Barcia Pty Ltd (as Trustee for Barcia Trust) and Commissioner of Taxation
[2008] AATA 1073
•24 November 2008
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2008] AATA 1073
ADMINISTRATIVE APPEALS TRIBUNAL )
) No WT200601025
TAXATION APPEALS DIVISION ) Re BARCIA PTY LTD (AS TRUSTEE FOR BARCIA TRUST) Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Mr A Sweidan, Senior Member Date24 November 2008
PlacePerth
Decision The Tribunal affirms the decisions under review.
.....(sgd) Mr A Sweidan................
Senior Member
CATCHWORDS
GST - whether "margin scheme" applied to sale of property - whether terms of sale contract varied by issue of incorrect tax invoice by agent - whether input tax credit correctly claimed – whether applicant entitled to other input tax credits – whether penalties correctly imposed
LEGISLATION
A New Tax System (Goods and Services Tax) Act 1999, s75-5(1); s75-20
Taxation Administration Act 1953, ss284-75(1); 284-80; 284-90; subdivision 284-D
CASES
Baker Family Trust) & Ors (2005) 220 ALR 211; [2005] FCAFC 131 at [113]
Brien v Dwyer (1978) 141 CLR 378 at 387
FC of T v Dalco (1990) 168 CLR 614 at 621
Jones v Dunkel (1959) 101 CLR 298
Markson v Cutler and Anor [2007] NSWSC 1515, esp at [7]
Monastra (As Trustee of the Giuseppe Monastra Family Trust) v Van Ratingen & Anor [2003] WASC 194 at [29]
Petersen v Moloney (1958) 84 CLR 91 at 95
Poulet Frais Pty Ltd & Anor v The Silver Fox Company Pty Ltd (ATF The Baker Family Trust) & Ors (2005) 220 ALR 211; [2005] FCAFC 131 at [113]
Vadesz v Commissioner of Taxation [2006] AATA 682 at [31]REASONS FOR DECISION
24 November 2008 Mr A Sweidan, Senior Member background
1. The issues in this application arise out of three Business Activity Statements (BAS) lodged by the applicant (“Barcia”) during 2003 to 2005. Each of the three BAS gives rise to separate disputes. Barcia seeks a review of the Commissioner’s decisions as set out below.
2. The relevant BAS and issues broadly stated are:
2.1 in relation to Barcia’s BAS for the first quarter of 2002 (the 2002 BAS):
2.1.1whether Barcia is entitled to an Input Tax Credit (ITC) of $218,182 for its acquisition of real property situated at 25-27 King Edward Road, Osborne Park (“the King Edward Road Issue”);
2.1.2 if not:
(a)whether Barcia sh0ould be charged a penalty for claiming an ITC of $218,182 for its acquisition of the King Edward Road property; and if so
(b) the amount of that penalty;
2.2 in relation to Barcia’s BAS for the first quarter of 2005 (the 2005 BAS):
2.2.1whether Barcia is entitled to an ITC of $65,455 for its acquisition of Unit 97/1 Station Street, Subiaco (“the Station Street Issue”);
2.2.2if not, whether Barcia should be charged a penalty for claiming an ITC of $65,455 for its acquisition of Unit 97; and if so
2.2.3 the amount of that penalty;
2.3 in relation to the BAS for the fourth quarter of 2004 (the 2004 BAS):
2.3.1whether Barcia should be charged a penalty for claiming an ITC in its 2004 BAS for the acquisition of Unit 97 when that ITC should have been claimed in the BAS for the subsequent period (“the Timing Issue”); and if so
2.3.2 the amount of that penalty.
3. Accordingly:
3.1both shortfall and penalty are in issue in relation to the King Edward Road Issue (the 2002 BAS) and the Station Street Issue (the 2005 BAS);
3.2 only penalty is in issue in relation to the Timing Issue (the 2004 BAS).
4. The three BAS relate to two properties purchased by Barcia as follows:
4.1The King Edward Road Issue (the 2002 BAS) relates to Barcia’s acquisition of 25-27 King Edward Road, Osborne Park.
4.2Both the Station Street Issue (the 2005 BAS) and the Timing Issue (the 2004 BAS) relate to Barcia’s acquisition of 97/1 Station Street, Subiaco.
2002 BAS: King Edward Road Issue
The commissioner’s assessment
5. The Commissioner assessed a shortfall of $218,182 in GST due by Barcia on the basis that Barcia incorrectly claimed an ITC in that amount for the purchase of the King Edward Road property and imposed a penalty of 75% of the shortfall, subsequently reduced to 50%.
Issue
6. Was the sale of the King Edward Road property subject to the margin scheme? See 75-20 A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
6.1 If yes, then Barcia was not entitled to claim the ITC it did.
6.2If no, then Barcia was entitled to claim the ITC it did and there is no shortfall.
