Automotive Invest Pty Limited v Commissioner of Taxation
[2024] HCATrans 44
[2024] HCATrans 044
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S170 of 2023B e t w e e n -
AUTOMOTIVE INVEST PTY LIMITED
Appellant
and
COMMISSIONER OF TAXATION
Respondent
GAGELER CJ
EDELMAN J
STEWARD J
GLEESON J
JAGOT JTRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON THURSDAY, 13 JUNE 2024, AT 10.00 AM
Copyright in the High Court of Australia
MR D.H. BLOOM, KC: May it please the Court, I appear with my learned friends MR K. JOSIFOSKI and MR J.P. PATELA for the appellant. (instructed by King & Wood Mallesons)
MS C.A. BURNETT, SC: May it please the Court, I appear with my learned friends MR D.P. HUME and MR D.R. LEWIS for the respondent. (instructed by McInnes Wilson Lawyers)
GAGELER CJ: Thank you, Ms Burnett. Yes, Mr Bloom.
MR BLOOM: Thank you, your Honour. Your Honours, it was in 1986 that the rate of sales tax on what were then called higher price cars was first increased. It went from 20 per cent, which was the rate generally on motor vehicles, to 30 per cent, where the price exceeded $19,892. The increase did not apply to utes or panel vans and generally excepted Commodores and Falcons, and at the time, of course, Australia had a manufacturing industry.
There are some humorous exchanges recorded in the Hansard of 22 September 1986 about that fact, where it was recognised that the effect of the extra tax was simply to increase imported cars in comparison to local cars, but what it was really about was simply an increase in the price of cars. In 1993, the tax was changed from a tax on the whole price to a tax over the nominated amount. By the time wholesale sales tax was abolished, the rate on the excess had risen 45 per cent.
The centre point of the “A New Tax System” announced in 1999 was the 10 per cent GST. To avoid suggestions made at the time that the replacement of the wholesale sales tax with the GST would – and I quote – promise cheaper Ferraris and more expensive food, the new system included a luxury car tax. That tax was initially imposed at 25 per cent of the GST inclusive retail value above a nominated threshold. By 2008 it had been increased to 33 per cent. Of course, your Honours, now we have no manufacturing industry, but we still have a luxury car tax.
Could I ask your Honours to go to the joint book of authorities, volume 6 to the second reading speech for the Bill for the Act introducing the Luxury Car Tax Act. It is in volume 6, page 1451, behind tab 48. At page 1451, at the top:
This bill will introduce a luxury car tax in place of the current 22 per cent wholesale sales tax that applies to cars generally and the 45 per cent wholesale sales tax applying to luxury cars. From 1 July 2000 it is proposed that the nation will have a new tax system. The wholesale sales tax will be abolished and replaced with goods and services tax at the rate of 10 per cent. The price of cars will fall when wholesale sales tax is abolished. If the government took no additional action the price of luxury cars would fall dramatically more than non‑luxury cars because they are currently subject to wholesale sales tax at the rate of 45 per cent.
The luxury car tax will make up for the removal of the wholesale sales tax luxury loading.
From 1 July 2000 luxury car tax will apply at the rate of 25 per cent. The tax will be applied to the portion of the price of a luxury vehicle above the income tax depreciation limit. The limit is currently $55,134. The luxury car tax will be payable in addition to the GST but on a GST exclusive price. It will be incorporated into the net amount calculation under the GST so that taxpayers do not have additional payment and administrative obligations.
A quotation system will ensure –
And the word used is “ensure”:
that the incidence of the tax is delayed until the car is sold at the retail level. The luxury car tax will not apply to the private sale of motor vehicles by unregistered persons.
If I could take your Honours to the Act, the Luxury Car Tax Act, it is in volume 1 of the joint book of authorities, behind tab 3. In accordance with what was said in the second reading speech, if your Honours go first to section 2‑1 ‑ ‑ ‑
GAGELER CJ: Mr Bloom, we are looking at it as at 10 March 2016; is that what you wanted to take us to?
MR BLOOM: I believe that is correct, your Honour.
GAGELER CJ: So, we are not looking at the Act as originally introduced.
MR BLOOM: Yes, 10 March 2016.
GAGELER CJ: Yes, thank you.
MR BLOOM: Yes, you are not looking at the amended one – not at this point, anyway, your Honour. If your Honours go to 2‑1, which is at the top of page 19 in red.
GAGELER CJ: You do not need to give us the page numbers.
MR BLOOM: Thank you, your Honour:
What this Act is about
This Act is about the luxury car tax. It is a single stage tax that is imposed on supplies and importations of luxury cars and is in addition to any GST that may be payable. The tax is only calculated on the value of the car that exceeds the luxury car tax threshold.
And then 2‑5(2):
There is a system of quoting which is designed to prevent –
Again, the word is “prevent”:
the tax becoming payable until the car is sold or imported at the retail level.
Then, if your Honours go to section 9‑1, there is a box, and in that box it says:
In certain circumstances you can quote for a supply or importation of a luxury car and not pay the luxury car tax. This is designed to avoid the luxury car tax becoming payable unless the car is sold or imported at the retail level.
The word there chosen is “avoid”. So, we have “ensure”, “prevent” and “avoid”. Section 4‑5 deals with explanatory sections:
One category is the explanatory section in many Divisions. Under the section heading “What this Division is about”, a short explanation of the Division appears in boxed text.
Explanatory sections form part of this Act but are not operative provisions. In interpreting an operative provision, explanatory sections may only be considered for limited purposes. They are set out in section 23‑10.
Then, if your Honours go to 23‑10, your Honours see an “explanatory section” is defined. Then, subsection (2):
Explanatory sections form part of this Act, but they are not operative provisions. In interpreting an operative provisions, an explanatory section may only be considered –
And then there is a sort of 15AA‑type addition.
STEWARD J: Mr Bloom, do we know what price was used to levy the tax? Was it the price your client paid to acquire the cars?
MR BLOOM: Yes. It was based on the quote transaction to which my client was party, as we understand it.
STEWARD J: Okay. Thank you.
MR BLOOM: The adjustment is to that transaction. Now, the purpose or object - - -
GAGELER CJ: Mr Bloom, the supply to your client of the cars, was that a sale?
MR BLOOM: I am sorry?
GAGELER CJ: What was the form of the supply to your client?
MR BLOOM: Generally, a sale. There were some direct importations, but mostly it was purchases from the person who had imported them. So, that person imported and quoted, my client then bought and quoted, but the two-year period for the levying of the tax dates back to the entry for home consumption – in that case, by the first person who brought it in.
GAGELER CJ: Thank you.
STEWARD J: I think there were six cars that were sold within the two‑year limit?
MR BLOOM: That is correct, your Honour.
STEWARD J: And did your client pay luxury car tax on those six cars at the time of their supply to the consumer?
MR BLOOM: I am only able to say this, your Honour: yes, if it was payable. We have no records that enable us to say whether that was or was not paid. Some of the sales were, we believe, retail sales. Some were to people who quoted.
STEWARD J: I see.
MR BLOOM: And so, the retail sale – so, ultimately, even with some of those six cars, would have been by somebody else. And that becomes very relevant when you look to see whether or not some sort of adjustment can be had to avoid double taxation.
STEWARD J: Well, it is not just that. It is also, if they were retail sales and the tax was passed on to the consumer when they bought the car, what remedy do they have?
MR BLOOM: None at all, your Honour.
MR STEWARD: I see.
MR BLOOM: None at all. Section 5‑15 is the section relied upon by our learned friends, but it provides no assistance to anybody in the scheme of things. And that is particularly because the notice of assessment is served here and crystalises the liability to the adjustment a couple of years after the transaction selling the car takes place.
So, your Honours, the purpose or object underlying the relevant provision, which is Subdivision 15-B, to which I will shortly turn, is that the Act should be read so as to ensure the tax is delayed until the car is sold at the retail level and to prevent or avoid it becoming payable before the car is sold or imported at that level. And pausing there, every one of the assessed cars was sold, as were all 800 of the appellant’s trading stock. If not sold by retail, they were sold to someone else who quoted, and sold by them by retail. And what is critical is that when sold, each of the 800 cars was trading stock of the appellant for both income tax and luxury car tax purposes.
Now, that taking into account of the policy of sales tax legislation and interpreting that legislation is appropriate and important is demonstrated by two decisions of this Court: Ellis & Clark Ltd – the early decision – and Brayson Motors. To save time, I can go straight to Brayson Motors, your Honours, because it deals with Ellis & Clark. It is in court book volume 3 ‑ ‑ ‑
EDELMAN J: Is this just for the general proposition that purpose is used in interpreting the provision?
MR BLOOM: Well, that in the context of a sales tax with wide words, one reads the words so as to give effect to the policy, not so as not to give effect to the policy, and one reads them also to avoid double taxation. That is the proposition, your Honour. I take it your Honour does not need me to go to it.
One of the things which concerned Justice Starke in Ellis & Clark, of course, was the potential for double taxation. We will demonstrate to your Honours that that is also a concern here. Before turning to the operative provisions, might I finally remind the Court of the importance of identifying the taxing point in sales tax cases. There is a decision of this Court in Genex – it is in volume 3 of the authorities.
GAGELER CJ: Has this become a sales tax case?
MR BLOOM: It is a sales tax case, your Honour. It is a tax on the sales of luxury cars. What Genex says it that it is important, first, to identify the taxing point. Then there is a passage in the judgment of Justice Hill which says that even there, in the sales tax legislation where you had three different identified taxing points, sale was predominant – you gave priority to sale. That was the point of Genex.
STEWARD J: But the difference is sales tax was the last wholesale sale ‑ ‑ ‑
MR BLOOM: Correct.
STEWARD J: Here, it is the retail sale.
MR BLOOM: Correct, yes. So, we only have one taxing point in this Act, and that is the last retail sale, and only if that sale takes place within two years from the date of acquisition – importation or supply, as the case may be. Now, here, as I have told your Honours, it is entry for home consumption that is the point where the two years begins to run. And, if I might just remind your Honours as we go through this, the LCT Act applies on a car by car basis; not on a gaggle of cars or a so‑called collection of cars, but a car by car basis.
GLEESON J: Why is the two years selected?
MR BLOOM: I do not know what the policy is behind that, your Honour, but two years it is, and after that two‑year period, you can sell the car and no tax is payable. So, in effect, the car not sold within that two‑year period is an exempt item – at least, its retail sale will be exempt.
So, as Justice Steward points out, six of the assessed cars were sold within the two‑year period. The balance of the 40 cars were not. The specific provisions with which the case is concerned are the provisions dealing with what are called change of use adjustments. These are to be found in Subdivision 15‑B, and if I could ask your Honours to turn to that. Subdivision 15‑B is headed “Change of use adjustments”, section 15‑30(3):
You have an increasing luxury car tax adjustment if:
(a)you were supplied with a luxury car; and
(b)either:
(i)no luxury car tax was payable on the supply because you quoted for the supply –
And:
(c)you use the car for a purpose other than a quotable purpose.
The parallel import provision is in 15‑35, again headed “Changes of use—importing luxury cars”:
You have an increasing luxury car tax adjustment –
et cetera, it is exactly the same.
GAGELER CJ: It was applicable to how many of the cars – one or two, was it?
MR BLOOM: Subdivision 15‑B has been applied to all 40 of the assessed cars, 40 out of 800. It does not depend on the sale within two years. That provision, the change of use, goes back, and it depends upon whether the cars were used for an “other purpose”, that is, a purpose other than holding for sale as trading stock.
Section 23‑1 of the Act says that the headings form part of the Act, so “change of use” is part of the Act. If we then go to the question of whether a given car was used for a purpose other than a quotable purpose within either of the paragraphs (c), the definition of “quotable purpose” is to be found in the definitions section, which is section 27. Section 27 defines quotable purpose, right at the top of page, as:
a use of a car for which you may quote under section 9‑5.
Not a use of a car that you may not quote, but a use of a car that you may quote under section 9‑5. When we turn, your Honours, to section 9‑5, there are three uses for which one may quote.
STEWARD J: Was there a finding below that at any particular point of time, of any of the 40 cars, that there was a moment when you could not have quoted for them?
MR BLOOM: Could not have quoted – on the acquisition of them?
STEWARD J: Was there any particular time – it was clear that you were allowed to quote when you acquired them.
MR BLOOM: Yes.
STEWARD J: So, that is not in dispute.
MR BLOOM: Yes.
STEWARD J: Was there any period of time thereafter where you may not have been allowed to quote – been in a position to quote, if you had to acquire the car at that point in time?
MR BLOOM: I am not sure, your Honour. On the acquisition by the appellant of a car that had, for instance, been imported by somebody else, there would be a quotation. That would then move the tax on, either to the appellant, if the car was sold within two years, or to somebody who bought it from the appellant and quoted. But there was nothing that stopped ‑ ‑ ‑
STEWARD J: I am thinking in terms of a hypothetical quotation, in the sense that, had there been a change in the use of the car that if you had acquired at that point in time, you would not have been eligible to quote.
MR BLOOM: No, and I do not believe that that could be said of any of the cars. Of course, we say there was no change of use.
STEWARD J: I see. I see.
MR BLOOM: We say there was no change of use. That is the main point of our argument, with respect. So, 9‑5(1) contains three permissible quotation provisions: (a), (b) and (c). You may quote, relevantly here, if you are going to be:
holding the car as trading stock –
and we can leave aside for the moment those additional uses that are referred to in (a). Then, taking that back into 15‑B, the question becomes whether there was use of the car for a purpose other than holding it as trading stock.
GAGELER CJ: That is the whole case.
MR BLOOM: That is the whole case. Yes, yes. It is not a big case, your Honour.
GAGELER CJ: No.
MR BLOOM: But it is an important one, with respect, as Justice Logan said.
GAGELER CJ: I am sure it is.
MR BLOOM: So, returning to that question – that essential question – whether a given car was used for a purpose other than a quotable purpose, we have looked at “quotable purpose”, we have looked at 9‑5, and we say when one has regard to the policy of the LCT Act, to the heading of Subdivision 15‑B – that is, “Change of use” – and to the nomination of what are additional uses in 9‑5(1)(a), the answer is that a car at all times, having remained trading stock, has had no other use because that car will, if sold within the two years, attract the tax intended to be levied.
GAGELER CJ: So, an “other use” is an alternative use, as distinct from an additional use?
MR BLOOM: Precisely.
GAGELER CJ: Do you accept that there is an additional use here?
MR BLOOM: No.
GAGELER CJ: You do not even accept that? All right.
STEWARD J: Your case is the museum is just a means to an end?
MR BLOOM: Yes.
STEWARD J: And that is it.
MR BLOOM: Marketing.
STEWARD J: Yes, it is a gimmick.
MR BLOOM: Very good marketing.
GAGELER CJ: So, are these two strings to your bow?
MR BLOOM: Yes. There are two strings.
GAGELER CJ: Have you got another string or is that it?
MR BLOOM: I am sorry, your Honour has encapsulated very well but, with respect, we say that the essential thing is there is no change of use and, therefore, 15‑B simply cannot apply. That is because 15‑B requires an alternate use; something has to be taken out of trading stock. I will take your Honours shortly to something Professor Parsons said about that term “change of use”. It means something comes out of trading stock.
EDELMAN J: I think your submission might be conflating a couple of points because it is not just the use, it is the use for a purpose.
MR BLOOM: Yes, your Honour. Yes.
EDELMAN J: So, one could have multiple uses, but if, as Justice Steward says, the means – if the use is for a means to an end, or a means towards a purpose, then it might not satisfy the purposive requirement even if it would, by itself, have satisfied the use requirement.
MR BLOOM: Your Honour is absolutely right. We say there is no alternate purpose and alternate purposes required. It is – your Honour is absolutely right – use for a purpose.
GLEESON J: And here the initial requirement is an intention of the single purpose in 9‑5, and there is no dispute that your client had the single purpose.
MR BLOOM: Of holding the car for trading stock.
GLEESON J: At the relevant time.
MR BLOOM: Eight hundred cars, all held for trading stock, $110 million in sales over the four‑year period that the show room/museum was in operation.
STEWARD J: And your alternative case is that the museum, if anything, was only an incidental facilitative purpose.
MR BLOOM: Yes, your Honour.
STEWARD J: Does that invoke those essential use jurisprudence from sales tax?
MR BLOOM: Yes.
STEWARD J: I see.
MR BLOOM: And also, the case – some of which I think Justice Jagot referred to recently in Godolphin – Ryde Municipal Council v Macquarie University, that sort of thing, yes; Salvation Army.
STEWARD J: The land around the hospital, I understand.
MR BLOOM: So, change of use is well known, your Honour, as an expression in relation to trading stock in the income tax context. If I may take the Court to Professor Parsons, writing before the Income Tax Assessment Act 1997, which was the first of the Income Tax Assessment Acts to contain provisions to deal with this, it is in court book volume 6, tab 49. At [14.7] and [14.8] Professor Parsons deals with what are assets which are trading stock, [14.8] in particular:
A reference to trading stock in the following discussions is intended as a reference to trading stock of a business. And the characterising of an item as trading stock is taken to require that the taxpayer trades or has traded in the item –
And then, over at page 1641, paragraph [14.64]:
A taxpayer may take an item out of trading stock and use it as a capital asset of his business when it will become subject to the depreciation provisions – a taxpayer dealing in motor cars may take an item of stock and use it as a “demonstrator” vehicle, or use it for the conveyance of staff and clients. The most rational analysis would treat the change of use as a realisation of market value.
