Australian Style Investments Pty Ltd as Trustee for the Australian Style Investments Unit Trust and Commissioner of Taxation

[2013] AATA 847

[2013] AATA 847

Division	TAXATION APPEALS DIVISION
File Numbers	2011/4356
Re	Australian Style Investments Pty Ltd as Trustee for the Australian Style Investments Unit Trust
APPLICANT
And	Commissioner of Taxation
RESPONDENT

DECISION

Tribunal	F J Alpins, Deputy President
Date	29 November 2013
Place	Melbourne

The Tribunal affirms the decision under review.

........[sgd]...............................................................

F J Alpins, Deputy President

TAXATION – Goods and services tax – financial supply – execution of deed providing for appointment of proxy and other obligations – proxy appointed irrevocably to vote against resolutions at meeting of unit holders in trusts constituting registered managed investment scheme – nature of proxies - whether interest supplied was an “interest in or under ... securities” for purposes of reg 40-5.09 of A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) – administrative penalties – false or misleading statement – whether shortfall amount resulted from recklessness by applicant – whether remission of penalty warranted – Taxation Administration Act 1953 (Cth), ss 284-90 and 298-20 of Schedule 1

Legislation

A New Tax System (Goods and Services Tax) Act 1999 (Cth), ss 7-1, 9-5, 9-10, 9-40, 29-5, 40‑5

A New Tax System (Goods and Services Tax) Regulations 1999 (Cth), regs 40-5.01, 40-5.02, 40-5.03, 40-5.06, 40-5.09, 40-5.11, 40-5.12

Taxation Administration Act 1953 (Cth), ss 284-75, 284-85, 284-90, 298-20 Sch 1

Corporations Act 2001 (Cth), ss 9, 92, 252V – 253A, 608, 671B

Acts Interpretation Act 1901 (Cth), ss 10, 15AD, 46

Cases

Allianz Australia Insurance Limited v GSF Australia Pty Limited (2005) 221 CLR 568

Brisconnections Management Co Ltd v Australian Style Investments Pty Ltd (2009) 23 VR 253

BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347

Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11

Chan v Cresdon Pty Ltd (1989) 168 CLR 242

Coachcraft Ltd v SVP Fruit Co Ltd (1980) 28 ALR 319

Commissioner of Taxation v American Express Wholesale Currency Services Pty Ltd (2010) 187 FCR 398

Comcare v Fiedler (2001) 115 FCR 328

Commissioner of Taxation v Glennan (1999) 90 FCR 538

Commissioner of Taxation v Gloxinia Investments Ltd (2010) 183 FCR 420

Commissioner of Taxation v Qantas Airways Ltd (2012) 247 CLR 286

Commissioner of Taxation v R & D Holdings (2007) 160 FCR 248

Commissioner of Taxation v Reliance Carpet Co Pty Limited (2008) 236 CLR 342

Cordiant Communications v Communications Group (2005) 194 FLR 322

Cousins v International Brick Co Ltd [1931] 2 Ch 90

Craig Williamson Pty Ltd v Barrowcliff [1915] VLR 450

Hart v Commissioner of Taxation (2003) 131 FCR 203

Howard v Commissioner of Taxation (2012) 206 FCR 329

HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553

Loxton v Moir (1914) 18 CLR 360

MBI PropertiesPty Ltd v Commissioner of Taxation [2013] FCAFC 112

Minister for Immigration and Ethnic Affairs v Pochi (1980) 31 ALR 666

Peninsular and Oriental Steam Navigation Company v Johnson (1938) 60 CLR 189

Professional Admin Service Centres Pty Ltd v Commissioner of Taxation

[2013] FCA 1123

Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26

Re Alex Russell, deceased [1968] VR 285

Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256

Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50

Sea Shepherd Australia Limited v Commissioner of Taxation (2013) 212 FCR 252

Sent v Commissioner of Taxation [2012] FCA 382

Snook v London & West Riding Investments Ltd [1967] 2 QB 786

Switchcorp Pty Ltd v Multiemedia Limited [2005] VSC 425

TAB Ltd v Commissioner of Taxation (2005) 223 ALR 309

Totally & Permanently Incapacitated Veterans’ Assn of New South Wales Ltd v Gadd (1998) 28 ACSR 549

Travelex Ltd v Commissioner of Taxation (2010) 241 CLR 510

Wood v Laser Holdings Ltd (1996) 14 ACLC 801

REASONS FOR DECISION

F J Alpins, Deputy President

29 November 2013

INTRODUCTION

1. In 2009, the applicant, Australian Style Investments Pty Ltd, was a unit holder in trusts constituting a managed investment scheme registered under the Corporations Act 2001 (Cth) (the “Corporations Act”). The trusts, with other entities, had been granted the concession by the State of Queensland in respect of a major infrastructure project, the Brisbane Airport Link Project (the “Project”). The applicant executed a deed providing for, amongst other things, the delivery of irrevocable proxies by which the applicant would appoint entities involved in the Project to vote against resolutions to be considered at a meeting of unit holders in the trusts.

2. The primary issue in this proceeding is whether the supply made by the applicant upon execution of that deed was a “financial supply” for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the “Act”), and therefore input taxed. Particularly, the question before the Tribunal is whether the subject of the supply constituted an “interest in or under ... [s]ecurities” for the purposes of reg 40-5.09 of the Regulations made under the Act (A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) (the “Regulations”)).

   FACTS

3. The applicant relied upon the evidence of one witness, being Mr Nicholas Bolton, the applicant’s sole director.  Mr Bolton’s evidence primarily took the form of a witness statement with various annexures.  He was cross-examined.  The following findings of fact are based primarily upon Mr Bolton’s evidence and also various other documents admitted into evidence by consent. 

   Background and execution of Deed

4. During the period November 2008 to early 2009, the applicant, in its capacity as trustee of the Australian Style Investments Unit Trust, acquired 77,400,933 stapled units in the BrisConnections Investment Trust and the BrisConnections Holding Trust (the “Trusts”). The Trusts constituted a managed investment scheme registered under the Corporations Act and listed on the ASX.The Trusts and a range of associated trusts and companies had been granted the concession to design, construct, operate, maintain and finance the Project.

5. In early 2009 the applicant requisitioned meetings of the Trusts’ unit holders to consider and vote on various proposed resolutions. One of those resolutions (the subject of a notice of meeting issued by BMC on 5 March 2009) was to wind up the Trusts.  Other resolutions (the subject of a requisition notice dated 20 February 2009) were to amend the Trusts’ constitutions (the “Constitutions”) and to remove and replace BrisConnections Management Co Ltd (“BMC”) as the responsible entity for the Trusts.  BMC then brought proceedings against the applicant in the Supreme Court of Victoria, seeking, amongst other things, a declaration that the requests made by the applicant to convene the meetings were not lawfully made and that BMC not be required to call a meeting.  The applications for declaratory and related relief were dismissed by Robson J; His Honour delivered his findings on 2 April 2009 and his written reasons on 6 April 2009 (Brisconnections Management Co Ltd v Australian Style Investments Pty Ltd (2009) 23 VR 253).

6. On 8 April 2009 the applicant, Australian Style Holdings Pty Ltd (“Australian Style Holdings”) (being the applicant’s holding company) and Mr Bolton entered into a deed with Thiess Pty Ltd and John Holland Pty Ltd (the “Deed”), the latter two companies (henceforth referred to collectively as “TJ”, employing the nomenclature used in the Deed) being wholly-owned subsidiaries of Leighton Holdings Limited (“Leighton Holdings”) and participants in an unincorporated joint venture formed for the purpose of the Project and engaged in its design and construction.

7. The Deed relevantly provided:

   “This deed is made between TJ, Bolton, ASH and ASI (each as defined below) on 8 April 2009.

   DEFINITIONS

   14 April Meeting means the meeting of members of BCS to be held on 14 April 2009 and any adjournment of that meeting and any reconvened or other subsequent meeting held in place of that meeting

   ASH means Australian Style Holdings Pty Ltd ...

   ASI means Australian Style Investments Pty Ltd ...

   ASI Units means all units in BCS currently held legally or beneficially by ASI or any of its related entities, being 77,400,933 units

   BCS means Brisconnections Holding Trust ... and Brisconnections Investment Trust ...

   Bolton means Nicholas Francis John Bolton ...

   Payment Date means the date that is the later of 16 April 2009 and the date that is 1 business day after the date on which the 14 April Meeting is closed

   Resolutions means all of the resolutions set out in the notice of meeting dated 6 April 2009 giving notice of the 14 April Meeting

   TJ means the unincorporated joint venture formed between Thiess Pty Ltd ... and John Holland Pty Ltd .. for the purposes of the Airport Link/Northern Busway (Windsor to Kedron)/EWAG Projects – Design and Construction Contract, severally in their respective proportions

   PAYMENT

   1.At the request of ASI and Bolton, TJ agrees to pay $4,500,000 to ASH on the Payment Date if and only if Bolton and ASI each perform in full all of their obligations as set out below and the conditions precedent set out in clause 2 below are satisfied before that date, and subject to clause 3 of this deed.

   CONDITIONS

   2.TJ will have no obligation to make any payment to ASH unless

   the Resolutions are either withdrawn and not put to any meeting of the meeting of the member of BCS or they are put to the 14 April Meeting and none of the Resolutions is passed at the 14 April Meeting.

   3.Any payment made by TJ under this deed to ASH will be immediately repayable to TJ in full if for any reason and at any time there is any judgment or other court order to the effect that any of the Resolutions was passed at the 14 April Meeting (notwithstanding any statement or view held to the contrary by the responsible entity of BCS at the time that the 14 April Meeting closed).