Outline of evidence and tribunal’s findings:
7. The evidence before the Tribunal is that :
7.1On February 2002 Leivick Nominees Pty Ltd (Leivick) and Barcia entered into a contract by which Leivick sold to Barcia the King Edward Road property (the Contract);
7.2 The Contract states: “Purchase Price: $2,400,000 INC GST”.
7.3Clause 2 of Appendix A to the Contract states: “The vendor and the purchaser agree that the GST shall be calculated under the margin scheme”.
7.4Barcia’s director Peter Bacich gave evidence that he was of the view that Barcia was entitled to an ITC on the purchase and claimed that because of his “limited understanding” of the margin scheme, he was not aware that the inclusion of the margin scheme clause had the contrary effect.
7.5 Clause 2 was drafted and included in the Contract by the vendor’s agent Halvorson after he had initial discussions with Bacich. Halvorson testified that Bacich told him that he “wanted to adopt the margin scheme and he wanted to make sure that the valuers got it right so he didn’t have to pay the GST out of his own pocket.” Bacich denied this.
7.6In his evidence Mr Bacich claimed that he did not know what this clause meant, but knew that it was something that the vendor alone could choose, and hence didn’t pay it much attention.
7.7However he arranged a valuation as he did know the margin scheme required this.
8. It is not disputed that on or about 10 March 2002 Bacich contacted Halvorson and requested Halvorson to provide him with a tax invoice for the transaction.
9. It is also not disputed that on 12 March 2002 Halvorson issued a tax invoice (the first invoice) stating:
“Purchase Price $2,181,818.00
Plus GST $218,182.00
Total $2,400,000.00”
10. Mr Bacich claimed that he did not appreciate that the first invoice was not based on the margin scheme.
11. Settlement subsequently took place on 14 March 2002 and on 4 April 2002 Barcia lodged its BAS for the first quarter of 2002 which relied on the first invoice in claiming an ITC of $218,182.00.
12. On 23 April 2002 Halvorson advised Bacich that the first invoice was “incorrect” and sent an amended tax invoice dated 22 April 2002 (the second invoice) which is clearly based on the margin scheme and which stated:
“Valued on 25/11/2001 as at 1 July 2000 for GST purposes
Valued $2,300,000
Sold $2,400,000
GST on $100,000 equals $10,000”
13. On 30 April 2002 Barcia wrote to Halvorson rejecting the second invoice.
14. Barcia claims that the first invoice amounted to an election by the vendor through its agent Halvorson to vary the terms of the Contract so as not to apply the margin scheme.
15. For the reasons that follow the Tribunal rejects Barcia’s contentions.
16. In the Tribunal’s view it is clear that Halvorson had no power to vary the terms of the Contract without the consent of the vendor and the evidence of Halvorson is clear, namely that he issued the first invoice in error and without authority from the vendor.
17. Furthermore the Tribunal finds that Bacich and therefore Barcia knew at all relevant times that the Contract was subject to the margin scheme and that the evidence of Bacich that he thought that the vendor had changed his mind and elected not to have the margin scheme apply to the sale is unacceptable.
18. The contention by Barcia that Halvorson as agent for the vendor had actual authority to issue the first invoice, alternatively that he had ostensible or implied authority to do so is rejected by the Tribunal for the reasons which follow.
19. The Tribunal has concluded, for the reasons which follow in the Tribunal’s analysis of the evidence, that Barcia was not entitled to rely on the first invoice and the Tribunal rejects Barcia’s contentions to that effect.
20. As a result of Barcia’s incorrectly claiming an ITC of $218,182 there was a GST shortfall of that sum. The Commissioner originally imposed a penalty of 75% of the shortfall amount amounting to $163,636.50. Following Barcia’s objection the Commissioner revised the penalty to 50% of the shortfall amount amounting to $109,091.
21. The Tribunal finds that Barcia did not take reasonable care to comply with its tax obligations and the Tribunal rejects the contention by Barcia that the taxpayer “tried his best” to comply with its obligations. Further, the Tribunal rejects the assertion that Barcia made a genuine effort using its best endeavours to prepare its BAS correctly and also rejects the contention that an honest mistake was made.
22. The Tribunal is of the view, for the reasons which follow, that:
22.1Bacich and therefore Barcia was aware that the margin scheme applied;
22.2taking reasonable care and having regard to the provisions in the Contract, upon receipt of the first invoice a reasonable person would first have enquired with the vendor or the vendor’s agent whether the invoice was correct before claiming an ITC for the substantial amount of $218,182;
22.3this lack of enquiry constituted gross negligence which in the circumstances amounted to recklessness and the Commissioner correctly imposed a penalty rate of 50%.