So, he is talking about a “change of use” being taking it out of stock, and then if you go the middle of that paragraph:
The taking of an item out of trading stock of a business, and the use of it for private purposes, were the essential facts in the United Kingdom decision in Sharkey v. Wernher [1956] A.C. 58 where a general principle of deemed realisation on change of use was recognised.
I will not hand that case up to your Honours, but it concerned, like Godolphin, a lady who carried on a bloodstock business and a racing pastime – hers was not a racing business, but a racing pastime. She took horses out of the livestock business and put them into the racing pastime, and there was a general rule in England at the time that a person cannot deal with oneself.
But the court held – the House of Lords held – that the trading stock had been diverted, and it was therefore necessary to, in effect, bring in at market value that which had gone out. Other examples given by Viscount Simonds in that case were a jeweller giving jewellery to his wife or daughter or a caterer using his product for his daughter’s wedding. You would take it out of trading stock, and that is the reference that Professor Parsons makes to “change of use”, and that is what we say is needed here.
While the car remains trading stock, tax will be exigible as the Act intended, either because it sold within two years, tax is payable, or it sold outside two years and tax is not payable; it is an exempt vehicle.
GAGELER CJ: Mr Bloom, I am not sure what you are getting for your argument from the point that there was no dispute about your ability to quote at the time you did. For the purpose of 15‑30(3), it is enough that you in fact quoted.
MR BLOOM: That is correct, your Honour.
GAGELER CJ: Is that not the starting point?
MR BLOOM: Yes, it is.
GAGELER CJ: So, it is just not relevant to inquire ‑ ‑ ‑
MR BLOOM: No, it is not.
GAGELER CJ: ‑ ‑ ‑ at that earlier time.
MR BLOOM: Yes, your Honour. In fact, I think it is 9‑20 which says that the fact that we quote it, as long as we did not do it for some nefarious reason, it becomes an effective quote, whether we were entitled to or not, yes.
STEWARD J: This is where I get a bit confused, because if it is not in dispute you were entitled to quote and you did quote and all of that is legally efficacious, then what happened thereafter that changed things?
MR BLOOM: I think it is in dispute that we were entitled to quote, in respect of the assessed cars.
STEWARD J: I see.
MR BLOOM: But what is not in dispute and cannot be in dispute is the Act cures that; it makes the quotation good. If your Honour goes to Division 9 ‑ ‑ ‑
STEWARD J: This is 9‑20?
MR BLOOM: I think it is 9‑20. Yes, 9‑20. So, there is no suggestion that under 9‑30 it was improper quoting; that suggestion is not made:
Incorrect quote nevertheless effective for certain purposes –
And that is the provision which cures the quotation even though it is suggested that we were not entitled to, because on the respondent’s case the cars were intended for another use.
GAGELER CJ: It really means you do not get anything much out of the word “change” for the purpose of your argument, because what you are comparing is what you were entitled to do and what you are in fact doing.
MR BLOOM: Yes, but we say for there to have been an other use – that is, a use other than holding as trading stock – it must be a change of use, which means taking it out of trading stock.
GAGELER CJ: That assumes that it was always only ever – well, it started off being only trading stock.
MR BLOOM: Only ever trading – there is no issue but that from go to whoa every one of the 800 cars – the 40 assessed cars included – was trading stock. Each of them was turned as trading stock for income tax purposes and luxury car tax purposes.
GAGELER CJ: And it is put against you that there was an additional purpose which made it an other purpose.
MR BLOOM: That is correct, but we say an additional purpose is not enough, it has to be taking it out. It has to be a change of use. That is the heading, part of the Act, and a change of use is what Professor Parsons and Sharkey v Wernher say it is, it is taking it out of trading stock.
STEWARD J: But just to be clear, your primary case is that the museum is not an alternate, additional or other use, it just is the marketing to move the cars.
MR BLOOM: Correct, yes. “Move the metal”, I think, was the quaint term used ‑ ‑ ‑
STEWARD J: That is the phrase, yes.
MR BLOOM: ‑ ‑ ‑ by the man carrying on the car‑dealing business. “Move the metal”.
GAGELER CJ: That is the dissent in the Full Court, Justice Logan’s ‑ ‑ ‑
MR BLOOM: No, that was actually the term used by Mr Denny in his evidence. He said it was all about moving the metal.
STEWARD J: That was accepted?
MR BLOOM: Well, it was an answer to a question my learned friend put in cross‑examination.
GAGELER CJ: Not all of his evidence was accepted, was it?
MR BLOOM: Only one tiny bit was not. Everything but this tiny bit was accepted. That tiny bit was that he could not remember, but he thought that he had put the price up from $16 for an adult to $20 for an adult to discourage “tyre kickers”, and Justice Thawley did not see that that was a sensible answer. But everything else was accepted.
STEWARD J: The holding of paragraph 84 of Justice Thawley’s judgment really is your case, is it not?
MR BLOOM: At paragraph 84?
STEWARD J: Where his Honour accepted:
Mr Denny made clear, as is obvious in any event from the objective facts, that he wanted to profit from the sale of cars and considered that the “museum concept” would be the best way to achieve that objective.
MR BLOOM: Yes, and we, of course, rely upon what Justice Brennan said when he was on the Federal Court in Magna Alloys, that it is the man carrying on the business to determine how to conduct that business. I mean, Tupperware parties sell Tupperware. Marketing is something for the marketing people, it is not, with respect, something for the lawyers.
Now, I will simply tell your Honours that in the Income Tax Assessment Act 1997, there are specific provisions to deal with change of use of the kind dealt with in Sharkey v Wernher and in Professor Parsons’ book. Your Honours, 70‑30 and 70‑110 deal with a situation where you own something and then bring it in as trading stock – that is 70‑30 – and in 70‑110, you have something as trading stock, there is a change of use, it comes out, you have to bring the market value to account.
EDELMAN J: Mr Bloom, does logically your alternative submission come before your primary submission? In the sense that, suppose that, contrary to your argument, it were the case that the appellant had two purposes. One purpose was to run a car museum and the other purpose was to run a business for the sale of cars, such that if, for example, the sale of cars business ended he would continue to run the museum. If that were the case, would it not be a change of use by the creation of a new end or a new purpose of running the car museum?
MR BLOOM: If they were the facts.
EDELMAN J: Yes.
MR BLOOM: Yes, but they are not.
EDELMAN J: I know, I appreciate that.
MR BLOOM: But if he took them ‑ ‑ ‑
EDELMAN J: Your alternative argument is there is only one purpose, but what I am putting to you is if you had a case where there genuinely were two purposes, or two ends, then you could have a change in use even though from go to whoa you had a purpose of selling cars.
MR BLOOM: The difficulty of that is, your Honour, that this was not a museum in a legal sense. This was called a museum, and indeed carrying on a museum in those premises in a legal sense was prohibited under the local rules. So, there was no idea ever of a collection of cars that was static in any way, shape or form. Cars were in and out. Cars were there for sale; they were displayed for sale as trading stock. If a car was sold, it was not there any longer for anybody to pay admission to the premises and see; if a car was away being repaired or painted, it was not there.
EDELMAN J: Yes, and I appreciate all of that. That is your alternative argument. What I am doing is just testing the primary argument that a use for a purpose can permit of multiple purposes.
MR BLOOM: It can, but again we are not dealing with change of purpose but change of use; change of use for a particular purpose. Each car remains trading stock. We say that the use of that car as trading stock is the thing that must change.
GLEESON J: When you look at 15‑30(1)(e), which requires that:
you have only used the car for a quotable purpose.
Does that not suggest that you have a change of use if you depart from that?
MR BLOOM: It is a different provision, of course. Your Honour is looking, I think, at a decreasing adjustment provision.
GLEESON J: Yes.
MR BLOOM: I do not know that the legislature did not tell us why they chose different words for “decreasing” where they are giving money back and “increasing” where they are taking money away, but they chose different words. The words we are concerned with is:
you use the car for a purpose other than a quotable purpose.
It is use for a purpose – Justice Edelman is absolutely correct – but there must be a change of use for that purpose. It focuses back on use for a purpose.
STEWARD J: Do you say that the use here is display?
MR BLOOM: Display of your trading stock for sale, and that display of your trading stock for sale in the only place where lawfully you are permitted to display it is part of holding as trading stock. Remember, these are classic cars, these are unique individual pieces. It is not as though you are going to a BMW dealer and you can look at three or four different types of BMW on the showroom floor. Each one of these cars is unique, individual, and expensive to repair, as your Honours will see shortly.
But it is a question of, how do you hold trading stock? Well, you hold it, amongst other ways, by displaying it for sale. And each of these items was displayed for sale in the showroom, and therefore that was part of the holding for trading stock, use for that purpose. That is what we say.
GAGELER CJ: Was it ever called a “showroom” at the time?
MR BLOOM: It was – in all of the planning documents and all of the approval documents, that was all that it was called.
EDELMAN J: The purpose is ultimately subjective, is it not?
MR BLOOM: Yes, your Honour. Yes, but if I could just say, in answer to what the Chief Justice just put to me, it was only called a museum for marketing purposes. A museum was strictly prohibited, if you use it as a museum in a strict sense, but it was called the Gosford Classic Car Museum because Mr Denny said he thought it would get more people in potentially as purchasers that way, and because he thought it would increase the prices he might get for the cars.
GAGELER CJ: About a third of the revenue at the time came from the admissions, I think.
MR BLOOM: A third?
GAGELER CJ: Am I wrong? Of the profit.
MR BLOOM: I think in the relevant year with which we are concerned, there was a million dollars in admission fees and $28 million in sale, slightly less than a third, your Honour, if we are to compare gross with gross. Over the total period there is $114 million in sales. If we assume at around 1.32 admission fees for each of the four years, you are talking about five versus 114 million, so it really pales in comparison, with respect.
But Mr Denny did not see it as a money earner. Moving the metal for him was what the money earner was. Getting the people through the door, people who take photographs and put it on social media and tell Uncle Peter, look, there is an FJ Holden like you used to have for sale there, that is the sort of thing ‑ ‑ ‑
EDELMAN J: But ultimately, the figures would only really be relevant to an assessment of whether Mr Denny’s evidence as to his true or subjective purpose was accepted or not.
MR BLOOM: As it was.
EDELMAN J: You know, if you had figures of museum admissions of around 100 million over the period, then there might be serious doubt cast on the evidence of his purpose as being a sole purpose and to have the museum only as the means to sell the cars.
MR BLOOM: Yes. Well, had that happened, perhaps you would have adopted what your Honour was saying before and transferred it all out of the trading stock and into the collection in a museum – assuming he could get legal permission to do that.
STEWARD J: Mr Bloom, what are we to make of the discussion at paragraph 102 of the Full Court about the document that said:
that the Museum operated at a loss –
The Full Court seemed to neither accept nor deny that.
MR BLOOM: Yes. If it be important, your Honour, the evidence on that was this. The Commissioner – the museum was not accounted for separately.
STEWARD J: So, I think this document was in response to an ATO position ‑ ‑ ‑
MR BLOOM: Request, yes.
STEWARD J: Yes.
MR BLOOM: So, the Commissioner asked for the figures. He asked PwC, who were the taxpayer’s agents, the appellant’s agents. PwC asked the bookkeeper to try to extract the figures, which she did. She provided those figures to PwC, they were put onto a document, which was a draft response to the Commissioner’s request. That document was tendered not by us but by the Commissioner, so it was in evidence with those two figures, both the income and the expenses.
The bookkeeper was called, gave evidence, was cross‑examined and asked only in re‑examination, questions about those figures, no questions in cross‑examination. So, the figures were not, as we see it, put into issue, and they were the only evidence of the figures, and therefore the best evidence of those figures. No doubt was cast upon them ‑ ‑ ‑
STEWARD J: Do you say that this is one of these areas where, if the Commissioner wanted to dispute the figures, the onus was on him to do so ‑ ‑ ‑
MR BLOOM: Yes, your Honour. He bore the onus on that.
STEWARD J: ‑ ‑ ‑ in an Allied Pastoral sort of sense?
MR BLOOM: Yes, your Honour, Allied Pastoral, precisely.
STEWARD J: Yes, I see.
MR BLOOM: Yes. The document is at page 95 of the respondent’s book of further materials. This document at 95 is an earlier version of the document with earlier figures of $250,000 losses and income of $120,000 of this early stage, but there was a later version of the same document with the figures which appear in the Full Court’s judgment. That was the document upon which Ms Evans was re‑examined and which the Commissioner put into evidence himself, but I do not think it is here before the Court. So, your Honours, just to finish with that point, no change of use, the section simply does not apply – having regard to the policy, having regard to the heading, having regard to what change of use means.
Now, the respondent says, and the trial judge and the majority below posed the question for themselves in this way, if your Honours look at – do not go to it, but the trial judge at 85 and the Full Federal Court at 99 – they actually asked themselves, what was the additional purpose? And it is easy to answer, then, that an additional purpose is enough. But it is said that that is enough to invoke the section – the existence of an additional purpose. We say, in answer to that, that if it is enough, there was not one. The courts were in error below because they framed the question wrongly for themselves and they answered it wrongly.
That additional purpose is not correct is shown, with respect, by the inclusion of the words at the end of 9‑5(1)(a) – if your Honours could look at that again:
holding the car as trading stock, other than holding it for hire or lease –
Now, just reading those words as they appear, it is saying, you are holding the car as trading stock and you are hiring out or leasing it. So, it is saying:
holding the car as trading stock –
and additionally:
holding it for hire or lease –
I will take your Honours shortly to what the Full Court said about it and what another Full Court of the Federal Court said about it – Gloucester Railway, I think, is the name of the case. But if we are right, and that is an exclusion of two additional purposes, there is no need to read the words above:
and for no other purpose –
as excluding additional purposes, and there is certainly no need to exclude additional purposes if they are already excluded by those words.
GAGELER CJ: Is “trading stock” only stock for sale?
MR BLOOM: Yes. So, sale or exchange, I think the cases say. Suttons Motors is the general law definition of trading stock in this Court.
GAGELER CJ: And it is impossible to hire trading stock, is it?
MR BLOOM: It is possible to hold it as trading stock and hire it, and Gloucester Railway is the case that deals with that. The majority dealt with that at paragraph 94 of the judgment, and they said:
The presence of the phrase “other than . . . for hire or lease” to qualify the concept of trading stock does not require the phrase “and for no other purpose” to be read otherwise than as “solely”. In respect of the exclusion, “other than . . . for hire or lease”, the explanatory memorandum stated (at[5.9]) that “luxury car tax is not payable if the registered recipient intends to use the car as trading stock unless it is held for hire or lease”.
That is not very helpful:
There is UK authority for the proposition that, if a taxpayer carries on a single trade of trading in and hiring out goods, profits from the sale of any of the goods are taxable in the same way as sales of stock in trade: Gloucester Railway Carriage –
And what they say is, therefore, such goods are not really trading stock for the purposes of the LCT Act. But, with respect, if we could hand to the Court the decision in Hyteco, which is a decision of the Full Court of the Federal Court. The full reference is Commissioner of Taxation v Hyteco Hiring Pty Ltd (1992) 39 FCR 502.
Chief Justice Black and Justice Wilcox agreed with Justice Hill, and Justice Hill deals with Gloucester at the bottom of the page 508. Indeed, Justice Hill deals with all of the cases dealing with trading stock and hire and lease, but here he deals with Gloucester:
Reference was made by senior counsel for the Commissioner . . . in Gloucester . . . carried on the business of manufacturing railway wagons and of selling and letting out on hire those and other wagons purchased by them. Wagons let out for hire and depreciated in the taxpayer’s books were sold at sums larger than the amounts at which those wagons were held in the taxpayer’s books. The decision to sell the wagons was made as a result of a conclusion that it would be more profitable to sell all the wagons which the taxpayer was using for hiring. The Commissioners of Inland Revenue had found that the business of the company was a single business, namely to make a profit in one way or another out of manufacturing wagons, a finding not open to attack in the courts, unless it involved an error of law. It was held that the “profit” was not a capital profit. In giving the judgment, concurred in by Viscount Cave LC, Lord Atkinson, Lord Sumner and Lord Buckmaster, Lord Dunedin said (at 474-475):
“The Commissioners have found – and I think it is the fact – that there was here one business. A wagon is none the less sold as an incident of the business of buying and selling because in the meantime before sold it has been utilised by being hired out.”
It is clear that the result of the case depended upon the finding that the taxpayer was in the business of buying and selling carriages.
So, these carriages were trading stock and were hired out of – if one looks at what Professor Parsons said, one looks at the ordinary definition of “trading stock”, these carriages were trading stock. And so, what one has is Gloucester supporting the proposition for which we contend. So, with respect, the majority in the Full Court were right in citing it, but wrong in concluding that it helped the Commissioner rather than ourselves.
In any case, your Honours, we say that there was no additional use here. The Motor Dealers and Repairers Act 2013 (NSW) – it is in volume 2, your Honours do not have to go to it – section 48 of that Act, which is at court book 338, makes it an offence to:
display a motor vehicle for sale at a place other than a place of business specified in the licence.