   ASI AND BOLTON OBLIGATIONS

   4.ASI agrees that it will:

   (a)deliver to TJ or its nominee on 8 April 2009 irrevocable proxies in respect of all of the ASI Units authorising and directing TJ to vote all of [sic] ASI units against each of the Resolutions in the form attached or such other form as is satisfactory to TJ (ASI Proxies);

   (b)not attend the 14 April Meeting and will not revoke or purport to revoke any of the ASI Proxies or take any other action that might affect the validity or exercise by TJ of the ASI Proxies;

   (c)remain the registered and beneficial holder of all ASI units, and not grant any right or interest in or in respect of the ASI Units to any other person (except TJ or its nominee under clause 4(a)), up until and including the time at which the 14 April Meeting is closed;

   (d)except where the payment under clause 1 is due and payable but is not paid on the Payment Date and remains unpaid, not take or propose any action , and ensure that none of its related entities or associates take or propose and action, and ensure that none of its related entities or associates take or propose any action, to support the Resolutions (whether by issuing statement or materials, soliciting proxies or otherwise), or to seek to achieve the outcomes sought by the Resolutions by any other means, either before, at or after the 14 April Meeting; and

   (e)not disclose this agreement or any of its terms to any person either before, at or after the 14 April Meeting except as required by law and then only after prior consultation with TJ.

   5.Bolton agrees that (without in any way limiting ASI’s obligations under this deed) he will:

   (a)procure that ASI and all of its related entities and associates comply with and act consistently with ASI’s undertakings in this deed;

   (b)not attend the 14 April Meeting or take any action that might affect the validity or exercise by TJ of the ASI Proxies;

   (c)not take or propose any action to support the Resolutions (whether by issuing statements or materials, soliciting proxies or otherwise) or to seek to achieve the outcomes sought by the Resolutions by any other means, either before, at or after the 14 April Meeting; and

   (d)not disclose this agreement or any of its terms to any person either before, at or after the 14 April Meeting except as required by law and then only after prior consultation with TJ.

   GENERAL

   6.ASI, ASH and Bolton agree that monetary damages alone would not be adequate compensation to TJ for the breach by ASI or Bolton of any of their obligations under this deed and that accordingly TJ shall be entitled to an injunction or injunctions to prevent such breaches and to specific performance of those obligations.

   ...

   ....”   [Emphases in original.]

8. In fulfilment of the applicant’s obligation under clause 4(a), a proxy form executed by Mr Bolton on behalf of the applicant was attached to the Deed.  By that document, the applicant irrevocably appointed TJ’s nominee, Mr Ted Williams, as its proxy to vote at the meeting of unit holders in the Trusts to be held on 14 April 2009 and directed him to vote against each of the specified resolutions to be considered at that meeting.  Although the notice of meeting dated 6 April 2009 referred to in the definition of “Resolutions” in the Deed was not attached to the Deed, the resolutions set out in the proxy form comprised the resolution to wind up the Trusts the subject of BMC’s notice of meeting issued on 5 March 2009 and also resolutions to amend the Constitutions and to remove and replace BMC as the responsible entity for the Trusts the subject of the applicant’s requisition notice dated 20 February 2009. 

9. The relevantly identical Constitutions each provided that:

   (a)a unit holder holds a unit subject to the rights, restrictions and obligations attaching to that unit (clause 3.8(a));

   (b)subject to any rights or restrictions for the time being attached to any units and to the constitution, each member (that is to say, registered unit holder) present in person and each other person present as a proxy, attorney or representative of a member has one vote (clause 15.9(a));

   (c)the provisions of the Corporations Act governing proxies and voting for meetings of members of registered managed investment schemes apply to the Trust (clause 15.10 (a)).

   Events after execution of Deed

10. On 14 April a “Notice of initial substantial holder” (known as a “Form 603”) was signed by Leighton Holdings’ secretary on behalf of Leighton Holdings, TJ, numerous other entities controlled by Leighton Holdings and several other entities. It was not in dispute that the form was also lodged. Amongst other things, it was stated in that form that each of those entities had gained a “substantial holding” in respect of the Trusts on 8 April (see s 671B of the Corporations Act), on the basis that TJ (and Mr Williams as its nominee proxy holder) held a “relevant interest” (see s 608(1)(b) of the Corporations Act). That relevant interest was said to be held on the basis that, under the Deed, TJ had collectively obtained the power to exercise the right to vote attached to ASI’s units. A copy of the Deed, including the proxy form, was attached to the Form 603.

11. The meeting of unit holders in the Trusts was held on 14 April and on the same day BMC announced (by ASX Release) that none of the resolutions considered at the meeting had been passed.

12. Correspondence ensued between the solicitors for TJ (Blake Dawson) and the solicitors for the applicant, Australian Style Holdings and Mr Bolton (Lander & Rogers).  The following day (15 April), Blake Dawson wrote to Lander & Rogers.  Because proceedings challenging the outcome of the meeting not material for present purposes had been threatened, Blake Dawson proposed that the sum of $4,500,000 be paid into Lander & Rogers’ trust account, to be retained upon a particular basis.  The following was then said:

    “Separately, as our clients may only be obliged to pay an amount to Australian Style Holdings Pty Ltd, our clients will require evidence of a payment direction from Australian Style Holdings Pty Ltd to your firm, as well as a tax invoice from Australian Style Holdings Pty Ltd upon release of funds from your trust account.”

    In that letter, Blake Dawson then raised TJ’s concern that the obligations in clauses 4(d) and 5(c) of the Deed might have been breached.

13. Mr Bill Brown of Lander & Rogers responded that day by email sent to Mr Chris Goddard of Blake Dawson, stating:

    “The conditions precedent set out in clause 2 of the Deed have been met.

    ....

    There has been no breach of clauses 4(d) or 5(c). .....

    .....

    In these circumstances, payment is due today and will be overdue if not made by the close of business today.

    Clause 3 of the deed will be complied with in accordance with its terms.  This does not include retention of the payment in the manner you suggest.

    Nor is there an obligation to provide evidence of payment or a tax invoice.  If however your client will pay GST, our client is in a position to provide an invoice for the amount due plus GST (namely $4.95m inclusive of GST).  That invoice, if required, will follow payment.

    We have instructions to receive the funds on behalf of Australian Style Holdings Pty Ltd.

    If payment is not made by close of business today, our clients reserve all their rights and will take the necessary action immediately to recover payment.

    We trust that this will not be necessary.”

14. Following a telephone conversation, Mr Brown sent a further email to Blake Dawson that day, by which he provided the Australian Business Numbers of the applicant, Australian Style Holdings and Mr Bolton and said “[w]e confirm that payment will be made today and that it will reflect the terms of the deed”. 

15. It was not in dispute in this proceeding that the parties performed their obligations under the Deed.  Accordingly, on 15 April 2009, TJ paid $4,500,000 to Australian Style Holdings pursuant to clause 1.

16. On 23 April 2009 Mr Goddard wrote to Mr Brown by email and relevantly said:

    “I note that we have not received the tax invoices requested.  When will they be provided?”  

    On 17 June Blake Dawson wrote to Lander & Rogers and again sought a tax invoice:

    “As you are aware, under the terms of the Deed, Thiess Pty Ltd and John Holland Pty Ltd paid the sum of $4,500,000 to [Australian Style Holdings] on about 15 April 2009 in respect of the performance by Mr Bolton and [the applicant] of certain obligations (the supply).

    On 15 April 2009 and 23 April 2009, our clients requested a tax invoice for the supply.  Our clients did not receive any tax invoice within 28 days of that request, as required by s 29-70(2) of the [Act].

    We are instructed to advise you that our clients require a tax invoice for the supply to be provided to them by 24 June 2009.

    If our clients do not receive a tax invoice by 24 June 2009, our clients will take such further steps as they consider necessary (including seeking a private ruling from the Commissioner of Taxation that he treat the Deed as a tax invoice) without further notice to your clients.

    Our clients reserve all rights.” [Emphasis in original]

    There was no evidence before the Tribunal of any response to Blake Dawson’s correspondence of 23 April and 17 June, nor any evidence that a tax invoice was provided.

17. The applicant, being registered for GST in its capacity as trustee of the Australian Style Investments Unit Trust, lodged a Business Activity Statement (“BAS”) for the trust for the quarterly period ending 30 June 2009.  The BAS was prepared by the applicant’s employee bookkeeper, signed on 12 November 2009 and lodged on 2 December 2009.  No amounts were reported with respect to “[t]otal sales” nor “GST on sales or GST instalment”.  As the applicant reported “non-capital purchases” in the amount of $257,848, it claimed a refund for “GST on purchases” in the amount of $23,441.

1. Following an audit of the transaction, the Commissioner assessed the applicant, in its capacity as trustee, as being liable to pay the following amounts:

   (a)a GST net amount for the quarterly period ending 30 June 2009 reflecting additional GST in the amount of $409,091; and

   (b)an administrative penalty in the amount of $204,545.50, being 50% of the GST shortfall amount, worked out on the basis that the shortfall amount resulted from recklessness as to the operation of a taxation law (ss 284-85 and 284-90 in Sch 1 to the Taxation Administration Act 1953 (Cth) (the “TAA”).

2. Apart from a brief recitation of the procedural history leading to the issue of the notices of assessment, Mr Bolton’s only evidence given in his witness statement bearing on the issue of penalty was that the applicant “obtained legal advice with respect to the Deed and its obligations to pay GST arising from the transaction the subject of the deed”. 

3. Under cross-examination, Mr Bolton was asked about the response to Blake Dawson’s letter sent by the applicant’s solicitors on 15 April, particularly in the context of the request made in that letter for a tax invoice:

   “And your lawyers – how did you respond to that question [sic] for a tax invoice? --- We advised them that we didn’t believe it was [sic] taxable supply and there was no obligation on us to provide a tax invoice.

   Right. So you advised them that you didn’t think it was a taxable supply? --- I believe so, yes.”

