or individual can be a member of a GST group if the entity satisfies the requirements found in Division 48 of A New Tax System (Goods and Services Tax) Regulations 2019. Section 48-15 of the GST Act describes how companies and non-companies may be related within a GST group.
43.Further, the Applicant’s reliance on ATO Interpretative Decision 2004/201 is misguided as that document contemplates an individual as the non-beneficial owner of shares that are beneficially held by a company. The reality of the circumstances in this matter is that Mr Isaac is the beneficial owner of all shares in the Applicant. There is no evidence that he is a non-beneficial owner holding the shares for the benefit of a company.
[Footnotes omitted]
[65] Transcript, page 49.
[66]

The Tribunal considers that the Applicant’s contentions in relation to the applicability of the application of the GST grouping provisions that relate to non-company entities and reliance on ATO Interpretive Decision 2004/201 are misguided. The proposed GST group includes two companies, being the Applicant and Adcon Contracting. Chale, regardless of the capacity in which it held shares in Adcon Contracting, was not seeking to be part of the GST Group.
Further, there is no evidence before the Tribunal that establishes that a nominee or trust relationship existed between Mr Isaac and Chale in relation to the shares in the Applicant.
The factual situation contemplated in ATO Interpretative Decision 2004/201 is materially different to those of the Applicant. ATO Interpretative Decision 2004/201 contemplated a situation where an individual owned 50% of the shares in the second company as a nominee shareholder for the first company. That arrangement was put in place via a declaration of trust by the individual that stipulates that the individual must vote in respect of its shares as directed by the first company and must account to the second company for any distribution of dividends or capital.
The Applicant did not suggest that Mr Isaac was, at any time, acting at the direction of Chale, rather, Mr Isaac’s evidence in relation to the sale of the Applicant was that ‘he’ sold the Applicant.
The basis of the Applicant’s contentions is that an error was made during the setup of the Applicant and as such, its shares were not meant to have been owned by Mr Isaac. Consequently, he must have been holding them as a nominee or on trust for Chale. Mr Ahmed contended that if Mr Isaac was accepted as being a credible witness, then the onus is on the Applicant to provide relevant evidence.
The Tribunal considers that Mr Isaac was a credible witness to the extent that he was very open with the fact that his role in his companies related to the day-to-day operational requirements and his concern was with the business, employees and contractual obligations. He told the Tribunal he was a builder and that he engaged others to set up his businesses and assist him with the associated formalities.
Mr Isaac’s evidence reflected his limited engagement with such formalities in that he initially told the Tribunal that his statement was correct and then subsequently said it was full of errors and while he signed it, it was prepared by his EA. He was also unable to explain the dates and discrepancies with the Form 492.
In giving evidence, Mr Isaac was clear that a mistake had been made and was not noticed until the Respondent raised it. He was also clear that as a result of that mistake, the Applicant was not able to meet the requirements to form a GST group with Adcon Contracting.
While the Tribunal accepts that Mr Isaac may not have intended to be the Applicant’s shareholder, the Applicant was set up at Mr Isaac’s direction, through his engagement of professional service providers. The onus is on the directors of a company to ensure that the details entered into the ASIC register are correct.
The issue for the Tribunal is that the onus falls on the Applicant to satisfy the Tribunal that the objection decisions were incorrect. Presently, there is no evidence before the Tribunal other than that of Mr Isaac and the Form 492.
Mr Ahmed attempted to discredit or at the very least, redirect Mr Isaac’s view in relation to the Applicant’s eligibility to form a GST group. The Tribunal does not accept Mr Ahmed’s contentions in this regard. While Mr Isaac was passionate in giving his evidence, and he said that he had run the Applicant as if it was owned by Chale, he was also clear that the change of ownership of the shares in the Applicant to Chale had not occurred and subsequently he had sold those shares. Mr Isaac’s evidence was not that he sold the shares on behalf of Chale. There is no evidence before the Tribunal that Mr Isaac acted on behalf of Chale with regards to the operations or sale of the Applicant. The Tribunal further notes that according to the ASIC searches, Mr Isaac was not effectively a director of Chale until at the earliest 13 March 2020.