The place of business specified in the licence was the Gosford showroom, and that is where each assessed car and the other 760 cars – all of which, at all times, trading stock – were displayed for sale. We need to remember, your Honours, that each item was unique, and displaying that item for sale was the only way that you could get somebody to look at it and perhaps buy it.
So, the question is, to what additional use was each car put, as the Commissioner suggests. He says it was displayed for reward, but payment was not made to get to any particular car. Payment was made for licence to enter the showroom. That payment could be tied to no particular car at all. And each car was displayed in the showroom as part of being held as trading stock, because display of your item of trading stock for sale is an inherent aspect of holding that trading stock for the purpose of its sale.
EDELMAN J: In short, your submission is that it is a means to an end; it is a way of achieving a purpose, but not a purpose in itself.
MR BLOOM: Yes. Namely, the sale of the trading stock. And that was what this was all about, moving the metal. So, as I have said, the admission fees could not be tied to any particular car. A particular car might not be there on a given day when somebody pays to come into the premises, and that is because, as Mr Denny said, it would be away getting repaired or getting painted, or it might have been sold, and therefore that car was no longer there.
As a very good example, our learned friends have very kindly put on a lovely photograph of a Mercedes Gullwing and Mr Denny, and that is ‑ ‑ ‑
GAGELER CJ: Is this the colour photograph?
MR BLOOM: It is, your Honour. It is. It is one of the loveliest cars on Earth, the Gullwing. I think Elvis Presley had a convertible version. The photo of the Gullwing is at page 123 of the respondent’s book of further materials. The photo means I do not have to try to emulate a seagull and show your Honours what a “gullwing” means. So, this photograph was taken at the time when the museum opened in May 2016, and it was published. Now, if Mr Denny was going to use that car, which is one, as I say, of the most beautiful cars ever made and very, very rare, if he was going to use it to get people in the door, he would have kept it there.
But your Honours will see that within two months of the museum opening, it had been sold; it was no longer there. On what we have – I do not know if your Honours want me to hand this up. I have the sold stock report in A3, which means I can read it; if your Honours would similarly like a copy that you can read, we have copies in A3 available.
GAGELER CJ: So, it is somewhere in the material?
MR BLOOM: It is in the appellant’s further book of materials.
GAGELER CJ: If you want to take us to it, Mr Bloom, we would be assisted by having a larger version.
MR BLOOM: In A3, yes, we do have that, your Honour.
GAGELER CJ: What are we getting out of this document?
MR BLOOM: I want to show your Honours a few things, if I may – and I will not tire your Honours with it, but there are just a few things, with respect.
EDELMAN J: Ultimately, these submissions are all going just to bolster the finding that Mr Denny’s professed subjective purpose was a genuine subjective purpose.
MR BLOOM: Correct.
EDELMAN J: There is no challenge to – there might be a dispute about precisely what the primary judge found, but there is no challenge to the primary judge’s findings of fact as to his subjective purpose, is there?
MR BLOOM: There is no challenge to that.
EDELMAN J: This is all just to reinforce the point that his subjective purpose was moving the metal and that the so-called museum was a means to that purpose.
MR BLOOM: Yes, all to reinforce – exactly that, your Honour.
GAGELER CJ: Is it all about his subjective purpose? I know his intention is relevant for quoting, but is it not a matter of looking at the use and asking, objectively, whether that is useful?
MR BLOOM: The use for a particular purpose – objectively concluding – but his subjective purpose is part of what one looks at ‑ ‑ ‑
GAGELER CJ: It may be relevant to the inquiry, yes.
MR BLOOM: Yes. Yes. So, you start at the back, page 14 – it goes the opposite way – and if you look at the top left-hand corner – this appears on each page – the number of cars sold was 845, and total revenues was $110,428,081. So, this is in the box at the very top left-hand side of each page. And if you start on page 14, this is stock that never made it into the showroom.
This is stock that Mr Denny had acquired and started selling before the showroom at Gosford opened. Amongst it are things your Honours see: starting at the very bottom there is a Porsche Cayenne, and then going up, there is a Ferrari California, a Ferrari Testarossa, Maserati Merak, a Ferrari 328, a Ferrari 330. These are cars which he did not even take into the so-called museum with him. The museum opens on 28 May 2016, and on 26 July 2016, the Gullwing is sold.
If your Honours look at the far right, your Honours will see “EXPENSES”. These are amounts which were spent. These were, of course, classic cars. You do not get parts for classic cars off a shelf; sometimes they have to be made, sometimes they have to be imported. You will see the Gullwing was pretty light on; only $3,285 in expenses. There are Ferraris there, if you go down seven cars, where nearly $35,000 had to be spent, or you go up to the second block, fourth car from the end, another Ferrari, nearly $50,000 had to be spent. So, a car being away for repair or paintwork was not an unusual sort of thing.
All of the assessed cars are in there. I will not take your Honours to each one of them, but the first of the assessed cars was a Mustang sold within two months. So, the idea that these cars had an additional purpose of exhibition for reward is just wrong. While they were there they could be looked at, but if they were not there, they are gone, and a person paying for admission to the premises does not know what that person is going to see when they actually arrive; they do not pay for admission to a particular car.
Your Honours, there are two pages of transcript we should hand to the Court, while we are on that point. So, your Honours, in examination, page 44, Mr Denny says, at about line 21:
So the reasons why the cars aren’t for sale in – in Sydney or in Gosford were, namely, the number 1 issue were – was mechanical condition. They simply could not be sold if they weren’t mechanically prepared for – for retail. The other reason would be bodywork. Another reason would be that – if the – the buying process had not been completed, so we don’t actually own that car; we’re in possession of that car, but we don’t actually own it. Another reason would be, on the spreadsheet, that it’s on consignment selling at some of the dealers in Australia that specialise in the selling of classic cars.
Then I asked:
Were there ever cars that you had been sold but not been fully paid for?‑‑‑That’s correct. A lot of the cars were deposited. Actually, nearly every car we sold would stay with us for two to four weeks before we were paid in full.
And how was that car marked in ‑ ‑ ‑ ?‑‑‑Not for sale.
And then, at page 82 – that has not been handed up. I am sorry, I thought your Honours had that together. This is in cross‑examination by, obviously not Mr Burnett, but my learned friend. At about line 10, he is shown a document saying:
Many museum cars are for sale.
Do you see that?‑‑‑Yes.
Now, it doesn’t say “all cars are for sale”, does it?‑‑‑Correct.
And it was the case that not all of the cars were for sale at this point in time?‑‑‑98 per cent were.
Now, this wasn’t on any previous versions of the website . . . Do you want to know why?
No. Now, at 786 –
Down to line 35:
It wasn’t the case that the cars that were for sale were excess to ‑ ‑ ‑?‑‑‑That they were all for sale. You’ve seen the records.
Well, you said ninety‑something per cent of them were for sale?‑‑‑98, because two per cent weren’t, for the reasons which I have stated previously.
GAGELER CJ: How many cars were there?
MR BLOOM: Eight hundred in total. The museum premises, I think, took about 400, so there were two lots of – but they were constantly evolving. Cars were constantly being bought and sold. There was a team of people to do the buying, a team of people there at all times to do the selling.
GAGELER CJ: I am sorry, I meant on display. How many cars are on display?
MR BLOOM: A maximum of 400 could fit within the premises.
GAGELER CJ: I see.
MR BLOOM: It was an ex‑Bunnings workshop.
GAGELER CJ: And we are to take from this that 98 per cent of those were for sale?
MR BLOOM: Ninety eight per cent of what was in the showroom at any given time.
GAGELER CJ: At any time, yes.
MR BLOOM: And if they were not, it was for the reasons that he had previously given.
EDELMAN J: But they had already been sold or that they had not been paid for yet or ‑ ‑ ‑
MR BLOOM: Or they were not saleable, mechanically or paint‑wise, for some sort of reason, yes. I have referred your Honours the passages in our written submissions from Magna Alloys, the judgment of Justice Brennan, citing Tweddle’s Case: it is for the man running the business to say how the business should be conducted – Mr Denny said that in no uncertain terms – and we say, with respect, the display for sale of a vehicle in the showroom did not cease to be display for sale of trading stock just because admission was charged to come into the premises.
Your Honours, might I go to the provision dealing with taking into account tax paid; the provision which we say does not help us to avoid double taxation, or, indeed, anyone who bought from us – that is at 5‑15.
GAGELER CJ: You have not really developed your double taxation point, I think.
MR BLOOM: That is where I am right now – I am sorry, your Honour, I should have said this is my double taxation point, thank you. So, if your Honours go to 5‑15, it deals with “The amount of luxury car tax payable”, subsection (2):
However, if luxury car tax has already become payable in respect of the car, the amount of luxury car tax payable on a taxable supply of a luxury car is:
. . .
(b)the sum of all luxury car tax that was payable in respect of any previous importation or supply of the car.
You get that off. In other words, the tax that you pay, you are allowed to take off the tax that was previously payable:
in respect of any previous importation or supply –
and in subsection (3), that is defined to include an increase in adjustment. So, that is fine if, when you sell the car within the two‑year period, you know about the adjustment, but, of course, you do not. The adjustment here was made and notified by a notice of assessment served years later, and the liability for that adjustment only arose upon service of that notice of assessment. Now, the notice of assessment is in the appellant’s further materials behind tab 5, and your Honours see it was issued on 18 January 2019 and one assumes that it was served at some time after that.
GAGELER CJ: But the ordinary operation of this Act is self‑assessment, is it not?
MR BLOOM: In the sense of filling out your GST and your LCT, yes, your Honour, it is, but you do not self‑assess an increasing adjustment, that is usually for the Commissioner.
GAGELER CJ: Why do you not self‑assess an increasing adjustment?
MR BLOOM: Because you do not – well, here, of course, the taxpayer was completely unawares that the Commissioner would come along and say that display in the showroom was a display for award and was an additional use and that an increasing adjustment had arisen.
GAGELER CJ: I understand that, but, in the ordinary course, an increasing or a decreasing adjustment is something that would be included in the usual – what is it, a BAS statement?
MR BLOOM: In the BAS. Your Honour, probably not because it is – I mean, one self‑assesses in terms of the sale, but one does not really self‑assess in terms of adjustments. That would be something that would be initiated by the Commissioner.
STEWARD J: Do you say that the relevant plan – to use that word – of this Act, because it is a single stage tax, is that whilst the cars remained as trading stock there was at least the potential for there to be a taxing point if they were at least sold within two years.
MR BLOOM: Yes.
STEWARD J: And that whilst that potential existed there should be no other taxing point?
MR BLOOM: Yes, and that because of the two years, if the car passed the two years ‑ ‑ ‑
STEWARD J: Then it is exempt.
MR BLOOM: It is exempt, and so that should not attract tax afterwards either because the intention of the Act is that it is only on a last retail sale within two years from the relevant date of acquisition.
STEWARD J: Was your client assessed because he was so slow at moving his stock and too many cars went over two years?
MR BLOOM: No, no, there is no suggestion, for instance, that he held onto them to try to avoid the two‑year period. I mean, he moved them as soon as they could be moved, the Gullwing is a good example and there are many more cars that went within the two years. No, LCT did not factor into it because you just charge LCT onto the purchaser. It is not as though it comes out of one’s own pocket.
STEWARD J: But you also say the design of this Act is that the burden for tax is on the retailer, not the consumer.
MR BLOOM: Yes, yes, and the retailer collects it.
STEWARD J: Whilst they remained as trading stock, that is where the economic burden should lie.
MR BLOOM: Yes.
STEWARD J: But that if it changes, it should be on the dealer.
MR BLOOM: Yes.
STEWARD J: Yes, I understand.
MR BLOOM: Yes, and that is what happens, it comes back, and it basically affects the dealer. The dealer who has paid his tax – it was not here until we were served with the assessment, which was issued on 16 January 2019, that any amount on account of the adjustment had, within the terms of this section, already become payable, nothing had been payable prior to that.
So, if the sale took place and luxury car tax was assessed, no earlier amount had become payable until years later, and because of that it could not be taken into account under 5‑15; a fortiori if it was a case of our selling to another dealer who sold to another customer. That dealer would not even know about this notice of assessment. But there is no way that, served two years after – and the Commissioner under 13‑10 has four years within which to make his increasing adjustment, which can be well outside the two years in which the car has been sold. The amount only becomes payable when he issues an assessment making that adjustment.
GLEESON J: Who makes the decreasing adjustment?
MR BLOOM: A taxpayer can apply for it, I think, your Honour, and the Commissioner would generally look at it and say yes or no.
GAGELER CJ: Would that not be something that is just included in the BAS, as well?
MR BLOOM: You could possibly put it in, but it might become contentious. Yes, you could, but an increasing adjustment would not.
GAGELER CJ: I just do not understand that, Mr Bloom. I hear it, but I ‑ ‑ ‑
EDELMAN J: If you knew that you had changed your use, for example, you would include an increasing adjustment.
MR BLOOM: I see. Yes, of course, if you knew. Yes, if you took an out of trading stock, I suppose, and there was a chance of use and you had a good accountant who said to you, this is a chance of use – I read Professor Parsons, for instance – then you would know that you would have an increasing adjustment. Yes, yes, I suppose that is entirely possible. Then, I suppose it is entirely possible you self‑adjust. Your Honours, the GST Act, if I might ‑ ‑ ‑
EDELMAN J: In a way, your alternative submission really sits much more neatly with the notion that it should almost always be expected to be a self‑adjustment, or a self‑assessment, because if use – although use being objective, but use for a purpose being a subjective purpose, it is the taxpayer that is going to know what their purpose is. The taxpayer might ultimately be believed, might be disbelieved, but knowing of that purpose the taxpayer is the perfect person to self‑assess as to the increasing or the decreasing adjustment.
MR BLOOM: That is perhaps right if the taxpayer is in a position to know, but here, of course, the argument comes well at the heel of the hunt, and in circumstances where there is no way to avoid double taxation which, we say ‑ ‑ ‑
EDELMAN J: But that is only if your alternative submission is wrong. If your alternative submission is correct, then there was always a way to know because Mr Denny knew what his purpose was. He was the only person who knew what his purpose was.
MR BLOOM: Yes. Your Honours, we use this, though, to support the policy interpretation using the heading and requiring, therefore, a change of use, because otherwise where the Commissioner has done what he has done here you do get to a situation of double taxation.
STEWARD J: Mr Bloom, my memory is that on the essential use test in sales tax land, there was a split in the Federal Court about the relevance of subjective intention. There was an early decision of Justice French called Diethelm where Justice French said it was relevant, but I think Justice Hill did not think so in subsequent cases. Do you recall whether the issue was ever resolved? It certainly did not come up to the High Court.
MR BLOOM: My recollection is that it ended up objective, your Honour, not subjective.
STEWARD J: I see.
MR BLOOM: And your Honour reminds me, before I get to GST, I have forgotten to go to the incidental subservient ancillary part of our submissions. With respect, we would simply adopt what Justice Logan said on those aspects. It is in the judgment, I think starting about 34:
The appellant’s alternative construction of “other than” was that a use of a motor vehicle which was incidental to, and consistent with –
et cetera. So, it is 34, 35, through to 54 and including 56. To that, if we might just add two authorities that are in our book, Ryde Municipal Council v Macquarie University – there, your Honours recall Macquarie University built a big building and had shops and tenants and made a lot of income from those shops, but it was still exclusively that land for the purposes of the university because it served the purposes of the university – and the other case is Salvation Army, which is also in our authorities. There, in the boys’ homes, gardens were kept, vegetables were grown, a considerable amount of the surplus of the vegetables was able to be sold and produced £4,000‑odd in 1956, which was a decent sort of sum in those years. This Court held that, again, the charity was carried on for its exclusive purposes, notwithstanding the sale of the additional produce.
Finally, coming to GST, it piggybanks on section 9‑5 of the LCT Act and turns on entitlement to quote. Our argument about “no other purpose” and the two additional purposes that are there is the same argument. We say that the LCT and GST issues, for that reason, should be resolved in the same way.
If your Honours please, those are our submissions.
GAGELER CJ: Thank you, Mr Bloom. Ms Burnett, we typically take a 15‑minute adjournment at this stage, and we will take that now before you begin your submissions.
AT 11.14 AM SHORT ADJOURNMENT
UPON RESUMING AT 11.30 AM:
MS BURNETT: Your Honours, I propose to deal today with what we see as the three propositions in the appellant’s case. The first being that the increasing adjustment provision applies only where there is an alternative use, and I will refer generally for the increasing adjustment provision to section 15-30(3), noting also that there is an equivalent for imports in 15‑35(3). And of course, what the appellant has in mind by an alternative use is a use having the effect the car ceases to be trading stock.
That construction, your Honours, was rejected by all of the judges below and should, in our respectful submission, also be rejected by this Court. It is telling your Honours that, for the three relevant provisions in this Act dealing with the use of a car for a purpose and linking that to imposition or non-imposition of the tax, for the three provisions, the appellant propounds three quite different respective constructions. This is the increasing adjustment provision on the one hand, the decreasing adjustment provision on the other and then section 9‑5, and that approach, we say, is contrary to the principles of contextual and harmonious construction.