4. However, Mr Bolton later accepted that Mr Brown’s response did not state a belief that the there had not been a taxable supply, nor was there any documentary evidence of TJ’s solicitors being informed of that view, but nevertheless said “that’s my understanding”.

5. Mr Bolton was then asked whether the response sent by Mr Brown correctly reflected preparedness on the applicant’s part to provide a tax invoice if TJ were to pay a higher sum than the consideration payable under the Deed which included GST.  Mr Bolton said:

   “[M]y understanding at the time [sic] as an abundance of caution we were provided [sic] to take the GST and deal with it later.  So work out whether it was payable later and if we needed to and [sic] remit it back we would.  But there ... was posturing at the time of settlement, we were trying to get the money and they were trying to withhold it, so ... this comment was made in the spirit of that posturing.”

6. Mr Bolton said further that, as the content of the email sent on 15 April was directed towards extracting payment of the consideration under the Deed, it did not reflect “a considered tax position at the time”.  Under re-examination, Mr Bolton explained that by his reference to “abundance of caution”, he meant that he “didn’t see any harm” in collecting GST on the transaction.

7. When cross-examined about Blake Dawson’s subsequent request for tax invoices made on 23 April and the fact that there was no evidence of any response to that request, Mr Bolton said “we certainly were of the position that we didn’t believe we needed to provide a tax invoice for this consideration”.  When asked about Blake Dawson’s request made on 17 June, Mr Bolton again said “our position was again at the time that we did not need to provide a tax invoice”.

8. Mr Bolton was cross-examined as to whether there had been any other discussions about the GST consequences of the transaction:

   “And there’s no evidence in your witness statement about any further negotiations with TJ about the GST position? --- There – there was no further negotiations – in these latter months, no.  The only negotiation I spoke of was pre-settlement I believe as a means of facilitation. 

   And – and when you say, “Means of facilitation”, that simply means you were happy to pay the – happy to provide a tax invoice if they paid you the GST? – Yes, I believe so.”

   LEGISLATION

   The Act – supplies

9. The journey through the relevant legislative provisions follows a meandering course. GST is payable on “taxable supplies” (ss 7-1(1) and 9-40 of the Act). The term “taxable supply” is defined in s 9-5 of the Act. A person makes a taxable supply if, amongst other things, they make the “supply” for consideration and in the course of furtherance of an enterprise that they carry on. A “supply” that would otherwise satisfy the definition is excluded from being a taxable supply to the extent that it is “input taxed”.

10. Section 9-10(1) provides that “[a] supply is any form of supply whatsoever” (s 9-10(1)). Section 9-10(2) enumerates various kinds of supplies, including:

    ...

    (e)a creation, grant, transfer, assignment or surrender of any right;

    (f)a *financial supply;

    (g)an entry into, or release from, an obligation:

    (i)to do anything; or

    (ii)to refrain from an act; or

    (iii)to tolerate an act or situation;

    (h)any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

11. Section 40-5 provides that “[a] financial supply is input taxed” (sub-s (1)) and that “financial supply” has the meaning given by the Regulations (sub-s (2); see also the definition of “financial supply” in s 195-1).

    Div 40 of Regulations – financial supplies

12. Division 40 of the Regulations governs input taxed supplies (see also s 9-30(2) and definition of the term “input taxed” in s 195-1). Subdivision 40-A concerns financial supplies in particular; Reg 40-5.01 provides that its object “is to identify a supply that is or is not a financial supply”.

13. Regulation 40-5.09 specifies what supplies are financial supplies.  Regulation 40-5.09(1) provides that “[t]he provision, acquisition or disposal of an interest mentioned in subregulation (3) or (4) is a financial supply” if certain requirements generally immaterial for present purposes are met.  It is relevant to note that one of those requirements is that “the supplier is ... a financial supply provider in relation to supply of the interest” (reg 40-5.09(1)(b)(ii)). 

14. The expression “financial supply provider” is defined in reg 40-5.06:

    “(1)An entity, in relation to the supply of an interest that was:

    (a)Immediately before the supply, the property of the entity;

    or

    (b)created by the entity in making the supply;

    is the financial supply provider of the interest.

    ...

    (2)The entity that acquires that interest is also the financial supply provider of the interest.” [Emphases in original]

15. The provision particularly in issue in this proceeding is reg 40-5.09(3), which enumerates a number of interests, the provision, acquisition or disposal of which may satisfy reg 40-5.09(1). Relevantly, that provision provided at the relevant time (being April 2009: see s 29-5 of the Act) that:

    “For subregulation (1), the interest is an interest in or under the matter mentioned in an item in the following table:

    Item     An interest in or under ....

    ...

    ...

    10       Securities, including:

    (a)a debenture described in paragraph (a), (b), (c), (d), (e) or (f) of the definition of debenture in section 9 of the Corporations Law; and

    (b)a document issued by an individual that would be [sic] debenture if it were issued by a body corporate; and

    (c)a scheme described in paragraph (e), (i) or (m) of the definition of managed investment scheme in section 9 of the Corporations Law; and

    (d)the capital of a partnership or trust[.]” [Emphases in original.]

    The term “interest” is defined in reg 40-5.02 as “anything that is recognised at law or in equity as property in any form”. Various examples of “interests” are provided in that regulation, such as “a right to receive a payment under a derivative” (“[a] derivative” being mentioned in Item 11 in the table in reg 40-5.09(3)). The phrase “provision ... of an interest” in reg 40-5.09(1) is defined in reg 40-5.03 to include “allotment, creation, grant and issue of the interest”.

16. Part 8 of Schedule 7 to the Regulations contains examples of the financial supplies enumerated in Item 10 (see reg 40-5.11), including “[u]nits in a unit trust”. It is noted in reg 40-5.11 and the prefatory notes to Schedule 7 that the examples are not to be taken as exhaustive and that, if an example is inconsistent with the description of the financial supply in the item in the table in reg 40-5.09 to which the example relates, the description prevails, which accords with s 15AD of the Acts Interpretation Act 1901 (Cth).

    Item 10 – “securities”

17. The prefatory term “[s]ecurities” in Item 10 in the table in reg 40-5.09(3) was, at the relevant time, defined in the Dictionary to the Regulations as having “the meaning given by subsection 92(1) of the Corporations Law”. (It is apparent from the Explanatory Statement relating to the Regulations that Item 10 defined the term “securities” first by defining that term according to the Corporations Law definition “so as to include shares, debentures and interests in managed investment schemes” and then by including the specifically enumerated meanings because those meanings were expressly excluded from the Corporations Law definition, so as to retain them “for the purposes of defining what is a financial supply”.)

18. Unfortunately, the Regulations continued to refer to provisions of the Corporations Law at the relevant time, even though the Corporations Law had been repealed and replaced and replaced by the Corporations Act. (It was not until 2011 that references made in the Regulations to the Corporations Law were amended so as to refer to the Corporations Act.) It was common ground between the parties that, by the combined operation of ss 10 and 46 of the Acts Interpretation Act 1901 (Cth), the applicable equivalent provision at that time was in fact s 92 of the Corporations Act.

19. Section 92 of the Corporations Act provides that the term “securities” bears several meanings, including, relevantly, “interests in a managed investment scheme” (s 92(1)(c)). The phrase “interest in a managed investment scheme” (emphasis in the original) is defined in s 9 of that Act to mean “a right to benefits produced by the scheme (whether the right is actual, prospective or contingent and whether it is enforceable or not)”. The term “benefit” is relevantly defined in s 9 to mean “any benefit, whether by way of payment of cash or otherwise”.

    Corporations Act – proxies

20. Sections 252V-253A (in Div 5 of Part 2G.4) of the Corporations Act govern proxies in relation to meetings of members of registered managed investment schemes. Section 252V relevantly provides:

    “(1) A member of a registered scheme who is entitled to attend and cast a vote at a meeting of the scheme’s members may appoint a person as the member’s proxy to attend and vote for the member at the meeting.”

    Section 252W provides:

    “(1)A proxy appointed to attend and vote for a member has the same rights as the member:

    (a)to speak at the meeting; and

    (b)to vote (but only to the extent allowed by the appointment).

    ...

    ...

    (3)A registered scheme’s constitution (if any) may provide for the effect that a member’s presence at a meeting has on the authority of a proxy appointed to attend and vote for the member.  However, if the constitution does not make such provision, a proxy’s authority to speak and vote for a member at a meeting is suspended while the member is present at the meeting.” 

    Section 252Y provides, amongst other things, that “[a]n appointment may specify the way the proxy is to vote on a particular resolution” (s 252Y(4)).

    Penalty provisions

21. Section 284-75(1) in Sch 1 to the TAA provided:

    “You are liable to an administrative penalty if:

    (a)you or your agent makes a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law; and

    (b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it; and

    (c)you have a *shortfall amount as a result of the statement.”

22. The amount of the penalty depends upon the “base penalty amount” worked out under s 284-90 (s 284-85). It relevantly depends upon whether the shortfall amount or part of it resulted from:

    (a)intentional disregard of a taxation law by the taxpayer or their agent (in which case the base penalty amount is 75% of the shortfall amount (or part thereof) (Item 1 in the table in s 284-90(1));

    (a)recklessness by the taxpayer or their agent as to the operation of a taxation law (in which case the base penalty amount is 50% of the shortfall amount (or part) (Item 2);

    (b)a failure by the taxpayer or their agent to take reasonable care to comply with a taxation law (in which case the base penalty amount is 25% of the shortfall amount (or part) (Item 3).