The Applicant contended that the Form 492 was completed by Mr Isaac’s lawyer. Mr Isaac indicated that there were mistakes made in the form. There is no evidence before the Tribunal in relation to the actual submission of the Form 492 to ASIC or any subsequent correspondence between ASIC and the Applicant. The Applicant did not seek to address the Tribunal’s concerns in this regard.
There are many different documents that, if they supported the Applicant’s contentions, should be relatively simple to provide. For example, section 168 of the Corporations Act 2001 (Cth) requires that a company must maintain a register of members. However, no such register has been provided by the Applicant. It is reasonable to expect that such a register would reflect the correct details. Evidence relating to whether the Applicant has paid any dividends and to whom they were paid are also not before the Tribunal.
Further, the Tribunal notes that the directorship of Chale was updated on 27 January 2022 removing Mr Isaac’s wife as director from 13 March 2020 and appointing him instead.[67] Interestingly, Mr Isaac gave evidence that his wife was never meant to be the director of Chale, however the subsequent change did not apply from 19 February 2018 when Chale was registered.
[67] Exhibit 1, Tribunal Book, Tab 11, ASIC organisational extract search results for Chale Pty Ltd.
The Tribunal considers that it is likely that corroborating documents would exist in relation to the change in directorship, however they are not before the Tribunal. Mr Isaac ceased being the shareholder of the Applicant from 3 January 2022 before the change in directorship of Chale was notified to ASIC. However, there is no evidence before the Tribunal as to what the actual situation was at the point of sale of those shares or that indicates that Chale had any involvement with the sale at all. The lack of such evidence is consistent with Mr Isaac’s evidence that “he” sold the shares in the Applicant.
Based on the evidence or rather, the lack of evidence before it, the Tribunal is not satisfied that the Applicant has discharged its onus to prove that the Revocation Decision was incorrect.
As such, the Tribunal accepts the contentions made by the Respondent and the concession made by Mr Isaac that the Applicant did not meet the GST grouping requirements.
Consequently, the Tribunal finds that the Applicant and Adcon Contracting were not part of the same 90% owned group and as such, did not meet the membership requirements in section 48-10(1)(b) of the GST Act.
CONCLUSION
Based on the evidence before it, the Tribunal finds that the Applicant has failed to discharge its onus to prove that the Revocation Decision was incorrect. The Tribunal finds that the Applicant and Adcon Contracting did not meet the GST group membership requirements for the period 1 July 2018 to 30 June 2021.
Consequently, the Tribunal finds that the Applicant and Adcon Contracting were not eligible to form a GST group for the period 1 July 2018 to 30 June 2021.
As the Tribunal found that the Applicant and Adcon Contracting did not meet the requirements to form a GST group, there is no need to consider when the proposed GST group should commence.
Accordingly, the reviewable objection decisions are affirmed.

I certify that the preceding 76 (seventy-six) paragraphs are a true copy of the reasons for the decision herein of Member D Mitchell

............................[SGD]................................
Associate
Dated: 16 August 2022

Date of hearing:
25 May 2022

Representative for the Applicant:
Mr Adam Ahmed

Ahmed & Co

Solicitors for the Respondent:
Mr Preesan Pillay

Australian Taxation Office

Exhibit 1, Tribunal Book, Tab 4, T Documents, T6, page 31, GST group registration letter effective from

1 July 2019.

Exhibit 1, Tribunal Book, Tab, 8, Respondent’s updated Statement of Facts, Issues and Contentions,

page 5.

Exhibit 1, Tribunal Book, Tab 2, Applicant’s updated Statement of Facts, Issus and Contentions,

paragraphs 28-33.

Exhibit 1, Tribunal Book, Tab 8, Respondent’s updated Statement of Facts, Issues and Contentions,

page 8, paragraph 36.

Exhibit 1, Tribunal Book, Tab 8, Respondent’s updated Statement of Facts, Issues and Contentions,

page 10, paragraphs 42-43.

[2022] AATA 2629

16 August 2022

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