The second proposition we understand the appellant puts in the alternative to its first, although there was perhaps some moving around, but I understand no reframing of the case, that is that section 15‑30(3)(c), the increasing adjustment provision, does not apply where there is a use for a non-trading stock purpose which is consistent with, incidental to or subservient to the trading stock purpose. Now, in brief, the provision does not say that and cannot be made to do so. But was does not cause an increasing adjustment, your Honours, is a use which is wholly an incident of a use for a quotable purpose such that there is only ever one purpose.
That brings us to what we see as the appellant’s third proposition, which is sort of the second half of its alternative case, which is a characterisation dispute. We say the question is not whether a use or a purpose is subservient or consistent or some adjective like that, but whether it is wholly and only a part of the single purpose. We say that, on the facts of this case, the museum use here was an end and a purpose in and of itself. It generated significant revenue, attracting its own large customer base, requiring its own staff, its own activities, determining how the premises and operations were presented to the world at large.
EDELMAN J: Do you accept that the simplest and easiest way of determining whether something is an end or purpose in itself would be to ask whether the other purpose, if removed, would remove the primary end?
MS BURNETT: Not necessarily, your Honour. It does depend on an analysis of all of the circumstances in the case. That fact pattern may well be a powerful indicator that there is an “other purpose”, but there can still be two purposes even if one would not survive the other ceasing. For example, in the recent case of Godolphin in this Court, although the slogan and the subjective purpose of “breed to race, race to breed”, involved a sort of crucial symbiosis between them, there were still two purposes for which the activities were conducted, even if one may not have been conducted without the other, for economic or whatever reasons.
I propose, your Honours, to deal with the constructional issues first and to go to the Act, but first I just wanted to clarify the taxable facts, as it were, which cars and which taxes. So, there are 40 cars in issue here and there are two taxes in issue. There are amounts of luxury car tax and amounts of GST in issue.
STEWARD J: Do you agree with Mr Bloom that if we find in your favour under the luxury car tax, it follows that you win for GST purposes?
MS BURNETT: Yes, I do.
STEWARD J: The other way around as well?
MS BURNETT: Yes ‑ ‑ ‑
STEWARD J: Thank you.
MS BURNETT: ‑ ‑ ‑ but Mr Bloom’s case is that section 9‑5, which is the case on which the GST liability turns, is construed differently from the adjustment provision – I will come to that in a moment. But not all 40 cars have both GST and LCT on them. Most of the 40 are GST only, because when they were purchased, or imported, by the appellant, they were already two years old, as it were. Within that minority of the LCT cars, most of them were the cars which the appellant had purchased before the museum started operations.
So, as Mr Bloom said, it opened on 28 May 2016, and a number of cars in this case were cars which the appellant bought before that date, and those cars are the ones where the Commissioner accepts the appellant was eligible and entitled to quote when it bought them, because at that time there was only one purpose for which the appellant intended to use the car, there was not yet a museum purpose and there was not evidence about whether it was in contemplation at that time.
For the handful of other LCT cars which were purchased after the museum opened, the Commissioner’s case was that there was not an entitlement to quote but there was, in fact, a quote, and as the Act provides, the quote is effective, and so we are looking at the adjustment provisions.
Now, turning to the LCT Act ‑ ‑ ‑
STEWARD J: Just to be clear, we do not have to worry about that level of detail?
MS BURNETT: No, I just wanted to clarify the questions, your Honour.
STEWARD J: No. Thank you.
MS BURNETT: Now, the Act, of course, starts at page 12 of the authorities bundle. I wish to start at section 2‑1, if I may, on page 19.
GAGELER CJ: You do not have to worry about the page numbers, we are working from different prints.
MS BURNETT: I thank your Honour. So, section 2‑1 states that this tax – in the second sentence:
is a single stage tax that is imposed on supplies and importations of luxury cars –
Now, the tax is a single stage tax, your Honours, in that in respect of each car, there is ordinarily a single event which generates liability to tax, which is supply or importation. We draw attention to the fact that this provision refers to “supplies and importations”, not taxable supplies and taxable importations, which reflects the fact, which I will come to, that the event generating the liability to tax may be a supply or importation that is not a taxable supply or importation, and the adjustment provisions are a paradigm example of that.
It is clear, we say, from the overall legislative design of this tax, that Parliament contemplated that the economic burden of the tax on a person may change after the time of the supply or importation to them, which is inherent in a scheme providing for adjustments. It also follows, from the provisions to which I will come, contemplating that a top‑up tax might be payable on a subsequent supply of the car, if it has increased in value between the time of the first and the second supply.
So, when section 2‑1 – which is an explanatory provision only, and Mr Bloom took the Court to the regime for the explanatory provisions in this Act – refers to a “single stage tax”, it does not mean a tax involving fixed and unchangeable states or amounts, and it also belies a sort of simplistic proposition that there is only one taxing point – a point emphasised by my friend today. Ultimately, those phrases are no substitute for the plan of the Act through its provisions. All of Division 2 is explanatory in nature. Section 2‑5(2) says the:
system of quoting . . . is designed to prevent the tax becoming payable until the car is sold or imported at the retail level.
And I will return to that concept of “the retail level” when I address Division 9, where it comes up again. Moving forward, your Honours, to Part 2, commencing Division 5. This is the beginning of the non‑explanatory provisions of the Act, albeit the boxed text, often being the first section of the provision, is explanatory. Section 5‑5 is the core liability provision:
You must pay the luxury car tax payable on any taxable supply of a luxury car that you make.
This is taxable supply, and there is an equivalent for taxable importation, but noting that is not necessarily exhaustive of all the circumstances in which an amount will be imposed. Subsection 5‑10(1) identifies what is a “taxable supply of a luxury car”, and then subsection (2) carves out from that:
you do not make a taxable supply of a luxury car if:
So, the “you” here is the supplier – if:
(a)the recipient quotes for the supply of the car; or
(b)the car is more than 2 years old –
To your Honour Justice Gleeson’s question about the two‑year rule, the explanatory memorandum, which is in the authorities, at paragraph 2.37 says the purpose of this two‑year clause was to ensure that the tax was not:
payable indefinitely on supplies of luxury cars.
That is at page 1256 of the joint bundle. Now, a two‑year cutoff is a fairly blunt way of achieving that, but that does seem to be the purpose of the two‑year rule.
If your Honours can go to section 5‑15, this quantifies the tax payable, and your Honour Justice Steward asked about the price reference point, and it is ultimately based on the price, with some other elements of the formula. Then section 5‑15(2) has been adverted to by my friend. It is important in counteracting his double taxation argument. Its purpose is to avoid double taxation in respect of the one car, and it does that by reducing the tax payable on a taxable supply by the amounts already payable in respect of that car for previous transactions or adjustments in subsection (3). And I think that is accepted by my friend.
So, section 5‑15(2) does not have the effect that once the Act has operated to impose tax in respect of the car, there can be no further tax payable. If the luxury car tax value of the car has increased in the interim period, then an amount of luxury car tax may become payable to the extent of the excess on a subsequent supply. The point is, it cannot be said that the scheme was that it was intended for any one car that the burden of the tax should be borne only once and on only one event.
STEWARD J: Is there an answer in this Act to the consumer who has borne the burden of luxury car tax and then the Commissioner later on moves the taxing point earlier?
MS BURNETT: Well, your Honour, there is a provision for crediting tax passed on to a consumer in Division 17, and ‑ ‑ ‑
STEWARD J: But you might just simply say that the consumer can sue for restitution.
MS BURNETT: That may be, but there is a statutory credit regime, which would probably override that, under which the consumer applies to the Commissioner for a credit for overpaid luxury car tax.
STEWARD J: Where is that again, sorry?
MS BURNETT: It is in Division 17; it is found in the bundle.
STEWARD J: Thank you.
MS BURNETT: But that only applies where the tax has been overpaid. On the present fact pattern, the Commissioner’s position is that the tax has not been overpaid in the sense used in Division 17, but there will be fact patterns in which it has. Division 7, I will just pass through very briefly, your Honours, because it is largely a mirror image for importations to Division 5 for supplies.
Division 9 I did want to spend some time on, your Honours. Division 9 is entitled “Quoting”. Your Honours have seen the significance of quoting from Division 5, where it says an entitlement to quote and the recipient exercises that right. It makes a quote, then section 5‑10(2)(a) provides that the supply of the car is not a “taxable supply”, and it is therefore outside the taxing provision of 5‑5. Section 9‑1 is an explanatory section in the boxed text. It explains the legislative design, that quoting:
is designed to avoid the luxury car tax becoming payable unless the car is sold or imported at the retail level.
The “retail level” is an expression that is not defined in the Act, but its meaning is illuminated by the terms of the Act itself and, in particular, section 9‑5. Turning to that section, your Honours, section 9‑5 is relevant to this case in at least two ways. Firstly, for the luxury car tax amounts in issue, it provides important context for the operation and interpretation of the adjustment provisions.
Secondly, for the GST amounts in issue it is directly in play, because the provision of the GST Act which caps input tax credits on acquisitions of luxury cars does so by reference to whether section 9-5 is satisfied – not whether a quote was in fact made, but just whether there was an entitlement.
I will take the Court, if I could, to that section. It is in the GST Act section 69-10 in the authorities. Section 69-10 of the GST Act is entitled “Amounts of input tax credits for creditable acquisitions or creditable importations of certain cars”. Subsection (1) says:
If:
(a)you are entitled to an input tax credit for a creditable acquisition or creditable importation of a car; and
(b)you are not, for the purposes of the A New Tax System (Luxury Car Tax) Act 1999, entitled to quote an ABN in relation to the supply . . .or . . . importation –
And pausing there, it is common ground, your Honours, that that refers to the entitlements set out in section 9-5. And then:
(c)the GST inclusive market value of the car exceeds the car limit –
The car limit, your Honours, is also the concept that informs the threshold in the LCT Act of the price of a car at which the LCT kicks in. So, if the value exceeds the car limit, then:
the amount of the input tax credit on the acquisition or importation is the amount of GST payable on the supply or importation of the car up to 1/11 of that limit.
So, effectively the input tax credit is not one-eleventh of the purchase price, but it is one-eleventh of the luxury car tax limit. It is a capping provision. And that is what gives rise to the GST dispute in this case. If I could return to section 9-5, your Honours. Subsection 9-5(1) confers an entitlement to quote in relation to a particular supply or importation – and this is on the recipient of the supply or the importer:
if, at the time of quoting, you have the intention of using the car for one of the following purposes, and for no other purpose –
We note, of course, the phrase “and for no other purpose”. It has been somewhat brushed over by my friend, but his written submissions address it, and I will come to that in a moment. These words in the chapeau indicate that if one has the intention of using the car for any purpose other than one or more of (a) to (c), then there is no entitlement to quote. It shows Parliament contemplated that the purposes in (a) to (c) may coexist with an other purpose, and the legislative intention is that if there is any coexisting other purpose beyond those listed, then there is no entitlement to quote. That is the only utility of that phrase “and for no other purpose”.
Now, section 9-5(1) does not indicate that a car has a single exclusive status such as being trading stock, noting that for income tax purposes, it is often important to work out whether a car is trading stock or a depreciating asset, because the definitions of them mean it cannot be both. There is no such question posed by this Act. The car being held as trading stock is a necessary but not sufficient condition of the entitlement to quote.
There are then the three purposes in (a) to (c). Now, your Honours, if the recipient’s intention is to use the car solely for two of the three purposes listed – or all three, perhaps – but more commonly, (a) and (c) may be satisfied in the same fact pattern – trading stock and export, if the trader’s customer base is wholly or partly overseas, then, in that case we say they will be entitled to quote because they have the intention of using the car for one of the purposes – yes – and for no other purpose outside those listed – yes – and, of course, the singular includes the plural as a presumption.
It is in this sense that we say this provision can be described as a sole purpose test. It is kind of a shorthand. It is for purposes solely within (a) to (c). The appellant’s primary construction of the purpose component of this section is set out in its written outline provided this morning and in its written submissions. I was not sure whether it was adverted to orally today, but its primary construction of “and for no other purpose” in this provision is and for no other quotable purpose.
That submission was not made at either level below. It is clearly not what the section says. It does divert from the construction the appellant promotes for the increasing and decreasing adjustment provisions respectively. But it would also produce absurdity, particularly where the items are apt to overlap – which (a) and (c) very particularly are, for the car industry.
There is no conceivable reason why a trader should not be eligible – a trader who holds trading stock or intends to hold trading stock for the purpose of selling it to an overseas buyer would be ineligible to quote where one whose business is wholly domestic would be eligible. Indeed, your Honours, there is authority that the function of the word “or” in a provision like this, particularly where there is overlap, is not intended to be exclusive. If I can hand to the Court the Court of Appeal of New South Wales decision in Chief Commissioner of State Revenue (NSW) v McIntosh Bros [2021] NSWCA 221.
GAGELER CJ: Is this an authority on the meaning of the word “or”?
MS BURNETT: It is, your Honour.
GAGELER CJ: You might just mention the paragraphs that you have in mind.
MS BURNETT: Yes, I will.
GAGELER CJ: I do not think we need to be taken to it.
MS BURNETT: Yes. Your Honour, it was a case on section 10AA of the Land Tax Management Act (NSW) considered recently by this Court in Godolphin. Your Honours will recall that section, in subsection (3), lists at (a) to (f) various uses of land which, where “dominant”, will mean the land is used for primary production. Each is separated by the word “or”. And at paragraphs 13 to 15, Justice Meagher, with whom Justices Payne and White agreed, found that, having regard to the purpose of that provision:
there is no apparent reason why any of these activities carried out on the same land should not be treated as collectively contributing to its character as land, the dominant use of which is for primary production –
So, land devoted exclusively to raising pigs would qualify, and land devoted to raising pigs and farming bees would also qualify, prima facie – I do not think that was the fact pattern of that case. The appellant also, it seems, in its construction of 9‑5, has an alternative construction, in its written submissions, at least – paragraph 78 – which essentially echoes its argument on the adjustment provision that “other”, “no other purpose” means no alternative purpose.
I will not dwell overlong on that point. We have addressed in writing at our written submissions at 65(b) that that is just not an available reading of the text; it would make that phrase completely redundant; all four judges below rejected that reading both of section 9‑5(1) and of section 15‑30(3)(c); and it is also inconsistent with the explanatory memorandum at paragraph 1.10, which states, and I quote:
Generally, a recipient is entitled to quote if the car supplied to them is expected to be held solely as trading stock.
A point noted by the Full Court majority below at paragraph 93. Your Honours, section 9‑1, the explanatory section, we have noted the reference to a sale or importation “at the retail level”, and there are references to that phrase in the extrinsic materials at the time of enactment of this legislation. The way that the “retail level” notion is given effect to in this Act is through the terms of the Act itself, and particularly section 9‑5. That is, a sale or importation is not at the retail level – to use that concept – if the recipient intends to use the car for one of the three purposes “and no other purpose”.
Parliament has identified the three circumstances which cause a sale or importation not to be within the notion of the retail level. It is a notion given effect to in the negative, and in this very specific way. It is not given effect to by having some colloquial understanding of the word “retail” as the criterion for the tax. And that is not to deny that in the most common situation, the imposition of the tax will correspond with something comfortably in the middle of the general understanding of the word “retail”, but acknowledging that this is a typical fact pattern is not to say that the legislative purpose of the Act is taxation only of so‑called retail sales, if we could all agree on what that meant.
The question, your Honours, is: how far has the legislature gone in pursuit of a particular policy and in reconciling competing objectives? And the answer lies in the Act itself. The question is not whether ‑ ‑ ‑
STEWARD J: Ms Burnett, leaving aside the adjustment provisions which we are concerned with today, you would not cavil with the proposition that the general design of this Act for a car dealer is that the car dealer does not pay luxury car tax until he, she, or it sells to a consumer and then they pass on the burden of that as part of the sale price of the car.
MS BURNETT: I would not cavil with that, your Honour, as being the general circumstance in which the Act will apply and the overall design at a high level. But an example which was raised by the primary judge shows that trying to fit all the universe of transactions into a neat dichotomy of retail and wholesale could be challenging, and that may explain why those were not the terms used in the operative provisions.
So, the primary judge gave an example of a car dealer who purchased a car, held it as trading stock, but used it for private purposes out of hours while the dealership was closed and on weekends. And one would look at that sale and say, well, it is a wholesale purchase because they are a dealer and they intend to sell it to a consumer, but is there also an element of retail purchase, because the dealer is consuming the car out of hours for private purposes? And there are a number of other examples around the margins that illustrate ‑ ‑ ‑
STEWARD J: Well, I think the contrary proposition, using my example, is that where a car dealer uses a car for an “other purpose”, then the scheme of the Act is that the dealer will pay the tax at that point.
MS BURNETT: That is so. If the other purpose is a private purpose, in the example, or, in this case, the purpose of display in the museum operations. Whether one says there is a private element to that or a wholly commercial element is not to the point; it is an “other purpose”.
STEWARD J: Yes.
MS BURNETT: Now, picking up on what this Court said in Reliance Carpet in relation to the GST on labels, the question is also not whether one characterises this as a single stage tax or a retail sales tax or something else, other than a very high level. But, for interpretive purposes, as the Court said in Reliance Carpet, what matters is what as a matter of legal analysis is taxed.