23. Section 298-20(1) in Sch 1 provides that the Commissioner may remit all or a part of the penalty.

    ISSUES

24. As I have indicated, it was not in dispute that the applicant had made a “supply” for the purposes of s 9-5 of the Act upon execution of the Deed, as defined in s 9-10, although each party characterised what had been supplied very differently, as is made apparent later in these reasons. The issue to be determined by the Tribunal in respect of the applicant’s liability to GST is therefore whether that supply constituted a “financial supply” for the purposes of reg 40-5.09 as the applicant contended, so that it was input taxed, or instead a “taxable supply”, as the Commissioner contended, the other criteria governing s 9-5 no longer being in dispute.

25. Prior to the hearing, the applicant contended that it was not liable to GST on two further grounds. First, the applicant contended that it had held the units in the Trusts (and presumably entered into the Deed) not in its capacity as trustee of the Australian Style Investment Unit Trust but rather in its own capacity; therefore, it had not made a “taxable supply” as, in the latter capacity, it was not “registered, or required to be registered” for GST (see s 9-5(d)), nor was the supply “made in the course or furtherance of an enterprise” that it carried on (see s 9-5(b)). Furthermore, the applicant contended that liability to GST did not arise because the sum of $4,500,000 paid pursuant to the Deed represented unliquidated damages. Neither of those contentions were pressed at the hearing.

26. The applicant contended that the supply was a “financial supply” because there had been the provision of an interest mentioned in reg 40-5.09(3) (reg 40-5.09(1)). It was not in dispute that what was supplied constituted an “interest” for the purposes of reg 40.5.09, in that it satisfied the definition of that term in reg 40-5.02 – that is to say, the subject of the supply constituted “anything that is recognised at law or in equity as property in any form”. Furthermore, it was common ground that there had been the “provision” of such an interest for the purposes of reg 40-5.09(1) and that the terms of that sub-regulation were otherwise satisfied.

27. However, while the applicant contended that the interest provided was of a requisite kind for the purposes of reg 40-5.09(3), the Commissioner contended that it was not. The applicant contended that that “interest” was “an interest in or under the matter mentioned” in Item 10 in the table in reg 40-5.09(3), being “[s]ecurities”, on two bases. In its written submissions lodged before the hearing, the applicant focussed on para (d) of the definition of securities, therefore contending that what had been supplied was “an interest in or under ... the capital of” the Trusts. In its oral submissions and also in supplementary written submissions lodged after the hearing, the applicant placed greater emphasis on the meaning of the term “securities” according to its prefatory use in Item 10, deriving from the definition in s 92(1) of the Corporations Act. The applicant therefore contended further that what had been supplied was “an interest in or under” “interests in a managed investment scheme” for the purposes of s 92(1)(c) of the Corporations Act.

28. I address the submissions made by the parties in greater detail below. It suffices to say at this point that the parties differed not only in their characterisation of what had been supplied by the applicant but also with respect to the proper construction of reg 40-5.09(3), particularly the expression “in or under”.

29. While “supplies” are defined in s 9-10 in terms of the undertaking of acts (see Commissioner of Taxation v Reliance Carpet Co Pty Limited (2008) 236 CLR 342 at [5]), the question of whether a supply constitutes a “financial supply” turns largely upon the subject of the supply, particularly whether it is an interest of a requisite kind, as enumerated in reg 40-5.09(3) (or (4)). It is therefore useful to identify the supply in terms of its subject before addressing whether it constitutes a financial supply (see Commissioner of Taxation v American Express Wholesale Currency Services Pty Ltd (2010) 187 FCR 398 at [133], Commissioner of Taxation v Qantas Airways Ltd (2012) 247 CLR 286 at [33], Travelex Ltd v Commissioner of Taxation (2010) 241 CLR 510 at [4]).

30. It is therefore necessary to address the following questions with respect to whether there was a “financial supply”:

    (a)what was the subject of the supply made upon execution of the deed?

    (b)what “interest” did the subject of the supply constitute for the purposes of reg 40‑5.09(3)?

    (c)what is the proper construction of the words “in or under” in reg 40-5.09(3)?

    (d)was the interest “an interest in or under ... [s]ecurities” for the purposes of Item 10 in the table in 40-5.09(3), the “securities” being either “the capital of a ... trust” (for the purposes of para (d) of Item 10) or “interests in a managed investment scheme” (for the purposes of s 92(1)(c) of the Corporations Act)?

31. The following issues arise with respect to the  penalty assessment:

    (a)whether the applicant is liable to an administrative penalty of 50% of the shortfall amount under s 284-75(1) of Sch 1 to the TAA on the basis that the shortfall amount resulted from recklessness as to the operation of a taxation law (Item 2, s 284-90(1) of Sch 1 to the TAA);

    (b)if not, whether the applicant is liable to an administrative penalty of 25% of the shortfall amount (or part thereof) on the basis that that amount resulted from a failure to take reasonable care to comply with a taxation law (Item 3, s 284‑90(1));

    (c)if the applicant is liable to an administrative penalty, whether all or a part of the penalty ought to be remitted under s 298-20 (1) of Sch 1 to the TAA.

    CONSIDERATION

    The “supply”

32. It was ostensibly common ground between the parties that the supply made by the applicant was to be identified according to the terms of the Deed, although in that regard, both parties identified what had been supplied somewhat differently.  More significantly, the applicant in fact sought to rely not only upon the terms of the Deed, but also upon various matters beyond its confines, so as to give a very different complexion to the “interest” supplied. 

33. The applicant submitted that the supply “involved a bundle of rights and obligations which included an agreement” as to certain matters, referring particularly to clauses 4(a), 4(b), 4(c) (the applicant’s promises to grant irrevocable proxies, not to attend the meeting in question and to continue to hold the units in the Trusts until the meeting’s conclusion), clause 6 (that TJ’s right to relief in the event of breach would extend beyond damages) and that the consideration under the Deed would only be payable in the event that, amongst other things, the resolutions the subject of the Deed were either withdrawn or not passed (clauses 1 and 2). 

34. In its supplementary written submissions, the applicant submitted that, having regard to those clauses of the Deed, what had been supplied was the right:

    “to attend and vote against the resolutions proposed by the Applicant for consideration by the Unit holders.  This was simply achieved using the agency relationship created by the appointment of a proxy”.

1. The applicant in its oral submissions variously described the rights granted by the applicant to TJ as “effectively a subset” of the voting rights attaching to the applicant’s units and as “in effect a sort of synthetic voting right”. Similar references to what had “effectively” occurred, being that “in substance, the [a]pplicant had granted the real rights to TJ”, pervaded the applicant’s written submissions filed before the hearing.

2. As I have indicated, the applicant relied upon various factors in support of this argument.  With respect to the terms of the Deed, the applicant relied particularly on the following aspects:

   (a)TJ’s promise to pay $4,500,000 as consideration (clause 1);

   (b)the fact that the sum was only payable upon fulfilment of the applicant’s and Mr Bolton’s obligations and subject to the fulfilment of the condition precedent in clause 2 (clauses 1 & 2);

   (c)the fact that the proxies were to be irrevocable and were to direct TJ to vote against the resolutions (clause 4(a)); and

   (d)the applicant’s promise to not attend the meeting nor interfere with the proxies (clause 4(b)) and the applicant’s promise to remain the holder of the units in question until the conclusion of the meeting (clause 4(c)). 

3. The applicant also relied upon clause 6 (the clause concerning remedies available to TJ for breach of the applicant’s or Mr Bolton’s obligations).  Furthermore, the applicant pointed to the applicant’s obligation to “not grant any right or interest in or in respect of the ASI Units to any other person (except TJ or its nominee under clause 4(a))” (clause 4(c) as being indicative of the nature of the voting rights granted to TJ for which it contended.  

4. Additionally, in its written and oral submissions, the applicant sought to rely upon certain matters preceding execution of the Deed, being the fact that the applicant had put forward for consideration the resolutions to be considered at the meeting and also the litigation which had ensued.  The applicant also pointed to facts subsequent to its execution, being TJ’s lodgement of the Form 603 and the fact that, in accordance with the terms of the Deed, TJ’s nominee did, as proxy, vote against the resolutions at the meeting. 

5. The Commissioner identified the supply made by the applicant somewhat differently.  He submitted that it was “the entry into and the performance of those obligations in Clause 4 of the Deed”, referring to each of the paragraphs of that clause, being the applicant’s promises made in clause 4 to which I have just referred and also its promise not to support the resolutions in question (clause 4(d)) and to not disclose the terms of the Deed (clause 4(e)).  The Commissioner therefore characterised the supply as encompassing, amongst other things, the applicant’s appointment of TJ as its proxy by means of the proxy form attached to the Deed.

6. The Commissioner contended that the supply was to be characterised solely according to the legal effect of the Deed, and that events preceding and following its execution were therefore irrelevant in that regard.  He submitted that the legal effect of the Deed was that “the Applicant agreed to appoint TJ as its agent for the sole purpose of attending and voting against the Resolutions at the 14 April meeting” and that the other obligations undertaken by the applicant under the Deed merely governed the basis of, or were ancillary to, that appointment.  

7. In my view, the subject of the supply was the promises made by the applicant enumerated in clause 4 of the Deed (see Qantas Airways Ltd at [33]). The execution of the Deed by the applicant constituted “an entry” into obligations to do things and to refrain from acts within the terms of s 9-10(2)(g) (see subparas (i) and (ii)). Alternatively, if the word “obligation” in s 9-10(2)(g) should not be read as including the plural according to the customary rule, the execution of the Deed constituted the entry into each of the obligations in clause 4, which in combination formed a single supply by operation of s 9-10(2)(h).

8. Shortly stated, the following promises were supplied.  Under clause 4 of the Deed, the applicant promised that it would deliver irrevocable proxies in respect of the applicant’s units in the Trusts, directing TJ to vote against each of the resolutions to be considered at a particular meeting of unit holders.  Furthermore, the applicant promised not to attend that meeting, not to revoke or “take any other action that might affect the validity or exercise” of the proxies, to remain the holder of those units until the meeting’s conclusion, not to support the passing of those resolutions and not to disclose the terms of the Deed.