Your Honours will see in section 9‑5(1)(a), the carve‑out for cars held for hire or lease, or intended to be held for hire or lease, and my friend has spoken about that this morning. It appears, your Honours, that Parliament was of the view that a car could or could arguably be intended to be used for the purpose of being held as trading stock and for no other purpose when it was intended to be held for hire or lease. So, being held for hire or lease as part of the trading stock purpose.
The explanation for that exception was given by his Honour the primary judge at paragraph 70 and the Full Court at paragraph 94. Parliament had in mind a car could be available for hire or lease as part of being trading stock and wanted to ensure that there was no doubt that in those circumstances there was not an entitlement to quote.
There are cases that support that proposition and explain why that view was taken. If I could take the Court to Memorex, a decision of the Full Court of the Federal Court, this is the joint reasons of Justices Davies and Einfeld. Memorex carried on the computer business ‑ ‑ ‑
GAGELER CJ: Could you give us the citation, please, for Memorex?
MS BURNETT: Yes, your Honour. Memorex Pty Ltd v Federal Commissioner of Taxation (1987) 19 ATR 553.
GAGELER CJ: So, we are getting out of this that a car can be held as trading stock even though it is being held for hire or lease, is that right?
MS BURNETT: Yes, your Honour. And in this case, the stock was computer equipment – 1980s computer equipment of some substantiality – and at the customer’s option it would either be purchased or hired by them for a period, and so, when Memorex was purchasing and holding the stock it was not sure whether it was going to be deployed for hire or for sale. And then, ultimately, all of the items were either sold or scrapped after being hired or not hired, as the case may be. The Full Court held at page 563, at line 29:
The subject goods were part of the goods in which the applicant was dealing. When it was profitable or financially convenient to do so and the customer agreed, the goods were leased, rather than sold outright. But they were destined for sale or other disposal by the taxpayer sooner or later, either to the customer, another customer, an overseas affiliate or perhaps if they had no value at all, by scrapping.
So, this reference to “dealing” may well have been construed by Parliament as a suggestion that goods held for hire or lease were trading stock at the same time and for that reason itself. This Court also surveyed the overseas authorities. My friend referred to the Gloucester Wagon Case. It was analysed by this Court – by the Full Court at page 560. In Gloucester Railway, the business there – now, these are income tax cases, and so it is relevant to inquire what was the nature of the business. The business in Gloucester Wagon was a business of hiring out and selling wagons, a single business, and so the wagons, though hired out, were also held to be the inventory of that business, whereas the Hyteco Hiring Case to which my friend referred this morning, a case about forklifts, the finding there, very plainly, was that the taxpayer there was carrying on a business only of hiring out forklifts, no business of selling forklifts, so it is not surprising that the forklifts had no trading stock related character in that case.
GAGELER CJ: So, the consequence of this is, I think, that if the car is intended to sit on the showroom floor and either be sold or hired, depending on the preference of the customer, there is no quotable purpose, is that right?
MS BURNETT: That is right. Now, before I move on from section 9‑5, we want to observe that the reference to “purpose” in this section and that word in the increasing adjustment provision is a reference to objective purpose. The Full Court held this at paragraph 110, and it had also been held by the primary judge at paragraphs 77 to 79. The conclusion that “purpose” in these two sections in issue is objective purpose is not a conclusion challenged in this appeal, and we think it is the correct conclusion consistent with this Court’s consideration of “purpose” elsewhere in tax laws, including in Sharpcan and in Godolphin, which I will come to a little ‑ ‑ ‑
EDELMAN J: What do you mean by “objective purpose”?
MS BURNETT: It is the purpose that an objective reasonable person would arrive at after a consideration of all of the circumstances – and that is not to say that evidence of subjective state of mind, or subjective motive, is irrelevant, that can be received, depending on the statutory context, and it was received here, but where that evidence is rejected or where it is inconsistent with the objective circumstances, it will not be weighty.
That is also not to say that subjective evidence has to be found to be not credit‑worthy or not genuinely held. Again, returning to the Godolphin decision, it was not found that the “breed to race, race to breed” ethos was not genuine, but it was found that, looking at the objective facts of the use of the land there, two purposes were evident, and one predominated over the other.
STEWARD J: How does that square with the use of the word “intention” in 9‑5?
MS BURNETT: Yes, your Honour, “intention” is likely more subjective, but ‑ ‑ ‑
STEWARD J: It is looking to forward use, future use.
MS BURNETT: That is right. It is quite future use, and at that time you do not have the objective circumstances to survey, so we would not cavil with that; “purpose”, however, is objective. Going briefly, your Honours, through the balance of Division 9, as my friend mentioned, under section 9‑20, an “incorrect quote” is “nevertheless effective”. Looking briefly at section 9‑15(2), a quote has to be:
made at or before the time of the supply or importation.
So, if a dealer intending only to use the car as trading stock neglects to quote by that time for whatever reason, then there will be no quote, and they are not able to quote anymore, but that is a paradigm situation in which the decreasing adjustment provision kicks in, to which I will come in a moment. Then, noting in passing, section 9‑30 in relation to improper quoting, section 9‑25 and section 9‑30 were not in issue with this case, and 9‑30 would have its own fault elements, by reference to the Criminal Code, which were just not in issue.
Moving on to Division 13, your Honours, in terms of the plan of the Act, this is where the mechanics of paying the luxury car tax are dealt with. This part, in a nutshell, explains that a person’s net amount under the GST Act for a tax period reported in their BAS is increased by any luxury car tax payable, and it identifies which period the luxury car tax and adjustments are attributable to. So, in this way, administratively, the luxury car tax piggybacks on the GST.
The Court will see from section 13‑10 that an increasing luxury car tax adjustments can increase the net amount for a period, and the converse is the case for decreasing adjustments. We will see the use, as ever, of the second person, “you”; not only that, but that the terms of these provisions plainly show that this is a self‑assessment regime. If you have an increasing adjustment, then by way of self‑assessment you have to include that in your net amount for the relevant period, and then, conversely, if you have a decreasing adjustment, in 13‑10(1)(b), you get to subtract that. There is no provision for applying to the Commissioner for permission to enjoy the benefit of a decreasing adjustment; it is purely self-assessment. And in 13‑10(2):
A luxury car tax adjustment must be made within 4 years after the supply or importation to which the adjustment relates.
Your Honours, the appellant contends in its written submissions and in the outline this morning that an increasing adjustment cannot or should not made after two years, but there is no mechanism for that in the Act. When we come to Division 15, we will see it is not there. Rather, there is here, in this mechanical Division, a four‑year limitation on making increasing or decreasing adjustments. So, there is certainly no indefinite potential for adjustments.
Then, section 13‑15(2) identifies which tax period luxury car tax adjustments are attributable to. Again, that is a matter for self‑assessment. That picks up the provisions of the GST Act about attribution of adjustments to a time period. The default rule, your Honours, is that an adjustment is attributable to the tax period in which you become aware of the adjustment. That is section 29‑20(1) of the GST Act, which is not in the bundle. We can hand it up to your Honours if it would be convenient.
GAGELER CJ: We can find it.
MS BURNETT: I thank your Honour. So, the effect of the Act is that an adjustment may increase or decrease the net amount in the BAS for a period, and it might do so at some time after the supply or importation of the car. Parliament contemplated the economic burden of the tax may change after the supply or importation.
There is not a single taxing point, in a simplistic sense. It cannot be said there is only ever one moment of taxation at which point the tax in respect of the car is fixed. That is also clear from Division 15, to which I will turn. The Court will see that section 15‑1 – another explanatory provision – explains that circumstances may:
occur after the supply or importation of a car –
which:
may mean that too much or too little luxury car tax was imposed.
Where there is an increasing adjustment, the taxing event, your Honours, can effectively be the supply of the car, even though the supply was not a taxable supply when it happened. This explanatory provision also indicates that the adjustment, in the last sentence, may apply to:
the supplier, the recipient or the importer –
the fact that the adjustment may apply to the recipient is a departure from the ordinary position, which is that the tax is imposed on the supplier under section 5‑5, and this circumstance in Division 15 reflects the fact that the circumstances that may require the adjustment might be well beyond the control of and unknown to the supplier, who may well be out of the picture by this point in time.
Moving forward, your Honours, to section 15‑30, directly in issue in this case. The heading is “Changes of use—supplies of luxury cars”. Now, headings do form part of this Act, and, of course, we say that changing from using a car for one purpose to using the car for two purposes is a change of use. There is nothing unnatural about that. But it is also the case that there are adjustment circumstances plainly contemplated by these provisions that do not involve a change of use. So, while headings are part of the Act, they do give way to the operative provisions, and they are very commonly framed a high level of generality that does not encompass every single operative provision within them.
For an example of an adjustment without a change of use here, there is the one of what you might call the forgetful dealer, who neglected to quote when purchasing the trading stock and did not get their quote in on time, and so, for them, we were looking at subsection 15‑30(1):
You have a decreasing luxury type car tax adjustment if:
(a)you were supplied with a luxury car . . .
(b)luxury car tax was payable . . . because you did not quote . . .
(c)you were registered at the time of the supply; and
(d)you intend to use the car for a quotable purpose; and
(e)you have only used the car for a quotable purpose.
So, that dealer will be entitled to the luxury car tax back under a decreasing adjustment. There has been no change of use, but that is clearly a primary operation of that adjustment provision, and it is adverted to in the explanatory memorandum itself in relation to this particular subsection.
Now, in subsection 15‑30(1), we, of course, emphasise the word “only” in subsection (1)(e). The decreasing adjustment is if that is the “only” use of the car. If there is another use, there is no decreasing adjustment – that is plain. The tax previously payable is not undone or reduced; there is no mechanism for apportioning among various uses. When the decreasing adjustment provision applies, it is because it has become apparent that it was not correct to impose LCT at the time of the supply or importation because the car was “only” used for those purposes set out in (a) to (c) of subsection 9‑5(1).
GLEESON J: Is there an implied “only” in subsection (1)(d)?
MS BURNETT: Look, I do not think there would need to be. If there is an intention – if the use is only for a quotable purpose, but there is an intention to use it for another purpose, then once that purpose is given effect to, then an increasing adjustment under subsection (3) will apply on its plain terms.
STEWARD J: These provisions really are directed at a change in use after the acquisition.
MS BURNETT: That is definitely the main circumstance, your Honour.
STEWARD J: And you sort of have to fit within them, because your case is that there was no change in use at all.
MS BURNETT: Well, our case is there was a change of use for those cars which were bought before the museum commenced operation.
STEWARD J: Well, we are talking about the 40 cars – just focused on the 40 cars.
MS BURNETT: Yes, your Honour.
STEWARD J: Your case is there was no change in use.
MS BURNETT: For the cars bought after the museum commenced operation, that is the case.
STEWARD J: Do we know if any of the 40 were acquired before?
MS BURNETT: Yes. Around about 10 of them were. I can check the exact number.
STEWARD J: So, about 10 acquired before, and there is a change there ‑ ‑ ‑
MS BURNETT: Yes.
STEWARD J: Okay, you have that, but the balance of the 30‑odd?
MS BURNETT: In the balance of the 30, the appellant quoted for those cars, but we say was not entitled to quote.
STEWARD J: So, for those 30, there is no change in use?
MS BURNETT: Yes. And I should just make it clear there is not actually 30 of them. There is actually only a small handful which are the LCT cars post the museum opening. For that handful, the use to which those cars were put was always a use for two purposes, so that is so, your Honour.
STEWARD J: So, is Subdivision 15‑B the correct remedy for you, or is there a remedy elsewhere for someone who wrongly quotes, from in the section?
MS BURNETT: For someone who wrongly quotes, and the quote is nonetheless effective, and sections 9‑25 and 9‑30 do not touch it, this is the sole remedy. That is why change of use is an appropriate heading at a descriptive level of generality but it does not encompass all of the things that this section does. So, for example, we – I just wanted to finish off the submissions on the decreasing adjustment provision in subsection (1), where the appellant appears to accept that this provision requires use for a quotable purpose only, as it says, but says there was a deliberate switch or a deliberate use of different language in the increasing adjustment provision in subsection (3)(c), and that submission was maintained this morning.
As your Honours will see, there is no deliberate switch. The different words in (1)(e) compared to (3)(c) are wholly explained by the necessarily different syntax. So, I think, as the appellant would have it, for these two adjustments to be complements, the appellant would say that subsection (3)(c) would need to also have the word “only”, so it would have to say – instead of “you use the car for a purpose other than a quotable purpose”, it would have to say, you have not only used the car for a quotable purpose. But that, of course, would be bad drafting because it would mean that someone who has not used the car at all would suffer an increasing adjournment.
Parliament and the drafter have chosen the words in subsection (3)(c) to be the inverse of those in subsection (1)(e), but stated in the positive to avoid ambiguity and unintended results. There is no deliberate shift and indeed, as a matter of structure of the legislation, the decreasing and increasing adjustment provisions are clearly complements of each other. There is no reason to interpret them in the two very different ways promoted by the appellant. Focusing on 15‑30(3), the increasing adjustment provision, of course, subsection (a) identifies the taxing event:
you were supplied with a luxury car –
Then in section 15‑35, subsection (3) is the counterpart for:
you imported a luxury car –
Then subsection (b) indicates that subsection (3) can apply where:
(b)either:
(i)no luxury car tax was payable on the supply because you quoted for the supply; or
(i)you had a decreasing luxury car tax adjustment under subsection (1); and –
subsection (c) then identifies as a condition that:
(c) you use the car for a purpose other than a quotable purpose.
And they are the words on which the LCT in in issue in this case turns. Now, of course, this refers to “a” purpose other than a quotable purpose, not the purpose or the dominant or predominant purpose. It is sufficient to give rise to the adjustment if you used the car for a purpose other than a quotable purpose even if you also use it for a quotable purpose. The expression “quotable purpose” is defined in the dictionary in section 27‑1, and, as my friend has taken the Court to, that says:
quotable purpose means a use of a car for which you may quote under section 9‑5.
And a use of a car for which you may quote is a use for one of the purposes in (a) to (c) of 9‑51. In 15‑30(3)(c), Parliament’s evident intention was that that definition of “quotable purpose” be inserted into the subsection (3)(c) to the extent possible. One can observe that the defined expression “quotable purpose” is expressed in terms of uses, whereas 15‑30(3)(c) refers to a purpose. But the sensible reading, reflecting Parliament’s intention and the Act as a whole, is that (3)(c) is engaged – it says the use of a:
car for a purpose other than a –
purpose mentioned in 9‑5(1)(a) to (c), and the “other than” resides in (3)(c) itself. It does not need to be imported from the chapeau to 9‑5(1), although the two are consistent, as one would expect on this scheme.
The appellant’s primary case is that there is an increasing adjustment only if there is an alternative use of the car such that it ceases to be trading stock, and that approach, we say, is not supported by the text, structure or purpose of this Act. Subsection (3)(c) does not say that you have an increasing adjustment if you cease to use the car for a quotable purpose. It does not say you have an increasing adjustment if you use the car in a manner inconsistent with a quotable purpose.
It contemplates the car could be trading stock but nevertheless used for another purpose which will give rise to the increasing adjustment. This reflects the complementarity with the decreasing adjustment provision in (1)(e), if the taxpayer has only used the car for a quotable purpose, then it has a decreasing adjustment, whereas there is an increasing adjustment if it has used the car for a purpose other than a quotable purpose. They are clearly complementary opposites.
To use the primary judge’s example of a dual‑purpose car which is trading stock but also used privately or for some other purpose out of hours, or perhaps for racing out of hours or, indeed, for display in a museum throughout, those sort of dual‑purpose cases, on the three different respective constructions that the appellant embraces for these three different provisions, they give rise to all sorts of anomalous circumstances, depending on the happenstance of whether someone quoted or failed to quote and whether they would be entitled to an increasing or a decreasing adjustment. The anomalies would be quite evident if those disharmonious constructions were the right ones.
STEWARD J: Do you accept, as Mr Bloom, I think, did, that the way the cars are being physically used here is a display?
MS BURNETT: At a high level, display is a description of the use, but if one drills down, there are incidents of the display, physical incidence of them, which are explicable more via the museum purpose than the trading stock purpose. So, for example ‑ ‑ ‑
STEWARD J: Leave aside that for the moment. I want to get clear in my own mind that, of the 40 cars they are put onto a former Bunnings Warehouse and they are parked and they are kept clear. Leave aside for the moment whether they have a “for sale” sign or not at the moment, just leave that aside. But at that point in time, they are being used for public display.
MS BURNETT: Yes, your Honour.
STEWARD J: And you would say – I understand this – that that is a dual purpose, because they are on display because small boys like looking at sports cars, but they are in no position to buy cars, and they are also on display, as you concede, to be sold.
MS BURNETT: Yes, your Honour.
STEWARD J: It is one of the things about this case that makes it a bit more difficult than, say, other cases like Godolphin, where there are differing physical uses; horses being used for different purposes. We have to identify the purpose or purposes in circumstances where the physical use is one and the same.
MS BURNETT: Yes. And on this Act, your Honour, there can be one use for two purposes, and there can be two uses for a sole purpose. In terms of whether there is really only just one use, what I wanted to identify is that within the physical use of display, there are a number of acts, as your Honour has identified – when someone needs to drive the car into the Bunnings, someone needs to polish the car and take it to the mechanic if need be – but when one sees how the cars were displayed in the museum – and I will come to that in the characterisation part of the appeal – they were sardined next to each other very closely.
So, they were obviously driven in to be positioned in a certain way. They were put behind cordons, so the members of the public could not actually walk 360 degrees around most of the cars. They could view them from the roped‑off area. In that way, the display and the positioning, physically, of the cars was different from what one would see at an ordinary dealership.
STEWARD J: When you come to it, could you address the proposition that all of that was simply part of Mr Denny’s way of trying to make it look like a real museum? In other words, he did not want to have it looking like a car dealership and then sticking the word “museum” out the front – that was not going to suit his marketing purposes – he wanted to make all of it look like as much of a museum as possible, but still devoted to selling the cars.
MS BURNETT: Yes, your Honour.
STEWARD J: Do not answer it now – when you get to characterisation ‑ ‑ ‑
MS BURNETT: When we get to the characterisation of the case, perhaps.
STEWARD J: Yes, if you do it then.
MS BURNETT: If that suits the Court. But in a nutshell, we say subjective purpose evidence is not decisive and cannot contradict the objective facts.
STEWARD J: When you are looking at the purpose of a thing in commerce, and it is owned by a company, it is the controlling mind of the company that will tell you its purpose, and that is normally people who are the controlling mind, real people.
MS BURNETT: But the courts in this case have ‑ ‑ ‑
STEWARD J: Mr Denny’s evidence, apart from charging an admission fee, has been accepted.
MS BURNETT: Purpose, in this case, has been held to be an objective purpose, not a subjective motive, and that is not challenged in the appeal. Indeed, in other contexts, like the Magna Alloys Case for the general income tax deductibility provision, while subjective evidence from the controlling mind of the company’s director was relevant, the court there also held it was very much not decisive and that ultimately, objective purpose in the main is the test for the general deduction provision of the income tax sections. Similarly, in the Godolphin Case ‑ ‑ ‑
EDELMAN J: I do not understand what you mean by “objective purpose”. If you are talking about a person and a person says, this is my end, this is my goal, this is my purpose, that makes sense. I can also understand how one can say, well, that evidence of subjective purpose is not conclusive because the court may think, well, you say that that is your end, but it is pretty clear from your objective conduct that the end, whatever you are actually saying or whatever you say was in your mind, must have been something different. But to say that an intended – to go back to the language of the section – purpose could be divorced from what was accepted to be the end that an actual person intended, I am not sure that we are even talking about purpose at all then.
MS BURNETT: Well, I am not sure either, your Honour, because the subjective evidence of the individual is evidence of their motive, of their reasons for doing what was done.
EDELMAN J: A motive is a reason for a purpose, it is not the purpose itself. Both can be subjective. You can have a motive and a purpose, and usually you do have a motive and a purpose.
MS BURNETT: Well, your Honour, we raise the distinction drawn in the Superleague Case and adopted by this Court in Sharpcan that the distinction between motive and purpose is that the purpose of the activity is the end that is sought to be achieved, whereas the motive is the person’s reasons for seeking that end. Rather than being an anterior step on the way, it is perhaps the person’s own reasons, and so they are distinguishable in that way.
This statutory question is about the purpose, what is the end sought to be achieved, not what was Mr Denny’s reason for seeking that end or reason for doing the things in the way that he did.
EDELMAN J: Yes, well, his reasons might have been making money, or his reasons might have been philanthropy.
MS BURNETT: That is right.
EDELMAN J: They might have been his motives. We are not concerned with his motives.
MS BURNETT: Those purposes are not quotable purposes under the Act.
EDELMAN J: Well, they are not purposes, they are motives.
MS BURNETT: But we say that Mr Denny’s evidence in the case to which your Honour has referred is evidence of subjective motive. And while it can help inform a conclusion in the round as to what is the purpose of the use, it is only a part of that, and it will not carry much weight if it is rejected in whole or part, or if it does not sit well with the objective facts.
In Godolphin Australia Pty Ltd v Chief Commissioner of State Revenue [2024] HCA 20, the plurality decision – the decision of the whole, of course, was a dominant‑purpose case, and about the use of land. So, in those ways, it is different from this case, but not so different that the principles distilled and discussed are not of any utility. In Godolphin, at paragraph 34 in the plurality reasons, under the heading “A question of characterisation”:
Whether land is being used for the dominant purpose of maintaining animals for their sale or . . . their natural increase or bodily produce is a question of characterisation of the use or uses to which the land is put. The proper approach is to consider the amount of land used for any purpose, the nature and extent and intensity of the various uses which are taking place, and the time and labour and resources spent in using the land. In some cases, the financial gain from a given activity may be an indicator of predominance. And in all cases one should not ignore the conclusion reached by an objective observer who is viewing the land as a whole.
Now, I appreciate this is about determining which purpose was predominant, but the characterisation process is the one that we embrace, and it turns very much on the objective features of the use of the asset in question. Then, in the ‑ ‑ ‑
STEWARD J: Godolphin was, as you say, a very different case. We had different actual uses. Those land tax cases all have that problem, that there are multiple uses of land, so what is the dominant purpose. Here, the problem is there really is only one physical use – that is, display – and then the question becomes, as you would put it, having regard to the display and also having regard to what was accepted as the reasons or the purposes or objects of the display, whether it was only trading stock or not.
MS BURNETT: But it is still a characterisation informing a conclusion as to purpose and ‑ ‑ ‑
STEWARD J: But the question is, is there anything about the display of the cars which would negate Mr Denny’s evidence that his end in sight was to sell the cars?
MS BURNETT: Well, the evidence about admission fees was not accepted by the primary judge.
STEWARD J: I understand that.
MS BURNETT: That was not just about the increase in the fee ‑ ‑ ‑
STEWARD J: But there is evidence he made a loss on this part of his business.
MS BURNETT: Well, your Honour, the evidence is that all of the activities that this appellant conducted were very marginal financially, and in the characterisation part of the case I will take you briefly to the financial statements that show that that is the case. So, it cannot be said that the museum purpose had a financial result which was dwarfed by enormous profits coming in from the car sales. Even the car sales, once overheads were taken into account, were extremely marginal.
STEWARD J: But going back to the question of purpose – and you will address this, I am sure – whether we should be looking at gross turnover or net operating profits.
MS BURNETT: Yes, your Honour. The question here is not dominant purpose. The museum purpose just needs to be an “other purpose”. So, its gross revenue was smaller than the gross revenue from selling cars, there is no doubt about that, but one also looks at the contribution to the bottom line in an analysis like this, and there the two are more evenly matched.
Now, your Honours, the appellant has referred in its written submissions to demonstrator vehicles as a hypothetical, not engaged in this case but deployed for the purpose of argument. Our submission is that the use of a car by a dealer as a demonstration vehicle may, on the facts of the case, mean that there is a use other than for a quotable purpose. It would depend on the facts but, there is nothing surprising that that might trigger an adjustment. It was a fact pattern specifically adverted to in the explanatory memorandum at paragraph 3.32 which indicated that starting to use the car as a demonstration vehicle would result in an increasing adjustment.
The appellant’s written submissions have also raised the hypothetical of subjecting a car to a security interest, whether that is an additional use or not. That is getting very remote from this case and would really require a consideration of all the surrounding facts and circumstances, and the purpose for raising the security, and how that impacted on the use of the car to form any kind of conclusion about that.
Your Honours, I wish to turn to the appellant’s alternative constructional proposition. We say in response to that that the Act does not provide for an inquiry into consistent incidental or subservient purposes. Those words do not appear in the Act and cannot be read into it. The inquiry is the inquiry referred to in section 9‑1 for GST and for the primary quoting provision. In section 15‑30(3) for the increasing adjustments, have you used the car for a purpose other than a quotable purpose? That is a question of fact.
Of course, one can use a car for a quotable purpose and for no other purpose, even though the quotable purpose is not immediately achievable. So, for example, if you are in the business of selling cars and you just bought a car from a vendor and you are driving the car from the vendor’s premises to the dealership, at that point the car cannot be sold; it is probably already trading stock. The use of the car by so driving it is a use wholly for the purpose of holding it as trading stock, and that is a single‑purpose situation. It does not assist to add some label about whether that action or use is consistent or ancillary or subservient; they are judgments that the Act does not require to be undertaken.
We also do not see that the appellant draws assistance from Ellis & Clark and Brayson Motors in supporting the appellant’s construction, or various constructions, of the LCT Act. In those cases, the Court concluded that for the former sales tax legislation to bear particular constructions would be contrary to the legislative plan, as was evident from the terms of the sales tax legislative scheme, including its regulations. It did not proceed from an a priori notion of purpose.
The legislative plan in this Luxury Car Tax Act is that the luxury car tax should be payable on supply unless the recipient intends to use and in fact uses the car for a quotable purpose and no other purpose. Each Act, of course, is construed by reference to its own context and purpose. The approach adopted by the Full Court majority below was entirely orthodox in that respect, and it was consistent with the interpretative approach in Brayson and Ellis & Clark.
Your Honours, there are a couple of discrete points made by the appellant in its reply submissions, and one referred to today that I wanted to respond to before moving on to the characterisation part of the case. The first is the appellant’s reference in its reply submissions to a 2017 amendment of this Act, essentially for non‑profit museum sole uses of cars. This amendment, your Honours, is in the bundle of authorities, it is at page 278 for the amending Act ‑ ‑ ‑
EDELMAN J: Which tab was that, Ms Burnett?
MS BURNETT: It is – bear with me, your Honour – at tab 15. That is the current Act with the amendment made in it. Thank you, your Honour. At page 278 is the new provision – this is the amending Act – in schedule 3. If your Honours can see:
1 After paragraph 7‑10(3)(b)
Insert:
(ba) you are registered . . . and the car –
These are circumstances in which it will not be a taxable importation:
(i)is covered by item 7 in Schedule 4 to the Customs Tariff; and
(ii)is imported by the library, museum, gallery or institution to which it is consigned; and
(iii)is imported for the sole purpose of public display –
Going briefly to that item 7 in schedule 4 of the Customs Tariff, your Honours, that is at page 199 of the bundle, at tab 9. Item 7 at the top of page 199 – this is in the Customs Tariff Schedule 4 – is:
Works of art or collectors’ pieces –
(a), to which an international protocol applies, and (b):
that are consigned to a library, museum, gallery or institution that is covered by –
various items in Subdivision 30‑BA of the Income Tax Assessment Act, which is a regime for deductible gift recipients. Closing the loop within that Subdivision, at page 255 of the bundle, the institution needs to be “a public museum”.
Page 255, at tab 11, 30-100, for example, the cultural organisations on page 256, items 12.1.2 – “a public library” – or 12.1.3 – “a public museum” – they need to be operated either by a government agency or by a registered charity. That is just to make it clear that the appellant is not within the class of entities provided for by the 2017 amendment, which did come into force part‑way through the tax periods in issue in this case, but we say the appellant seems to call it in aid to suggest that amendment has an impact on the construction of the pre‑existing provision 15‑30.
Of course, an Act is read as one Act including amending enactments, and it is possible for an amendment to change the meaning of a pre‑existing provision in the Act, but we say that is not the case for this amendment. The element of it that our friends call in aid is the reference to sole purpose of display. That was a provision where there was only one purpose which would qualify for exemption from the tax.
Our provision, section 9‑5, has three, and our friends suggest that where this Act uses sole purpose it does so in terms, but the different structure of the provisions explains why that is not so because there are three quotable purposes, and, of course, it would be quite a surprising – and we say erroneous – proposition that this 2017 amendment for a very specific purpose effected a fundamental change to the meaning of the primary provisions of the Act in sections 9‑5 and 15‑30. There is nothing in the extrinsic materials to that effect, your Honours.
GAGELER CJ: Does that complete everything before we get to characterisation?
MS BURNETT: There is one other of these discrete points, your Honour, about double taxation, which, noting the time, it will take me a few minutes.
GAGELER CJ: All right. We will take the luncheon adjournment now.
AT 12.46 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.14 PM:
MS BURNETT: Your Honours, double taxation, the appellant’s argument in chief in this respect is really answered by section 4‑15, and the appellant seems to accept that, but then the argument transformed into a proposition about the sequence of events in this case and also somewhat in the abstract by reference to six potential sales but without any one of them actually having any particular double taxation that can be established.
But as far as we understand the argument it is that, in the circumstances of this case, the appellant paid a LCT exclusive price on the basis that it quoted and the initial supply was not taxable, and then it did not subsequently pay any luxury car tax on the basis of an increasing adjustment. Then, for some – perhaps six or less – of the cars, the taxpayer made a taxable supply of that car. That would have had to be within two years or less of the appellant’s own acquisition because of the two‑year rule.
In respect of those taxable supplies, the appellant returned the luxury car tax on the assumption that there should not be a subtraction of any previous LCT because they had not thought any LCT had previously been payable. Then, thereafter, the Commissioner amended the appellant’s assessments on the basis that there had been increasing adjustments in the interim of that two‑year period. That is said to give rise to double taxation because there is taxation by reason of the increasing adjustments and then imposing the tax on the on‑sale of the car within the two years.
Now, we say the argument that that is double taxation and that it somehow bears on the construction of the Act would not be accepted. The Act is plainly a self‑assessment system and the taxpayer lodged erroneous returns in its BAS as to the LCT that applied at the points in time. If the appellant had put the BASs in in the correct manner, then the statutory scheme would have worked, so that the tax payable by reason of the increasing adjustments was subtracted on the subsequent supply.
Further, of course, your Honours, a taxpayer can object against or apply for an amendment of an assessment, and the standard period of time for that is four years, which would be comfortably included within the two‑year rule and the four‑year period limiting amendments for increasing adjustments. So, there really is no double taxation in the present case that is brought about by any function of the Act or anything other than the way that the appellant itself chose to proceed.
STEWARD J: With the six cars that were a taxable supply, did it end up being in the same taxable period the assessment was made?
MS BURNETT: There is not evidence of that, your Honour.
STEWARD J: I see.
MS BURNETT: It is not a point that has been made previously.
STEWARD J: But the taxpayer would have paid luxury car tax at the point of sale – that is right?
MS BURNETT: That is right, if it supplied them domestically.
STEWARD J: So, presumably, from your client’s perspective, the only issue is whether it is collectible in a different period. I mean, your client has its tax for those six cars.
MS BURNETT: Yes, the revenue was certainly received, but the appellant is able to object against the earlier assessment and say that there ‑ ‑ ‑
STEWARD J: But you have not collected twice though, have you?
MS BURNETT: I do not think there is evidence that it has been collected twice, your Honour.
STEWARD J: I see. Thank you.
MS BURNETT: As to the third and final element of the case, about whether the use of the cars in the museum was wholly and only for the purpose of holding them as trading stock and not for an “other purpose”, which we call the characterisation issue, can I take the Court to the findings of fact in this case in the reasons of the primary judge, which commence at page 5 of the core appeal book.
None of these factual findings are specifically challenged by the appellant in these proceedings, nor below in the Full Court. Starting, your Honours, at appeal book page 8, paragraph 1 of the primary judge’s reasons:
The “Gosford Classic Car Museum” opened –
Now, of course, your Honours the building was named and presented as the Gosford Classic Car Museum. Going to the photographs at the end of his Honour’s reasons in Annexure A on page 35 of the appeal book, the first photo shows the exterior of the building with large signage, “GOSFORD CLASSIC CAR MUSEUM”. Then, over on page 40, the last of these photos, the last photo is an interior photo just inside the entrance with a sign saying, “CAR MUSEUM”. Going back, your Honours, to the start of the primary judge’s reasons on page 8, at paragraph 2:
The museum attracted 13,000 visitors within a month.
That was the first month of operations. Then there is a reference to a visit from Mike Whitney of the Sydney Weekender TV show, with the crew being invited in to film a segment for that program, marketing the museum as a tourist attraction.
Then, from paragraph 4, over the page commence five photos of particular cars in the museum with some descriptions of them. Just rounding out the photos, your Honours, if you could skip back – I apologise for moving around to the Annexure A, starting at page 35. The second photo on page 35 is the central part of the premises showing cars displayed together behind the cordons with members of the public coming to look and photograph the cars.
Over at page 37, one sees an example of a stand which was set up right next to most of the cars, giving visitors information about the specifications and the history of the model. There is no pricing or such information on the stand at page 37. Under that is a closeup of some cars with numberplates saying “GOSFORD CLASSIC CAR MUSEUM”. Over the page at page 38 are two photos of the gift shop or memorabilia shop. Then, on page 39, are two photos of the diner. The top one is the dining area just inside the premises, and the second is the Airstream café where the food was distributed. Over the page on 40, another page of the dining area, and then the final photo is members of the public lining up at the ticket desk of the museum.
GAGELER CJ: That looks like a bus group, is it?
MS BURNETT: Your Honour, I think the was a still from a video taken and put on the YouTube channel of the Gosford Classic Car Museum, but I do not recall if that video showed that it was a bus group. But there are a lot of people at one time, it can be said.
GAGELER CJ: Did buses of tourists come through?
MS BURNETT: The parking was very ample, as one would expect of a former Bunnings – more ample than you would expect for a traditional dealership – and I believe there were bus bays in the parking. The evidence was – I mean, 13,000 visitors in the first month does lead to, sort of, queuing situations such as this one. It settled down and I think it became more like 1,000 to 2,000 visitors per week, as we will come to in the findings. The primary judge went on at paragraph 10, which is on page 11 of the core appeal book, to find that the appellant:
promoted its museum as a tourist attraction to the public generally, including through its website and by social media. It had marketing staff whose role it was to promote the museum and who invited media to attend with a view to promoting the museum as a tourist attraction.