9. The supply perhaps also comprised, by virtue of clause 6 of the Deed, the creation of a contractual right within the terms of s 9-10(2)(h) (forming part of the subject of the supply by operation of s 9-10(2)(h)) or alternatively a further obligation within the terms of s 9-10(2)(g). It seems to me that the resolution of that question depends upon whether clause 6 gave TJ greater remedies than they would otherwise have had or instead merely reflected an acknowledgement by the parties of remedies to which TJ would be entitled in any event by operation of the other clauses of the Deed, and also whether it involved the undertaking of any obligation on the part of the applicant within the terms of s 9 10(2)(g) with respect to defences it might otherwise raise to any action for breach of contract. Given my reasons below, it is not necessary for me to resolve that question.

10. In my view, contrary to the applicant’s submission, the supply did not comprise the provisions governing payment under clauses 1 and 2.  Those clauses concerned TJ’s obligations under the deed, particularly the “consideration” for which the supply was made (s 9-5 para (a)). 

11. Furthermore, I do not accept the Commissioner’s submission that the supply comprised not merely the making of the promises under clause 4 but also the keeping of them.  I note that that submission seemed to contradict his submission that the supply was to be characterised without regard to events following the execution of the Deed. Where a supply is made by entering into an executory contract, in my view the performance of obligations under the contract cannot be the subject of that same supply, as the supply is already complete (see MBI PropertiesPty Ltd v Commissioner of Taxation [2013] FCAFC 112 at [24] per Edmonds J). (In that regard, it seems to me that the reference in s 9-10(2)(h) to “any combination” of matters referred to in the earlier paragraphs should not be taken to suggest that a supply can be constituted by acts occurring over a period of time.)

12. It seems to me that that is so even in circumstances where the promises supplied under the contract are in fact kept contemporaneously. As the High Court observed in Reliance Carpet at [5], “there may be disclosed consecutive acts each of which answers the statutory description of ‘supply’, but upon examination it may appear that there is not more than one “taxable supply”. In my view, the same can be said of contemporaneous acts if one involves entering into an obligation and the other involves satisfying that obligation – the latter might constitute a supply on its own account, but it will not form the subject of the same supply. Temporal considerations, while telling in many cases, are not decisive of the questions of why there has been a supply and what has been supplied (see Travelex at [4]).

13. The execution of the Deed constituted a supply because the applicant made the promises enumerated in clause 4.  The supply did not extend to the keeping of those promises, even that kept at the same time.  Although the delivery of the signed proxy form occurred contemporaneously with the execution of the Deed, its delivery and the appointment of TJ’s nominees as the applicant’s proxy necessarily occurred in the fulfilment of the applicant’s obligation under clause 4(a).  With respect to the applicant’s subsequent performance of its other obligations concerning the meeting of unit holders, they could not form part of some sort of “continuing” supply (MBI Properties at [24]). It seems to me that the fact that, under clause 1, TJ were only required to make payment if, amongst other things, the applicant performed its obligations in clause 4 does not alter that conclusion, as clause 1 concerns the consideration for which the supply was made (see s 9-5(a)), not the supply itself.

    The “interest” supplied

    Introduction

14. In case I am wrong in my view that the supply did not encompass the performance of the applicant’s obligations and particularly in characterising the supply in terms of the applicant’s promise to appoint the proxy rather than in terms of that appointment, I note that my view in that regard has not affected my conclusions about the issues in dispute, as will be apparent from the reasons that follow. Nor was that distinction of itself the focus of submissions before me. As I have indicated, the real dispute between the parties about the characterisation of the supply was the true consequences of the proxy’s appointment in terms of the “interest” supplied for the purposes of reg 40-5.09(3), irrespective of whether it had in fact occurred or merely been promised.

15. With respect to that question, I note, as should be apparent from the excerpt from the applicant’s written submissions quoted above (para [51]), that the applicant did not contend that the Deed was a sham (see Commissioner of Taxation v Gloxinia Investments Ltd (2010) 183 FCR 420 at [90]), that is to say that it was intended to give “the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intended to create” (Snook v London & West Riding Investments Ltd [1967] 2 QB 786 at 802 per Diplock LJ, cited in Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123 at [97]). Nor did the applicant contend that the proxy was not in fact genuinely a proxy in the proper sense of that word (see Coachcraft Ltd v SVP Fruit Co Ltd (1980) 28 ALR 319 at 328-9).

16. In a proceeding such as this, being one where s 14ZZK(b)(i) of the TAA applies, the correct or preferable decision to be made by the Tribunal under s 43 of the Administrative Appeals Tribunal Act 1975 (Cth) will depend upon whether the applicant has discharged the burden of proving that the assessment is excessive (Rawson Finances Pty Ltd v Commissioner of Taxation [2013] FCAFC 26 at [89]-[90], [116] per Jagot J (Nicholas J agreeing)). Given the contentions made by the applicant, it is therefore probably unnecessary for me to consider whether such inferences are open to be drawn from the evidence before the Tribunal (Commissioner of Taxation v Glennan (1999) 90 FCR 538 at 556-8 and the cases referred to therein).

17. However, as that has been acknowledged as merely being a “general rule” (ibid at 558; see also Comcare v Fiedler (2001) 115 FCR 328 at 338), I should add that, in my view, the evidence before the Tribunal does not reasonably support a finding that the Deed was a sham, nor that the proxy was not truly a proxy. As Jessup J recently noted in Rawson Finances at [62] (quoting Minister for Immigration and Ethnic Affairs v Pochi (1980) 31 ALR 666 at 685), the Tribunal must proceed by reference to “rationally probative evidence” rather than on mere “suspicion or speculation”. Such findings would involve “impermissible conjecture” rather than “permissible inference” on my part (see Rawson Finances at [88] per Jagot J).

18. The applicant, as unit holder, was in a position to appoint a proxy at the time the Deed was executed (cf. Coachcraft at 328-9; Wood v Laser Holdings Ltd (1996) 14 ACLC 801) (and indeed was required under the terms of the Deed to continue to hold the units until the conclusion of the meeting). Although the applicant had put forward the resolutions the subject of the Deed for consideration, there was no evidence before me to serve as the basis of a finding that, as at the date that the Deed was executed, it was not in the interest of the applicant to vote against those resolutions and that accordingly the proxy was not truly a proxy (cf. Coachcraft at 328-9).

19. I turn now to the question of the proper characterisation of the “interest” provided, for the purposes of reg 40-5.09. Although I then address the various matters relied upon by the applicant in that context, I note also that those matters also do not, in my view, give rise to the inference that the Deed was a sham or the proxy was not genuine.

20. I have expressed the view that the subject of the supply was wholly executory in nature, in the sense that the supply was complete upon the making of each of the promises in clause 4 of the Deed.  On that basis, it seems to me that the “interest” reflected in the subject of the supply, being the thing “recognised at law or in equity as property in any form” (see reg 40-5.02) that was provided by the applicant, was a chose in action which comprised the rights of action arising under the Deed in respect of those promises, including the promise to deliver the irrevocable proxies (clause 4(a)) (see Loxton v Moir (1914) 18 CLR 360 at 379). (I note that such rights were the subject of clause 6.)

21. However, as I have indicated, my conclusion as to whether the applicant provided an “interest in or under ... [s]ecurities” for the purposes of reg 40-5.09(3) has not turned on whether the supply encompassed merely the making of the promise in clause 4(a) or also the keeping of that promise. Given the submissions made by the parties and in case I am wrong in my identification of the interest provided, I shall therefore assume for the purpose of the analysis that follows that the “interest” provided by the applicant extended to the rights that accrued to TJ upon the delivery of the irrevocable proxies in accordance with clause 4(a). What then did that aspect of the provided interest entail?

    Proxies

22. As I have indicated, the applicant accepted, properly in my view, that the appointment of the proxy gave rise to a relationship of agency between TJ and the applicant.  A proxy is merely “[a] person representative of” a member “who may be described as his agent to carry out a course which the [member] himself has decided upon” (Cousins v International Brick Co Ltd [1931] 2 Ch 90 at 100, cited with approval in Cordiant Communications v Communications Group (2005) 194 FLR 322 at 331 per Palmer J; Totally & Permanently Incapacitated Veterans’ Assn of New South Wales Ltd v Gadd (1998) 28 ACSR 549 at 558 per Young J).

23. That principle is given statutory force by ss 252V and 252W of the Corporations Act (see Cordiant at [55] with respect to the equivalent provisions concerning proxies in relation to companies). (As I have indicated, those provisions applied to the Trusts (clause 15.10(a) of the Constitutions.)It is reflected in the reference in s 252V(1) to the member’s right to appoint a person as their proxy “to attend and vote for the member at the meeting” (emphasis added) (see also s 252W(3)). It follows that the proxy “has authority to vote on behalf of the [member] only for such time and for such purpose as the [member] allows” (ibid).

24. The statutory rights granted to proxies under s 252W are rights that arise by virtue of their appointment as a member’s agent (see s 252V) and are therefore held in that capacity. The proxy appointed by the applicant had the statutory rights conferred under s 252W of the Corporations Act, relevantly the “same rights” as the applicant “to vote (but only to the extent allowed by the appointment) (s 252W(1)(b)). Accordingly, the proxy’s right in this case was to vote at the particular meeting the subject of the proxy form and to vote in a particular way, in that he was directed to vote against each of the resolutions to be considered at that meeting.