Then, at paragraph 11, his Honour referred to the merchandise shop and the diner. Over on page 12, there is a reference to the appellant’s website marketing:
the museum as a desirable location for a “day out” and for a “break” from Sydney.
And at paragraph 13, noting that the website had:
links to facilitate travel bookings –
And at 14:
links to various hotel websites –
in the Central Coast area, and similar findings about representations to the public of the tourist value of the museum are made at paragraphs 15 over to 18. At paragraph 20, his Honour found the website held out the venue as a place for functions and that the then‑Prime Minister, Mr Turnbull, held his 62nd birthday party there. At paragraph 21, his Honour found that initially the museum did not advertise that the cars were for sale but, after October 2016, the website said that many museum cars were – there were advertisements indicating that part of the museum’s culture was to facilitate the sale of vehicles.
If I could take the Court to the respondent’s book of further materials at page 39, my learned friend emphasised this morning that the cars were being frequently turned over and frequently sold. At page 39 there is a page from the gosfordclassiccarmuseum.com.au website. The printing is not of the greatest quality, your Honours, but I wanted to draw attention to the last sentence on that page 39, which says:
The Museum will continue to evolve, with a turnover of approximately 20 cars per month, ensuring there’s always something new and exciting to see.
This indicates that the sale of cars also serves the museum purpose by ensuring that the exhibit is constantly changing so museum visitors, not in the market to buy a car, will be interested in returning to the museum to see the new exhibits and, of course, paying admission fees and spending money at the gift shop and diner and so on.
Now, returning to the primary judge’s on page 15 at paragraph 25, the primary judge found the appellant:
employed staff who worked at the museum’s admission/ticket desk and at the gift shop –
and a reference to their uniforms. Then a quote from the website:
There are over 30 hard working and dedicated staff members employed by the museum, as well as 10 passionate volunteers. Many of the staff are motoring enthusiasts themselves and have a vast knowledge of automotive history they are more than happy to share with you.
At paragraph 27, his Honour found that:
Adults were charged $20 in admission fees and children $12. Family tickets were $55.
Paragraphs 28 over to 37 contain other findings about marketing communications from the museum to the public. At paragraph 43, your Honours, on page 21, his Honour found that:
Visitors on weekdays typically numbered in the hundreds and at times over a thousand on a Saturday or a Sunday. Typically, the museum would see between one and two thousand visitors a week. By comparison with those numbers, the museum received 10 to 15 car sales inquiries a week.
And at paragraph 44, his Honour found that:
During its first full financial year of operation the applicant received about $1.32 million in admission fees. Its revenue from the sale of cars in that period (approximately $28,249,359) less the cost of sales ($23,857,392), was approximately $4.39 million.
Can I take your Honours very briefly to the financial statements for the three years in which the museum operated, because the financial results of different uses of cars is relevant to an assessment of the purpose of the uses. The first is in the appellant’s further materials, your Honours, at page 15 of that bundle. Page 15 commences the financial report for the year ended 30 June 2017.
Given that the museum opened on 28 May 2016, this was the first full year of the operations; there was one month of operations in the prior year, but the prior year figures are set out here as well. Turning to page 17, your Honours will see at about point 3 of the page under the heading “Review of Operations”:
The profit of the company for the financial year after providing for income tax amounted to $542,661.
About halfway down the page, under the heading “Principal activities” it is said:
The principal activities . . . were:
Retail sale of Vehicles –
Now, your Honours, it is important to know that these financial statements were prepared in 2020, which was after the assessments in dispute in this case were issued in 2019.
STEWARD J: What is the relevance of that?
MS BURNETT: It is that these – that one would not take the description in the financial statement of retail sale of vehicles as necessarily being an objective description of all of the activities.
STEWARD J: Why not? Did you put it in cross‑examination and establish it was wrong?
MS BURNETT: It is an observation about the timing of the financial statements.
STEWARD J: It is just throwing mud. It is just throwing mud. It is either right or wrong.
MS BURNETT: There is, of course, a reference to “the ATO contingent liability” at about point 6 of the page. Over at the profit and loss statement on page 20, one sees on the left‑hand column the 2017 results. Read for the 2017 year, revenue of some $29.6 million with a profit of $542,000, which is a fairly slim profit margin on that revenue figure. The revenue is a single line item which included all of the revenue the appellant received. One can see for 2016 that the profit figure, although this was only really one month of the museum operations, the profit figure is $1.48 million. But one also sees in the breakdown of revenue on page 26 ‑ ‑ ‑
GAGELER CJ: Can I just ask where this analysis is leading? Why are we looking at this level of detail of the financial statements?
MS BURNETT: It is to rebut the proposition made by my learned friend that the car sales activities were overwhelmingly the main financial contributor to the appellant’s success and the museum operations were somehow negligible in comparison to that, and so would not themselves constitute an additional purpose.
GAGELER CJ: I see. So, you have from paragraph 44 of the primary judge’s judgment the gross revenue from those two sources.
MS BURNETT: That is right.
GAGELER CJ: What more are you asking us to get out of this?
MS BURNETT: That the net revenue from both sets of activities – the profit from both – was relatively small.
GAGELER CJ: All right.
STEWARD J: Well, there was no profit from the running of the museum. You tendered a document that said it made a loss.
MS BURNETT: That is right, your Honour. The Full Court observed that that had not described how the overheads had been allocated, which ‑ ‑ ‑
STEWARD J: I read that. I just do not understand how that observation can affect, now, the fact that the only evidence that was before the court was that it ran at a loss, and you tendered it.
MS BURNETT: The loss there was a very small loss. It was $1.32 million of revenue and something very similar to that, just under, of costs ‑ ‑ ‑
STEWARD J: That is a better point.
MS BURNETT: Yes. And the point I wish to make is that, from what one can see, the car sales operations were similarly marginal, and so one would not conclude that, financially, the museum operations were negligible either as a matter of gross revenue or as a matter of net revenue when compared to the car sales activities.
STEWARD J: Well, paragraph 44 tells us he made a profit over the period of $4.4 million, almost, from sales of cars, and the museum ran at a loss.
MS BURNETT: But that $4.4 million was before the allocation of overheads to the car sales activities, and these financial statements show that once ‑ ‑ ‑
STEWARD J: Is there a finding to that effect?
MS BURNETT: Well, I think it is described as the gross revenue minus the cost of goods sold. And the financial statements are where all of the costs of the operations are taken into account. And to note to your Honours that, without necessarily going there, the similar financial statements for the 2018 year are found at page 16 of the respondent’s further material. That year, the appellant’s profit was $71,677 from all operations. In the 2019 year, which was the last year of operations of the museum, at page 103 of the respondent’s further materials, the appellant made a net loss of $640,870 from all activities.
These financial statements serve to show that together the museum activities and the car sales activities made only a marginal profit once overheads and other costs were taken into account. So, it would not be concluded that the museum use was insignificant or not an end in and of itself, or not something that could stand up next to the car sales activities when measured financially.
STEWARD J: Does this not just tell us that his gimmick did not work, and that is why he left the business?
MS BURNETT: Well, it may also say that the car dealing activities, by that measure, did not work.
STEWARD J: Yes. But that does not mean it was not what he wanted to do, though.
MS BURNETT: It does not inform one as to what the purpose or purposes of the activities were.
STEWARD J: Well, he gave evidence about what his business purpose was for his company, and it was accepted.
MS BURNETT: Your Honour, I do want to come to the subjective evidence in a moment, and the findings made about that. Returning to the reasons of the primary judge at paragraph 48, on page 22. At paragraphs 48 to 51, your Honours, the primary judge found that signage in the museum at certain times suggested that some cars were not for sale and other cars were for sale, and then at paragraph – going back to paragraph 47, your Honour Justice Steward referred to Mr Denny’s evidence, and this is adverted to by the trial judge at paragraph 47:
Mr Denny’s evidence was that his “main intention” behind the museum concept and the charging of admission fees, was “to create a level of exclusivity and attract genuine potential customers”. According to Mr Denny, the charging of admission fees also discouraged “tyre kickers” –
understood as people not interested in buying a car. Going over, your Honours, to paragraph 80 on ‑ ‑ ‑
GAGELER CJ: Was there any examination as to why children were charged, if that was the purpose?
MS BURNETT: Quite so, your Honour. I mean, it was self-evident ‑ ‑ ‑
GAGELER CJ: No, no. I am actually asking a question. Was there any cross‑examination along those lines?
MS BURNETT: Well, there was certainly cross‑examination about the charging of admission fees and why they were set at the level that they were, and that resulted in these findings. But it was self‑evidently the case that children were charged and cannot, until a certain age, themselves drive a car. The primary judge’s response to that evidence is set out at paragraph 80, where his Honour found:
Contrary to the submissions advanced on behalf of the applicant, the museum was not solely an “enterprising marketing strategy intended to increase the sale and price of the cars”. The charging of admission fees was not a device to discourage “tyre kickers”.
And so, Mr Denny’s evidence was not accepted in that respect. And:
I do not accept Mr Denny’s evidence that the admission fees were raised from $16 to $20 because “we were still getting people that weren’t potential buyers coming in” or that when it was raised . . . there were more affluent people coming through, more potential for selling the car” or that $16 was rejected in favour of $20 in order to reduce the number of “tyre kickers” and increase the number of affluent visitors.
Then, at paragraph 84, after referring to the factual circumstances, the primary judge found that:
None of that is to deny that Mr Denny and the applicant intended to trade cars through the “Gosford Classic Car Museum” or that they considered that the museum would assist in maximising the number of sales and the sale price. Mr Denny made clear, as is obvious in any event from the objective facts, that he wanted to profit from the sale of cars and considered that the “museum concept” would be the best way to achieve that objective. The question though is whether, in implementing the museum concept in the way that it did, the applicant “use[d] the car[s] for a purpose other than a quotable purpose” . . . The answer is that, in displaying each car in the museum, together with other cars, in the manner described earlier, the applicant did use the cars for a purpose additional to holding the cars as trading stock.
Now, your Honours, at paragraph 84, Justice Thawley distinguished between Mr Denny’s subjective motive and the purpose question invoked by the statute. And indeed, we would say that even if the question were one of subjective purpose – and we do not think it is under this statute – then it is the case on these findings that Mr Denny also had a subjective purpose of putting the cars on display in the museum in the way that they were presented, and charging fees, and offering a gift shop and diner and all of the rest – none of that happened by accident. It would be attributed to the design of the controlling mind.
That Mr Denny might have had a subjective motive to do all of that for a particular reason does not mean the cars were not used for the museum purpose. We say that is so whether one reads “purpose” as subjective or objective. We say it is objective, and the Full Court found that as well, starting at paragraph 108 in the core appeal book at page 74:
As the primary judge said at PJ [78], the statutory question is not why the appellant engaged in the activities it did. Motive is different from purpose.
That distinction drawn in Sharpcan, and the Superleague Case is referred to by the majority. At paragraph 109:
Mr Denny’s motive in having the appellant display the cars in the manner it did may well have been to “move the metal” and to secure as high a price as possible for the cars. Mr Denny realised his subjective intention of making the cars appear more desirable to potential purchasers of the cars by exhibiting each of the cars as part of a curated “museum” collection to be seen by as many people as possible. The rotating and continually changing exhibition was intended to draw patrons beyond those interested in, or potentially interested in, purchasing a vehicle in stock. The end sought to be accomplished by displaying each of the cars as part of a collection in premises advertised as a “museum” was to attract visitors to the collection, whether they be potential purchasers or not and irrespective of whether they personally were likely to promote to others the sale of the cars.
Then a reference to the visitor numbers in contrast to the sales inquiry numbers. At paragraph 110:
The purpose for which the cars were used is ascertained by an objective consideration of the totality of the facts and circumstances.
Then there is a reference to a number of the facts in this case.
EDELMAN J: Paragraph 110 is really qualifying 109, is it not, in the sense that 109 is not overturning those aspects of the primary judge’s decision that believed Mr Denny. What paragraph 109 read with 110 is saying is that Mr Denny himself may have had a subjective end only of achieving a goal of sale of cars, but objectively, in light of all of the circumstances, there is another end that exists.
MS BURNETT: That is right, your Honour. We also say that Mr Denny would be taken to have had the subjective purpose of conducting the operations in the way in which they were conducted, even if that was a step along the way to achieving his motive.
EDELMAN J: But that is not the finding of fact that was made by the primary judge, and that has never been overturned. The primary judge never rejected Mr Denny’s evidence that his end was solely an end of moving the metal and selling cars.
MS BURNETT: That is right. But what the primary judge said at paragraph 84, accepting that evidence but saying that what matters is when Mr Denny chose to deploy the vehicles in the way that he did, that was relevantly a purpose that was separate ‑ ‑ ‑
EDELMAN J: So, what the difference between the appellant and you really comes down to, then, is whether when one is talking about purpose, unlike in, say, company law where one is talking about proper purposes, or in other areas where purpose is concerned with the subjective purpose of the relevant individual, here, one would be concerned with purpose in an abstracted sense, which looks partly at the subjective notions but also partly at objective circumstances.
MS BURNETT: Yes, your Honour, I would embrace the last part as representing the respondent’s case. In terms of the appellant, it had never argued in its grounds of appeal or written submissions that the findings below that purpose was an objective one were erroneous. But, in any event, we say they are correct, and indeed, when tax provisions refer to purpose, it is more commonly to objective purpose, a conclusion drawn by an objective observer having regard to all of the facts, which may include evidence of subjective state of mind as well.
EDELMAN J: Is that even tax provisions that talk about an intended purpose or an intention to achieve a purpose – that is still objective and not subjective?
MS BURNETT: The ones I have in mind just use the word “purpose”. We say, in this context, the intention element of section 9‑5, while it is looking to a forward‑looking intention on the part of the recipient, it also is tested by reference to objective facts. It is not completely at large, and I will explain why that is so by reference to the object and purpose of this particular statute, which is always really our touchstone.
GAGELER CJ: What is the best standard authority for objective purpose being applied in an indirect tax context – sales tax, GST? It used to be just taken for granted that ‑ ‑ ‑
MS BURNETT: Yes. Certainly, we had a look at the Diethelm Case over lunch and my learned friend was right, Justice Hill was in the majority. Justice Whitlam agreed with his Honour as to objective purpose in that context.
GAGELER CJ: That was sales tax, right?
MS BURNETT: Yes. In the income tax context, this Court considered the question relatively recently in Sharpcan, in relation to 40‑880, as well as the general deduction provision in section 8‑1, and it was observed that the general deduction provision is an objective test. Then, in Magna Alloys, which I will come to in a moment in the context of Godolphin where it has been extracted conveniently, Justice Brennan made it clear that the ordinary deduction provision is concerned with objective purpose.
STEWARD J: But, Ms Burnett, it has always been the case that when you wanted to prove the purpose of an enterprise or business, you would call the controlling mind of the company in question, they would go into the witness box, and they would state what it was. You could objective facts to contradict them, to say that what they are saying is unreliable or untrue, but if what they say is accepted as not inconsistent with objective facts, then that has always been the way things have been done. Whitfords Beach is a very good example of that, where Justice Gibbs made it quite clear that there was a change in the purpose because there was a change in the controlling mind of the company and the purpose of holding the land was now for a profit‑making scheme.
EDELMAN J: I must say, if “objective purpose” means something other than that, I do not understand what it is. It is not purpose at all.
MS BURNETT: Well, it is a conclusion, your Honour, that the statute invites to be drawn by a reasonable person apprised of all of the facts. Indeed, in this particular statutory context – of course, in income tax avoidance cases, purpose is generally an objective purpose, and in this statute, the provisions in section 9‑1 for quoting and in section 15‑30 for the increasing and decreasing adjustments, they are the main meat of how the tax is collected and administered. If those provisions could be circumvented by a person merely saying that they subjectively held only a trading stock purpose ‑ ‑ ‑
STEWARD J: No, no, no, they are not – they are just asserting it will never be enough, they have to then be believed, and if the Commissioner can establish what they have said is untrue, then they will not be believed. But it has always been the case – and Allied Pastoral made this quite clear – that the taxpayer can discharge an onus of proof by going into the witness box and telling their story.
MS BURNETT: Certainly, for cases about capital revenue, whether an asset was bought for the purpose of profit‑making through sale, there are certainly cases to that effect.
STEWARD J: Is not your problem here that the only clue that we have about what type of purpose we are concerned with is the word “intention” which appears in 9‑5?
MS BURNETT: Well, “intention” is there because of the timing at which 9‑5 is applied, but it also sits alongside “purpose”, which has its own work to do.
STEWARD J: So, when you quote at the start your ABN, when you buy the good, subjective purpose of the person acquiring is relevant and perhaps determinative, but then it stops being so?
MS BURNETT: Well, it is certainly relevant, but it will not in all cases be determinative. All of the facts and circumstances, one cannot take a blinkered view to what those are, and we say that if Parliament had intended either intention or purpose to be wholly subjective, then it would have added some other requirements like, the intention or purpose must be held on a reasonable basis, or some other check of that nature to ensure that this legislation could not be so easily circumvented.