25. In that regard, contrary to the applicant’s submission, the reference in s 252W(1) of the proxy having the “same rights” as the member should not be taken to suggest that the proxy by its appointment gains replicative rights in relation to the managed investment scheme held on its own account. Rather, it merely reflects the principle that the proxy’s rights qua agent are conterminous with those of the member on whose behalf the proxy acts (see also clause 15.9(a) of the Constitutions). Sections 252V-253A of the Corporations Act serve to govern the relationship of a member to a registered managed investment scheme in circumstances where the member appoints a proxy.

26. The applicant did not, by appointing a proxy, relinquish its statutory right to attend and vote at the meeting (see Cordiant at [70]).  Rather, the proxy’s authority to vote for the applicant at the meeting was susceptible of suspension if the applicant was present at that meeting (s 252W(3)).  

27. As the Commissioner submitted, that is so even though the proxy’s appointment was irrevocable.  The applicant’s attendance at the meeting would not have constituted revocation of the proxy; rather, it would have made the exercise of the proxy unnecessary (Cordiant at [65]; Cousins at 95, 103). “Every proxy is subject to an implied condition that it should only be used if the shareholder is unable or finds it inconvenient to attend the meeting”: Cousins at 102.

28. The applicant’s attendance at the meeting and also the applicant’s voting at the meeting would, however, have constituted a breach of clause 4(b) of the Deed (see Cordiant at [66], Cousins at 95-6).

    The applicant’s submissions

29. As I have stated, the applicant relied upon various matters both within and outside the terms of the Deed in seeking to elevate the “interest” provided to one of the requisite kind for the purposes of reg 40-05.09.  With respect to the terms of the Deed, the applicant sought to derogate the significance of the relationship of agency that arose upon the appointment of the proxy pursuant to clause 4(a), describing it in oral submissions as “just the mechanism by which the rights that have been conferred on TJ have been delivered to it”.

30. In my view, the applicant’s submissions in that regard are irreconcilable with the doctrine of agency and also disregard the import of the provisions of the Corporations Act to which I have referred. Once it is accepted that a relationship of agency arose, certain consequences ineluctably follow. For the reasons I have expressed, I accept the Commissioner’s submission that the Deed merely conferred on TJ the right to vote on behalf of the applicant at the meeting (as directed) and did not somehow confer any right to vote on its own account. The voting rights attached to the units continued to be held by the applicant, as a unit holder in the Trusts (see clauses 3.8, 15.9 and 15.10 of the Constitutions; see also Re Alex Russell, deceased [1968] VR 285 at 299-300).

31. Nor do any of the other provisions of the Deed assist the applicant in its contended characterisation of the interest provided.  I accept the Commissioner’s submission that the other terms of the Deed upon which the applicant relied merely concerned the basis upon which the proxy was appointed and its contractual rights and obligations in that regard.  The applicant pointed to the words in parentheses in clause 4(c) (“except TJ or its nominee under clause 4(a)”) as indicating contractual recognition that TJ’s rights extended beyond those of an (irrevocably appointed) proxy.  Given the very wide words “interest in or in respect of” used earlier in that clause, I do not see how it assists the applicant. In any event, the clause merely begs the question of the nature of the “right or interest” granted under clause 4(a). The fact that the proxy form provided for the proxy to vote at a particular meeting and in a particular way accords with ss 252Y (paras (1)(d) and (4)) of the Corporations Act) (see Cordiant at [55], [65]).

1. Nor does the fact that TJ agreed to pay a considerable sum to act as proxy elevate the rights granted to it beyond those I have described.  A proxy, as an agent to vote for a member, has fiduciary duties (Gadd at 558) and therefore cannot acquire any profit or benefit from the agency without the informed consent of the principal. However, in my view it can be inferred from the fact that TJ were referred to in the Deed as joint venturers in relation to the Project and from the terms of the Deed, particularly that concerning the consideration payable (clause 1), that the applicant was aware that TJ might benefit or profit from acting as proxy to vote against the resolutions and had sanctioned such an occurrence (see Peninsular and Oriental Steam Navigation Company v Johnson (1938) 60 CLR 189 at 252 per Dixon J).Given that a principal can give informed consent to such an alignment of an agent’s interests with its own, while it might be unusual to pay to act as agent, it is not inconceivable or fanciful.  Accordingly, as I have indicated, in my view clause 1 of the Deed does not in itself indicate that the Deed was a sham or that the proxies were not genuine.

2. I turn now to address the matters outside the confines of the terms of the Deed upon which the applicant sought to rely in characterising the interest supplied.  Before doing so, I note that the applicant in its written submissions lodged before the hearing submitted in effect that the exercise of construing the terms of the Deed should be undertaken bearing in mind that the GST is a “practical business tax”, relying on authorities such as Brady King Pty Ltd v Commissioner of Taxation (2008) 68 FCR 558 at [30] so as to support its submission that the rights supplied under the Deed “in a practical sense gave TJ an interest in the Applicant’s ... units for a period of time”. At the hearing, counsel for the applicant said that that aspect of the applicant’s written submissions was not pressed. In my view that course was properly taken, as the submission impermissibly conflated construction of the Deed with construction of the legislation (see Gloxinia Investments at [92]-[93] per Middleton J (Kenny J agreeing)).

3. However, despite Counsel’s attempts to frame the applicant’s argument in terms of the provisions of the Deed, the applicant nevertheless persisted with submissions redolent of those rejected by the majority of the Full Federal Court in Gloxinia Investments.

4. Just as in that case the majority held that it could not ignore the legal form and effect of the transaction in question (at [78]-[94]), in this proceeding the Tribunal cannot, in ascertaining whether there was a “financial supply” for the purposes of reg 40-5.09, characterise the interest supplied according to what the applicant contended had occurred “effectively” or “in substance” and ignore the legal effect of the Deed described above.

5. That being so, and given that the applicant did not contend that the Deed was a sham or that the proxies were not genuine, I accept the Commissioner’s submission that both the fact that the applicant had proposed the resolutions the subject of the Deed and the litigation preceding the execution of the Deed are irrelevant to the characterisation of the interest supplied.

6. It can be inferred from the Form 603 and the fact that a copy of the Deed was attached to that form that TJ (and other entities) had formed the view that it had obtained a “relevant interest” for the purposes of s 608(1)(b) of the Corporations Act upon execution of the Deed. It is not necessary for me to determine whether such a view was well-founded. The question before the Tribunal is whether the applicant made a “financial supply” for the purposes of the Act and Regulations upon execution of the Deed. Neither the fact that TJ considered that they had obtained a “relevant interest” for the purposes of the Corporations Act, nor consideration of whether that view was correct, assist in answering that question.

7. I accept the Commissioner’s submission that the fact that the Deed was performed so that the proxy did in fact vote against the resolutions at the meeting as provided is similarly irrelevant to the characterisation of the interest supplied.  The interest supplied is not to be characterised according to the outcome of the transaction in question (see Qantas Airways).

8. The applicant also submitted that the “interest” provided should be characterised “from TJ’s perspective” and in effect according to TJ’s motivation, stating in its supplementary written submissions that the fact that it was prepared to pay $4,500,000 under the terms of the Deed “is only explicable” in view of its role in the Project and that it “certainly did not pay” that amount “in order to simply perform agency services for the benefit of the Applicant”.  I accept the Commissioner’s submission that the applicant adduced no evidence as to why TJ entered into the Deed, save for the bland and general evidence given in Mr Bolton’s witness statement that interested parties including TJ “were not desirous of any of the resolutions proposed by [the applicant’s] two requisition notices being made”.  

9. In any event, as I have said, it can be inferred that the applicant was aware that TJ might benefit or profit from acting as proxy to vote against the resolutions and had sanctioned such an occurrence.  Similarly, it is evident that TJ considered it to be in their interest to act as the applicant’s proxy for some reason, hence the considerable sum promised as consideration.  Even if that inference ought to be drawn that TJ were motivated by their involvement in the Project to pay that amount, that does not alter what it was in fact paid for according to the legal effect of the Deed, being the right to act as the applicant’s proxy.The question is what interest was in fact supplied to TJ under the Deed, not what motivated TJ to pay the amount of consideration for that supply or to enter into the Deed, whether it was their involvement in the Project or any other reason.

   Conclusion

10. In summary, the “interest” provided by the applicant for the purposes of reg 40-5.09 upon execution of the Deed is to be characterised according to the legal effect of the Deed.

11. As I have said, my view is that the “interest” provided was a chose in action which comprised the rights of action arising under the Deed in respect of each of the promises in clause 4 of the Deed, including the promise to deliver the irrevocable proxies (clause 4(a)).

12. If that is not so, in that the “interest” extended to the rights that accrued to TJ upon the delivery of the irrevocable proxies in accordance with clause 4(a), that aspect of the interest entailed the contractual right to attend the meeting as the applicant’s agent and to vote against the resolutions specified in the proxy form unless the applicant attended.  For the reasons I have expressed, on that basis the “interest” provided was a chose in action which comprised that right (Loxton v Moir at 379) and also the rights of action arising under the Deed in respect of the remaining promises in clause 4, being clauses 4(b) (the applicant’s promise not to attend the meeting or otherwise interfere with the exercise of the proxies), 4(c), 4(d) and 4(e).

13. As I have indicated, either characterisation of the “interest” supplied ultimately leads to the same conclusion with respect to the satisfaction of the terms of reg 40-5.09.

    “In or under” – reg 40-5.09(3)

14. The applicant submitted that the expression “in or under” in reg 40-5.09(3), according to the ordinary meaning of those words, merely requires that the interest supplied “relate” to securities within the terms of Item 10, in the sense that the interest “derives its existence from, or has been carved out from the limits of” the supplier’s securities. The applicant in its oral submissions said that the interest supplied under the Deed “flowed from” the applicant’s units in the Trusts because the Constitutions permitted unit holders to appoint proxies to exercise their right to vote in accordance with the relevant provisions of the Corporations Act (the applicant referred to clauses 3.8, 15.9 and 15.10 in that regard). The applicant submitted that a different construction would mean that only a supply involving a transfer of ownership of securities would suffice, which would impermissibly render the phrase otiose.