EDELMAN J: Is your submission, in effect, that in a provision like 9‑5, the word “you” should be read as a reasonable person in your position having – and then the intention and purposes that such a reasonable person would have had in all of the circumstances? So, we have replaced the “you” with an objective construct of a person who does not actually have any intentions, but who would be deemed to have the intention that one might expect that such a fictitious person would have.
MS BURNETT: I would not go that far, your Honour. It is more that the conclusion about purpose which the statute invites is a conclusion about objective purpose – it is an objective conclusion. In fact, the cases about the use of land on which my learned friend relies, including the Randwick v Rutledge Case, and the Ryde Council v Macquarie University Case, and the Salvation Army v Fern Tree Gully Case, none of those turned on the subjective motives of any of the controlling minds of the institutions in question. It was very much an analysis of how, as a matter of objective fact, the relevant asset was put to use, and concluding from that what the purpose, or purposes, were.
Indeed, I might come to the Godolphin decision briefly in that respect, your Honours. I have read already from the plurality at paragraph 34 ‑ ‑ ‑
GAGELER CJ: It is relatively fresh in our minds.
MS BURNETT: Yes, your Honours.
GLEESON J: Well, at least one of us did not sit on it.
JAGOT J: Sorry, what tab is this?
MS BURNETT: Sorry, your Honour?
JAGOT J: What tab are we?
MS BURNETT: It is not in the bundle of authorities. Your Honours, moving from the plurality reasons to the reasons of Justice Jagot, at paragraph 49, your Honour Justice Jagot began a survey of authorities about the use of land and the purpose for which land is used, and the concept of use for a purpose in revenue and rating contexts. If I could go to paragraph 57, in the Sonter decision, Justice Rath is quoted at the end of that paragraph. The second half of that quote:
There is no particular touchstone that can be used; all circumstances bearing on the degree, extent and intensity of the uses as land uses are to be considered. The question is one of fact and degree, and one to be approached on a broad, commonsense basis.
Then, at paragraph 58, in the Greenville decision, the purpose for which land is used was held to be:
an objective test – the inquiry is an inquiry into actual land use; it is not to be tested by the intention of the owner.
And then ‑ ‑ ‑
EDELMAN J: That does not say purpose; that says whether the land is being used is to be decided by an objective test, which must be the case.
MS BURNETT: Yes, but the question in the provision there was whether it was being used for a primary production purpose, and whether that was predominant over other uses. So, those factors are relevant to determining the purpose for which land is used.
GAGELER CJ: There used to be a lot of purpose cases in customs – classification disputes. I suppose they do not exist anymore.
MS BURNETT: Not so much. And the Magna Alloys decision was referred to by your Honour Justice Jagot, at paragraph 61, in the income tax context, and, quoting from the reasons of Justice Brennan, about halfway through paragraph 61, his Honour observed that:
“motive and subjective purpose are states of mind and they are to be distinguished from objective purpose, which is an attribute of a transaction”. Further, an “objective purpose is attributed to a transaction by reference to all the known circumstances –
EDELMAN J: That is using purpose with a very different meaning. I mean, subjective intention would be entirely irrelevant. That is saying that the purpose of a hammer is to hammer a nail.
MS BURNETT: Yes, it is a similar to the statutory fiction of a parliamentary purpose or a legislative intention.
EDELMAN J: No, no, that is using “purpose” to mean function, rather than any constructed purpose or intended purpose.
MS BURNETT: This statute is not dealing with a constructed purpose, it is dealing with a purpose for which cars are used. We say that one could not sensibly arrive at that conclusion without considering all of the facts at to the use. Then, over at paragraph 67, your Honour Justice Jagot set out there several propositions emerging from the survey of the cases. The first, we would embrace:
close attention to the precise terms of the exempting provision is required.
In this statutory context, your Honours, the terms of the provision point towards an inquiry as to whether there is a use for any purpose other than a quotable purpose having regards to the nature of that use. The fourth principle we think is apposite there as well:
the question of the use of land for a purpose –
and that is land, but this is another physical asset, being cars:
is one of objective fact to be determined in all relevant circumstances, but particularly the degree, extent and intensity of the physical activities on the land.
We also embrace the sixth principle:
in determining the objective fact whether the same land is being used for more than one purpose it may be necessary to consider if the various physical activities conducted on the land, on the one hand, are wholly ancillary to or directly facilitative of a single purpose or, on the other hand, serve an additional, independent or collateral purpose.
We say that it is a pretty good summary, actually, of the ultimate characterisation issue in this case. Then going over to paragraph 82, your Honours, your Honour Justice Jagot found at paragraph 82:
The fact that Godolphin subjectively operated on the basis that it bred horses to race and raced horses to breed – describing its business as “a ‘breed to race, race to breed’ enterprise where the breeding arm supply the stock for the racing stable, the stable then proves them on the track that creates the supply of high end bloodstock assets of stallions and breeding females” – does not mean that for s 10AA(3), it was using the land for one integrated purpose. The necessary focus is not Godolphin’s conception of its business model, but rather the objective features of the physical activities being conducted on the two properties.
Then, at paragraph 86:
It is the terms of the statutory exemptions which determine the relevant use for purpose, and it is the objective features of the physical activities on the land which determine the character of the actual use for purpose being conducted on the land. If the objective features of the physical activities on the land do not constitute an exempt use for purpose, then the subjective intentions of the taxpayer as to its mode of operation are not to the point.
The balance of that paragraph – the last two sentences:
On the facts, the breeding for racing purpose could never be described as “merely a means to the fulfilment” of or merely “incidental” or “wholly ancillary” to the exempt purpose. The maintenance of the horses for racing purposes was manifestly its own use for its own purpose and it could not be said that the exempt use for purpose was dominant compared to that use.
Indeed, here we would say by analogy it cannot be said that the use for a trading stock purpose was the only purpose for which these cars were used in the premises. We say that when one has regard to how the premises were presented to the world – clearly presented as a museum and actively marketed through tourist channels as a tourist attraction – when one considers the intensity of the museum use, the fact that it employed a number of staff dedicated only to the museum aspects and had several volunteers, the fact that it put out newsletters and had regular special events.
My learned friend this morning said that it was not a museum in a legal sense, which we do not agree that there is a legal sense of a museum, but I think the proposition was that the development approval for the land did not encompass a traditional museum. Now, what matters, your Honours, is the actual use, not the planning status of it. There was not actually any evidence before the trial judge that the activities here of naming it a museum and attracting the public and charging fees was not permitted under the development consent.
Indeed, the Full Court, at paragraphs 59 and 103, referred to the complying development certificate and then a later “Statement of Environmental Effects” which refer to display of vehicles and, in the later document, talk about the operations being a museum. So, nobody seems to have proceeded on the basis that operating a museum on the premises was not lawful.
When one considers, also, the revenue that was earned from the museum use, which at point $1.32 million in the first year was a separate and substantial revenue stream in and of itself, even if it might not have sounded in any particular profit, that would not have distinguished it from the car sales activities in any particular way. When one considers the substantial gift shop and diner facilities, and the one to two thousand museum visitors per week compared to the 10 to 15 car sales enquiries per week, in our submission, it is not open to characterise the use of these cars
for the museum purposes as just an incident of a singular purchase of holding those cars as trading stock under these statutory provisions.
If the Court pleases.
GAGELER CJ: Thank you, Ms Burnett. Mr Bloom.
MR BLOOM: Thank you, your Honour.
GAGELER CJ: I am assuming you have a reply.
MR BLOOM: I would like to. Thank you, your Honour. Not too long. It might have been a different question in Godolphin if the question was whether the land was trading stock, if it had been held for the purpose of sale, because that is what trading stock is; it is something which you hold or manufacture for the purpose of sale or exchange, but that was not the question in Godolphin. Here, the question was the use of each car held as trading stock. That is, for the purpose of sale or exchange. Your Honours, can I go firstly to Subdivision 15‑B and to 15‑30(1). Something our learned friend said is helpful in answer to something which Justice Gleeson put to me earlier today.
Section 15‑30 works just as well with what we call changes of use, we say, because it applies where you have the intention of using a car, say as a demonstrator, not as trading stock, and then you change your mind and you actually use it as trading stock. The requirement in (3)(c) there is that in the interregnum you have only used it as trading stock. That makes sense for the use of that expression in that context, and that change of use there is the same change of use for which we advocate.
When you get to 5‑15, and that is self‑assessing – if you can – some sort of rebate, again, knowledge that the provisions operate on a change of use properly so‑called will enable you to do just that, because you will know if you take a car out and use it as a demonstrator, you will know if you gift it to one of your children. Now, in the circumstances of this case, nobody knows until, with respect, your Honours have delivered judgment whether or not there has been a change of use based on what the Commissioner puts.
If the Commissioner is right there is a change of use because you have exhibited, as she says, amongst other cars in a collection in a museum. So, this was not appreciated the liability to pay the tax was generated by an assessment and came due years after the cars had been sold and any liability to tax it attached. Our learned friends also said that under Division 17 ‑ ‑ ‑
GAGELER CJ: Mr Bloom, if the Commissioner is right – I mean, you are challenging the assessment – it is just an assessment of the tax that should have been paid at an earlier time.
MR BLOOM: Yes, but nobody knew that.
GAGELER CJ: No, I know that.
MR BLOOM: And that is the difference. With a change of use, a clear –in accordance with the policy, in accordance with the heading – change of use, everybody would know, and the accountant would be able to say to the client, you have taken it out of trading stock, that gives rise to an increase in adjustment. But nobody knows, and nobody knew in this case, and that is why double taxation is potentially there; in circumstances where a change of use is any additional use to which the car is put. That is what is put against us: any additional use.
Now, Division 17 offers no respite in terms of a credit. Subdivision 17‑5, which is at page 48:
(1) You are entitled to a credit if:
(a) you have a credit entitlement . . . and
(b) you are not registered –
Well, that is not us, we are registered, and anyone to whom we sell it who quotes will also be registered. Then the customer to whom that person sells has no idea about an entitlement to claim credit because they have no idea about what has gone on in the previous transactions. So, Division 17 does not help, with respect.
Your Honours, my learned friend suggested that I did not put an argument below that there were only three quotable purposes in section 9‑5. If I might just read what I said to the trial judge:
What we rely upon is the specific exclusion other than holding for hire or lease and we say therefore that other purpose above it is not looking at an additional purpose but an alternative purpose, and really you read the section, your Honour, we would say, with respect, you are entitled to quote your ABN if you have the intention of using the car for one of the following purposes: (a), (b), (c), but there is no (d), there is no (e), there is no (f), and no other purpose means (a), (b) and (c) are the sole purposes for which you may quote.
That proposition was put again in the Full Court, with respect. Your Honours, Hyteco, Justice Hill dealt with all of the cases on trading stock and leasing and hiring, including Memorex, and it is worth reading, if one is to go to that case. Our learned friends relied upon the fact that the principal business was not overall wonderfully successful. We know it turned over $114 million, but evidence was given by Mr Denny in his affidavit, which our learned friends have not referred to – it is in the applicant’s further materials at tab 4. If I could ask your Honours to go to that, it contains something else in contradiction of what my learned friend said.
If your Honours go to the affidavit, beginning at paragraph 7, he talks about, in or about 2013, coming across what he thought was a particularly clever ‑ ‑ ‑
STEWARD J: This is page 40?
MR BLOOM: Page 40, yes, your Honour, of the applicant’s book of further materials:
In or about 2013, I came across what I thought was a particularly clever and novel way of marketing vehicles at the Lincoln Hotel in Las Vegas.
That was the museum. If you go back one tab, there is a picture that he took at the time of the Lincoln Museum, with the cars roped off. Then, he said he was struck by the manner in which they were displayed, and he thought that it increased the provenance of the cars, and:
I formed the view that any potential purchaser looking at these vehicles, placed within premises containing a number of other distinguished vehicles, would be more likely to be immediately impressed with the vehicle and more willing to buy at a higher price.
Then, if you go over to paragraph 12:
In around 2014 I decided I would move back to Australia permanently and establish a second hand motor vehicle dealership business primarily dealing in exclusive “high-end” classic and luxury cars.
At this time, he said in paragraph 15:
I also decided at this time that I would adopt –
the museum approach. So, this was in advance of purchasing the cars, so it included the cars that were purchased before the museum was open. That intention existed in 2014. And in 2015, he says in paragraph 18, that he adopted the word “Automotive Invest” and he used the word “Invest” in the name to try to attract people to invest in classical cars which were income tax free, capital gains tax free. Still are.
At 64 and onwards he gives evidence of the downturn in the market. A large part of what he says is that the market in classic and luxury cars of this kind was driven by what happened in the United Kingdom, that up to and including Brexit, there was a significant downturn in the market. He had not expected that and that was the reason why things went the way that they did. Your Honours, Justice Logan at paragraph 22 in the Full Federal Court dealt with Mr Denny’s intention:
The appellant was controlled by Mr Anthony Denny, who gave evidence at trial. In [84] of his reasons for judgment, the primary judge found that:
(a)Mr Denny, and thus the appellant, “intended to trade cars through the ‘Gosford Classic Car Museum’”; and
(b)“they considered that the museum would assist in maximising the number of sales and the sale price”.
Now, the trial judge made those findings:
His Honour accepted Mr Denny’s evidence in this regard and considered it obvious in any event from the objective facts, “that he wanted to profit from the sale of cars and considered that the ‘museum concept’ would be the best way to achieve that objective”.
While we have Justice Logan, if your Honours would kindly go to 46:
Adopting this approach to the construction of s 15-30(3)(c) of the LCT Act, an analysis of the whole of the evidence discloses that the use of the assessed motor vehicles for display at a so-called “museum” was only ever a means to an end (and the same applies to the La Ferrari, even at the time of importation). The end was always their retail sale. To adopt the language of the Fern Tree Gully Case, the admission fees were just a “by-product”, a “mere incident”. The appellant treated the revenue earned from car sales and admission fees as a single line item in its financial statements. In effect, the admission fees in part subsidised its retail sales operation.
And at 54, finally – and this is in answer to all of the pretty pictures this morning – that Aussie Invader that your Honours saw, the big blue thing that went at 340 million miles an hour, Mr Denny gave evidence – again, which was not referred to – that he received many offers for it, and ultimately sold it at a very big profit; it was part of his trading stock – it is in the stock sale report towards the end. So, at 54:
To focus, with respect, as did the primary judge, and in submissions the Commissioner, on aspects of promotional literature, staff titles and display in isolation is to fail to discriminate between an overarching end and its incidental means. This is exactly the same type of error made again and again by revenue and rating authorities, as revealed in the charitable purposes exemption cases. That is not to say that, as a matter of initial impression, engendered by both the name “museum” and the related “museum concept” measures, there is not a certain attraction in a conclusion that the motor vehicles were used (or intended to be used) other than as trading stock, only that such a conclusion does not survive the objective analysis of the whole of the facts and the related discounting, dictated by the true construction of s 15-30(3)(c) of the LCT Act, of incidental or subservient uses.
There are just a couple more points, your Honour. The two “use for” years, the Commissioner’s argument is this: that if a car passes the two years and its sale would now not engender tax, but that car is gifted to one’s child, and therefore taken out of trading stock, he can nonetheless argue a change of use and nonetheless an increasing adjustment. So, the sale of the car would be exempt, as the Act intends – that is the policy – but he says there would be an increasing adjustment if he did not sell it, and he can do that up to four years after – cannot be right. It cannot be a correct construction of the Act, with respect.
Finally, your Honours, the amending Act, which in 2017 introduced a sole purpose test in relation to public display in a museum. In Hepples v Commissioner of Taxation (1991) 65 ALJR 650, Justice McHugh noted at 670 that there is “high authority” – that of Justice Dixon in the Dunmunkle Case (1946) 73 CLR 70 at 85 to 86, and Lord Justice Rowlatt in the Cape Brandy Syndicate Case [1921] 2 KB 403 – to the effect that it is permissible to look at an amending statute to construe the statute being amended. And so, your Honours can look at it.
Less clear, your Honours, is the ability to look at the explanatory memorandum for that amending statute. In Hunter Resources v Melville (1988) 164 CLR 234, Justice Dawson would permit reference to the explanatory memorandum. Justices Mason and Gaudron would not. Now, with due deference to that situation, we would seek to take your Honours,
nonetheless, to a couple of paragraphs in the Explanatory Memorandum for the sole purpose test, that is in tab 47 in volume 6. If I could ask your Honours to go to 3.35:
The requirement that the car is imported for the ‘sole’ purpose of publicly displaying it precludes the car from being used for other purposes (for example, by staff or associates of the relevant public institution using the car for private transport or enjoyment). However, it does permit uses of the car that are ancillary –
So, even in a sole purpose test, properly so called – and your Honours recall our learned friend says section 9‑5 contains a sole purpose test, which we of course dispute – but even if there is a sole purpose test, here, in this context, the explanatory memorandum suggest that ancillary purposes are permitted. And to the same effect, your Honours, 3.36, 3.55 and 3.57.
If your Honours please, those are our submissions.
GAGELER CJ: Thank you, Mr Bloom. The Court will consider its decision in this matter and will adjourn until 10.00 am on Tuesday, 6 August.
AT 3.20 PM THE MATTER WAS ADJOURNED
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