15. The Commissioner submitted that the expression “in or under” requires that the supply provide a relationship to the matter enumerated in the table in reg 40-5.09(3), including securities, “sufficient to constitute a property interest” in the sense explained by the majority of the Full Federal Court in American Express (at [178], at [179]-[181]). The Commissioner said that the interest supplied therefore may, but need not, involve a transfer of ownership of securities. The applicant sought to distinguish that authority on the basis that it was concerned with the construction of a different regulation (reg 40‑5.12, which defines supplies that are not financial supplies). The Commissioner submitted that it was not properly distinguishable, as the phrase “in or under” ought to bear the same meaning in both regulations.

16. I accept the Commissioner’s submissions in that regard. Having regard to the ordinary meaning of the prepositions “in and “under” and upon considering the expression “in or under” read in the context of the provision in which it appears and its wider statutory context, in my view it requires a nexus between the “interest” and the “matter” mentioned in the items in the table in reg 40-5.09(3) more proximate than that for which the applicant contends.

17. In my view, the phrase “interest in or under” ought to be read confluently, that is to say as a whole (see Sea Shepherd Australia Limited v Commissioner of Taxation (2013) 212 FCR 252 at [34] and the cases referred to therein) and by importing the definition of the term “interest” in reg 40-5.02 (“anything that is recognised at law or in equity as property in any form”) into the substantive provision so as to aid in its construction (see Allianz Australia Insurance Limited v GSF Australia Pty Limited (2005) 221 CLR 568 at [12] per McHugh J, citing Kelly v The Queen (2004) 218 CLR 216 at [103]).

18. It seems to me from the terms of reg 40-5.09 (including 40-5.09(1)) and that definition that the expression “in or under” is somewhat collateral to the term “interest” – the true focus of the regulation is “interests, the provision, acquisition or disposal of which may constitute a financial supply” (Travelex at [17] per French CJ and Hayne J).

19. Although the majority in American Express did not expressly say so, it is apparent from their reasoning that they took such an approach in construing the phrase “interest in or under” in reg 40-5.12.  Accordingly, the majority concluded that the requisite nexus between the interest and thing involved “a property interest broadly conceived, in or under” the thing in question (at [180]) and also as “an interest, enforceable at law or equity, in or under” the thing in question (at [181]) (emphases added). 

20. Similarly, the relationship required between the interest supplied and the matters mentioned in reg 40-5.09(3) must constitute a property interest in the broad sense described by the majority in American Express.  I see no indication in the text of that provision nor in the wider statutory context to suggest that the phrase “in or under” ought to be given a different meaning from that which it bears in reg 40-5.12 (see Craig Williamson Pty Ltd v Barrowcliff [1915] VLR 450 at 452).

21. The “interest in or under” the matters mentioned in reg 40-5.09(3) which is supplied therefore may amount to ownership of such matters (see, eg. Travelex at [4], [45]), but it need not do so. (Although reg 40-5.12 refers to “the supply of something, or an interest in or under something”, in my view that provision should not be taken to suggest otherwise, nor did it affect the High Court’s construction in that regard in Travelex – it is perhaps best explained by the nature of the things mentioned in the table in that provision, some of which are not suited to being described in terms of property interests.)

22. In any event, in my view the prepositions “in” and “under”, read in the context in which they appear, naturally import an immediate nexus with the matters enumerated in reg 40‑5.09(3), including securities, in the sense that the interest must reside in those matters (see Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 249-50). The examples of interests provided in reg 40-5.02 tend to confirm that that is so.

23. I note that it seems to me that the prepositions “in” and “under” in reg 40-5.09(3) are intended to be of alternating, rather than alternative application. That is to say, that the question is not whether the interest is “in or under” each of the enumerated matters (the satisfaction of either one being sufficient), but rather, whether the interest is “in” matters in respect of which that preposition is syntactically appropriate or “under” matters in respect of which that one is apt. That tends to be confirmed by the wider statutory context, which reveals the use of the preposition “under” alone (see the examples in regs 40-5.02, 40-5.06 and 40-5.12) and by the context provided by the fact that the GST is a practical business tax. However, in my view, nothing turns on that point, as the requisite nexus is the same whether one reads the provision as requiring an “interest in” securities (the most appropriate reading in my view), an “interest … under” securities or an “interest in or under” securities.

24. In my view, the nexus the applicant contended to be reflected in the words “in or under” in reg 40-5.09(3) is therefore too remote and tenuous. As the High Court noted in QantasAirways at [21], a number of provisions of the Act “use phrases of relationship and connection”. The Court noted (at [22]) that in Travelex it had been concerned with the phrase “in relation to rights”, in Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256 the Full Federal Court had been concerned with the phrase “connected with Australia”, while in TAB Ltd v Commissioner of Taxation (2005) 223 ALR 309 the Court had been concerned with the phrase “relating to the outcome of a *gambling event” (emphases added). It seems to me that such phrases permit a more remote or tenuous nexus than that with which I am concerned in this case. If the legislature had intended for reg 40-5.09 to encompass interests with a similar degree of connection to the enumerated matters, one would expect that words of similar import would have been used.

25. I consider that my conclusion as to the meaning of the words “in or under” in reg 40‑5.09(3) is supported by the “wider setting and the architecture of the GST Act as a whole” (MBI Properties at [34] per Edmonds J, citing HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553). As Hill J observed in HP Mercantile (at [17]), given that, as was said in the Explanatory Memorandum relating to the Act, “there is no readily agreed identifiable value for supplies consumed by customers of financial services”, the Act provides for input taxed supplies “[b]y way of what may be seen as a compromise for the difficulties of applying the normal system of value added taxation to financial supplies and other difficult cases”. In my view, the text of the provision, by using words of proximate nexus in identifying financial supplies, reflects the legislative intention to which Hill J referred. The construction for which the applicant contended does not.

    Interest in or under “securities” – reg 40-5.09(3) Item 10

26. It follows from my conclusions as to the nature of the interest supplied by the applicant in this case and the proper construction of reg 40-5.09(3), particularly as to the nature of the nexus required between the interest supplied and the enumerated matters, that I accept the Commissioner’s submission that the interest provided by the applicant was not an “interest in or under .. [s]ecurities” on either basis for which the applicant contended.

27. The interest was not an “interest in or under” “the capital of” the Trusts (Item 10 para (d)). Nor was it an interest in or under “interests in a managed investment scheme” (according to the definition of “securities” in s 92(1)(c) of the Corporations Act), that is to say an interest in or under “rights to benefits produced” by the Trusts (see definition of “interest in a managed investment scheme” in s 9 of the Corporations Act).

28. The rights provided to TJ under the Deed, being the rights of action arising in respect of the promises made by the applicant in clause 4 and perhaps extending to the irrevocable right to act as the applicant’s proxy as appointed, were contractual rights, enforceable only against the applicant.  The interest provided by the applicant was therefore not a “property interest broadly conceived” in or under the capital of the Trusts or rights to benefits produced by the Trusts in the sense described by the majority in American Express. It was not enforceable at law or equity in or under such “[s]ecurities”. Furthermore, as I have said, the proxy’s rights under s252W of the Corporations Act were held solely in its capacity as the applicant’s agent. Those statutory rights were therefore not capable of constituting an “interest in or under ... [s]ecurities” supplied by the applicant for the purposes of reg 40-5.09(3).

29. The applicant’s primary submissions were posited on the basis that the relevant security for the purposes of reg 40-5.09(3) must be held by the supplier of the interest at the time of the supply. In its supplementary written submissions lodged after the hearing, the applicant contended in the alternative that the interest provided by the applicant under the Deed was an “interest in or under” a security, being TJ’s own pre-existing “interest in a managed investment scheme”. The applicant contended that TJ had a “right to benefits produced” by the Trusts satisfying the definition in s 9 of the Corporations Act of the term “interest in a managed investment scheme” and that by appointing TJ as its proxy, the applicant supplied an “interest in or under” that security, according to the definition of the term “security” in s 92(1)(c) of the Corporations Act.

30. The applicant contended that TJ had such a “right to benefits produced” by the Trusts because, as indicated in the Product Disclosure Statement annexed to Mr Bolton’s witness statement, TJ were the “D & C Contractor” for the Project and therefore, as it was put in that PDS, was “entitled to an early completion bonus, equal to a share of the extra operating cash flows arising due to [sic] Airport Link Opening being achieved early”. 

31. For the purposes of reg 40-5.09, the interest supplied must be one which was either the property of the supplier immediately before the supply or was created by the supplier in making the supply. That is confirmed by the definition of “financial supply provider” in reg 40-5.06 (see reg 40-5.09(1)(b)(ii)). Given that the phrase “interest in or under” requires a “property interest” in the sense I have described, which might (but need not) constitute ownership of the enumerated matters, it follows that reg 40-5.09(3) is not concerned with interests in or under matters that are the property of the acquirer immediately before the supply (see also reg 40-5.06(2)).

32. Furthermore, I accept the Commissioner’s submission that TJ’s entitlement described in the PDS did not constitute a “right to benefits produced” by the Trusts and therefore an “interest in a managed investment scheme” for the purposes of the definition of “security” upon which the applicant relied in any event.  As the Commissioner submitted, while the word “benefit” has a wide meaning in the context in which it is employed, those provisions, read in their wider statutory context, are concerned with such rights and interests as held by members of managed investment schemes, not contractual rights of third parties that might affect the benefits produced by the scheme (see Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd (2009) 180 FCR 11 at [79]). Accordingly, I reject the applicant’s alternative submission.

    Supply under Deed not a financial supply

1. For the above reasons, the “interest” provided by the applicant under the Deed was not an “interest in or under ... [s]ecurities” for the purposes of reg 40-5.09(3). As the supply made by the applicant upon execution of the Deed was therefore not a “financial supply”, it follows that it was a “taxable supply” for the purposes of the Act.

   PENALTY

2. I now turn to consider the issue of the applicant’s liability to an administrative penalty. It was not in dispute that, if the supply made by the applicant was a taxable supply, the relevant BAS was a “false or misleading” statement and that there was a “shortfall amount” as a result of the statement for the purposes of s 284-75 in Sch 1 to the TAA. The GST payable by the applicant was attributable to the quarterly period the subject of the BAS, being when the consideration was received for the supply (s 29-5 of the Act).

3. The applicant bears the onus of proving that the penalty assessment was excessive (s 14ZZK of the TAA; see Hart v Commissioner of Taxation (2003) 131 FCR 203 at [38], cited with approval in Sent v Commissioner of Taxation [2012] FCA 382 at [159]). The applicant was therefore required to prove (on the balance of probabilities) that the shortfall amount did not result from recklessness by the applicant (or its agent) as to the operation of the Act (see ibid at [161]). It was not in dispute that in this case the focus of inquiry was on the conduct of the applicant, not that of any agent.

4. In Hart, Hill and Hely JJ cited with approval the following passage from the judgment of Cooper J in BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347 at 364:

   “Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful risk, that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness.”

5. “Recklessness” has therefore been described, in the context of s 284-90(1), as involving an objective test but with subjective elements, being knowledge that there is a real as opposed to a fanciful risk that the statement may be incorrect or gross indifference as to its correctness (Howard v Commissioner of Taxation (2012) 206 FCR 329 at [56]; see also Commissioner of Taxation v R & D Holdings (2007) 160 FCR 248 at [70], [109]).

6. The applicant, in seeking to demonstrate that its conduct was not reckless, relied upon Mr Bolton’s evidence given in his witness statement that the applicant had obtained legal advice with respect to its GST liability and his evidence given under cross-examination in relation to the correspondence of 15 April.  The applicant also relied upon the fact that TJ’s solicitors initially sought a tax invoice not from the applicant but rather from Australian Style Holdings and the fact that TJ’s solicitors referred to “invoices” in the plural in their email of 23 April.  Furthermore, the applicant submitted that “the evidence demonstrates that it made reasonable attempts to comply with the taxation law in the circumstances”, those circumstances including the fact that the law governing the applicant’s liability to GST in relation to the transaction was complex and the fact that the Commissioner did not publish its relevant Interpretative Decision (ATO ID 2011/20) until March 2011, while the relevant BAS was lodged in December 2009.

7. I infer from the correspondence of 15 April, which was framed in the context of express obligations under the Deed, that the denial by the applicant’s solicitors of any obligation to provide a tax invoice was not based upon any analysis of the applicant’s liability to GST but merely upon the fact that the Deed did not expressly require the applicant to provide one. I infer from the fact that the Deed made no mention of GST, the short time that had passed since the resolution of the litigation and the execution of the Deed, Mr Brown’s response and also Mr Bolton’s evidence given under cross-examination that the applicant had not contemplated at that stage that liability to GST might arise by operation of law, irrespective of whether express provision was made for it in the Deed. The evidence shows that, by about 17 June at the latest, it had been brought to the applicant’s attention that TJ’s solicitors were of the view that liability to GST in respect of the transaction arose by operation of the Act.

8. Under cross-examination, Mr Bolton referred to the belief “we” held as to there being no obligation to provide a tax invoice.  Evidence in remarkably similar terms was given not only with respect to the correspondence sent by TJ’s solicitors on 15 April, but also with respect to the failure to respond to their correspondence of 23 April and 17 June.  As I have indicated, Mr Bolton also gave evidence that the correspondence of 15 April and the offer to provide a tax invoice if a higher amount were paid had occurred in the context of “posturing”.  However, he accepted that, as indicated in Mr Brown’s correspondence of 15 April, the applicant would have provided a tax invoice if TJ had agreed to pay such a higher amount. 

9. I infer from that evidence that the applicant’s belief that there was no obligation to provide a tax invoice had no better foundation by 17 June than it had on 15 April.  The applicant’s failure to respond to the subsequent requests for a tax invoice was therefore not based upon any view that there had not been a taxable supply, nor legal advice to that effect, but rather a continuation of the previous “posturing”, given that TJ had declined to pay more than the consideration payable under the Deed. 

10. Contrary to the applicant’s submission, I am not satisfied that the applicant or its solicitors ever informed TJ’s solicitors that they did not believe that a taxable supply had been made. I prefer the contemporaneous documentary evidence to Mr Bolton’s vague and general evidence given under cross-examination in that regard, which derived from a recollected paraphrasing of Mr Brown’s correspondence of 15 April.

11. I accept Mr Bolton’s evidence that the applicant obtained legal advice with respect to its GST liability.  It seems very likely that would occur at some stage, if only in addressing the applicant’s prospects of success in this proceeding.  However, no evidence was given as to when the applicant obtained such advice.  Furthermore, I note that Mr Bolton’s evidence about that legal advice appeared in the final sentence of his witness statement, following evidence concerning the period from the lodgement of the BAS in December 2009 until the issuing of the Commissioner’s objection decision in February 2011.  It is the only evidence in that section of the witness statement which does not refer to any date.  Therefore, I am not satisfied that the applicant obtained legal advice at the relevant time, being prior to the lodging of the BAS. 

12. Furthermore, no evidence of the content, nature or source of that legal advice was adduced, nor was any such written advice before the Tribunal.  (As the applicant only relied upon evidence of the fact that legal advice had been obtained about the transaction and did not disclose its substance or content, it was not disputed that there had not been a waiver of privilege in that regard (see Switchcorp Pty Ltd v Multiemedia Limited [2005] VSC 425 at [12])). Accordingly, the mere fact that the applicant obtained legal advice does not assist the applicant in demonstrating that the shortfall amount did not result from recklessness – it cannot be assumed that the applicant was advised that the transaction did not attract liability to GST.

13. Having regard to the contemporaneous documentary evidence and Mr Bolton’s evidence given under cross-examination, I find that the applicant, having been unsuccessful in extracting a higher payment from TJ, recklessly “closed its eyes” to the issue of whether the transaction was subject to GST in preparing and lodging its BAS for the relevant period.  There is no basis in the evidence to infer that the applicant’s focus moved beyond mere commercial considerations prior to the lodgement of the BAS. 

14. That being so, in my view the complexity of the provisions governing financial supplies and the fact that the ATO had not yet published its view was immaterial.  On the evidence before the Tribunal, the applicant had not attempted to consider the question of whether the transaction involved a taxable supply at all, and therefore had not been confronted by the complexity of the issue of whether the supply was input taxed.

15. I do not accept the applicant’s submission that its conduct is explicable by the fact that TJ’s solicitors first sought a tax invoice from Australian Style Investments and later referred to “invoices” (which perhaps related to the disclosure of several ABNs).  The evidence does not support that submission.  What matters is that the applicant was made aware on several occasions that TJ considered that they were entitled to a tax invoice in respect of the transaction and, as I have said, was aware at least by June 2009 that TJ’s solicitors believed that the applicant was under a statutory obligation, rather than merely a contractual obligation, to provide one. 

16. I accept the Commissioner’s submission that the applicant has not proved that that penalty assessment is excessive.  Given the evidence before the Tribunal, I am not satisfied on the balance of probabilities that the applicant was not reckless in the sense described in BRK. 

17. Furthermore, in my view the evidence before the Tribunal, together with the lack of evidence as to any proper consideration of the GST consequences of the transaction prior to the lodging of the BAS, demonstrates that the shortfall amount did result from recklessness by the applicant as to the operation of the Act. In that regard, I do not mean to suggest that the applicant ought to have concluded that the transaction involved a taxable supply merely because TJ’s solicitors expressed the view that it did. However, the applicant should have been put on inquiry and, in the absence of proper consideration of the issue, ought reasonably to have seen that there was a “real risk” of the kind described in BRK.  I infer from the evidence that the applicant knew that there was a real, as opposed to a fanciful, risk that the contents of the BAS may be incorrect and I find that its conduct amounted to “gross carelessness” of the kind described in BRK.

18. It is therefore unnecessary for me to consider whether the shortfall amount results from a failure by the applicant to take reasonable care (see s 284-90(2)).

19. I am not satisfied, having regard to the applicant’s particular circumstances, including those I have already mentioned, that it is appropriate to remit all or a part of the penalty under s 298-20 (see Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50 at [249] per Griffiths J (Edmonds J agreeing). In that regard, I also note, as the Commissioner submitted, that the consideration received by the applicant was a considerable sum. The transaction was singular in nature. The applicant was legally represented. The applicant had a relatively lengthy period of time prior to the lodgement of the BAS in which to consider the GST consequences of the transaction. As I have said, I am not satisfied that the applicant’s conduct was explicable in terms of the complexity of the issues surrounding whether a “financial supply” had been made nor in terms of any uncertainty as to which entity was to provide a tax invoice.

    CONCLUSION

20. For the above reasons, the Tribunal will affirm the decision under review.

I certify that the preceding 134 (one hundred and thirty-four) paragraphs are a true copy of the reasons for the decision herein of F J Alpins, Deputy President.

.........[sgd]...............................................................

Associate

Dated 29 November 2013

Date of hearing	4 February 2013
Date final submissions received	1 March 2013
Counsel for the Applicant	Ms Melanie Baker
Solicitors for the Applicant	Mr Vaughan Hager, Mills Oakley Lawyers
Counsel for the Respondent	Mr Chris Sievers
Solicitors for the Respondent	Mr Michael Sadhu, ATO Legal Services Branch