2005 BAS: Station Street Issue
The commissioner’s assessment
23. The Commissioner assessed a shortfall of $22,318 on the basis that the ITC claimed by Barcia for the alleged “Guarantee Fee” portion of the purchase price of Lot 97/1 Station Street (Unit 97) was invalid.
Issue
24. Was the actual consideration for the sale of Unit 97 $474,500 or $720,000?
Facts
The Tribunal finds the relevant facts to be as follows:
GST Issues
25. The sale of Unit 97 by Windslow Corporation Limited (Windslow) to Barcia occurred as follows:
25.1On 1 December 2004, Peter Bacich(who controlled both Companies) on behalf of both Barcia and Windslow signed a contract (the first contract) whereby Windslow purportedly sold Unit 97 to Barcia for the sum of $720,000 including GST.
25.2On 24 February 2005, Windslow and Barcia entered into a new contract ( the second contract) for the sale of Unit 97 in the same terms as the first contract, except that the new contract was not subject to finance.
26. Settlement on the sale of Unit 97 took place on 25 February 2005
27. On 5 April 2005 Barcia lodged its BAS for the first quarter of 2005 claiming an ITC of $72,000 for the purchase of Unit 97.
28. The ITC of $72,000 was calculated by claiming 10% of $720,000
29. Barcia accepts that it could only claim 1/11th of the purchase price, not 10%. Therefore, according to Barcia the ITC should have been $720,000 x 1/11th = $65,454 and the ITC was overstated by $72,000 - $65,454 = $6,546
30. Barcia claims that the purported purchase price of $720,000 was satisfied as follows:
“Guarantee Fee” due by Barcia to Windslow $230,000
Plus cash payments (incl. agent’s fees) $490,000
$720,000
31. The Commissioner contends and the Tribunal finds, based on the evidence and for the reasons which follow, that the actual consideration was no more than $474,500 and that the applicant has failed to prove that the “Guarantee Fee” was in fact due or owing by Barcia to Windslow.
32. On this basis the ITC should have been $474,500 x 1/11th = $43,136 and the ITC claimed by Barcia was therefore overstated by $65,454 - $43,136 = $22,318 being the shortfall assessed by the Commissioner.
33. In essence the parties are in dispute about the existence of the Guarantee Fee.
Creation of the Alleged Guarantee Fee: Factual background – Unit 34
34. In April 2001, another Bacich controlled company Olympic Holdings Pty Ltd (ultimately on behalf of its nominee, Windslow Corporation Pty Ltd) entered into a contract to purchase 1 Station Street Subiaco (the Development Property).
35. The purpose of the acquisition was for Windslow to develop the Development Property into several units to be sold.
36. There is documentary evidence to show that over a period of about 6 months in 2002 Barcia provided various guarantees for liabilities of Windslow and that it was agreed that Windslow would transfer “unencumbered title” to Unit 34 in the development to Barcia by way of a fee for such guarantees.
37. However neither the financial reports of Windslow and Barcia nor the income tax return of Barcia initially filed for the relevant period made any reference to the purported guarantee fee until they were “corrected” some time later (see below) and Unit 34 was never in fact transferred to Barcia.
38. Barcia claims that Unit 97 was subsequently transferred in place of Unit 34 because the financiers would not allow Windslow to transfer Unit 34 to Barcia without Windslow receiving monetary consideration for the same.
39. Barcia avers that as a consequence of substituting Unit 34 with Unit 97, and because Unit 97 was more valuable than Unit 34, the actual consideration for Unit 97 was $720,000 made up of a Guarantee Fee of $230,000 (being the value of Unit 34) plus cash payments of $490,000 i.e. a total of $720,000. As already indicated, and for the reasons which follow in the Tribunal’s analysis of the evidence set out below, the Tribunal finds that the existence of the Guarantee Fee as a debt legally due and owing by Windslow to Barcia at the time of Contract for the sale of Unit 97 is not established by the evidence.
Penalty
40. The Tribunal finds that on the evidence before the Tribunal Barcia has failed to discharge the onus which it bears of establishing that the purported Guarantee Fee in fact existed or, if it did, that it formed part of the consideration for Unit 97.
41. Barcia does not contest the penalty in relation to the admitted overstated credit.
42. The Commissioner assessed the shortfall for the contested overstated credit to be $22,318.
43. The original penalty imposed by the Commissioner was 50% of the shortfall amount.
44. Following Barcia’s objection, the Commissioner revised the penalty to 25% of the shortfall amount, amounting to $5,579.50.
45. The reasons given by the Commissioner for this revised penalty were:
(a)The Commissioner accepted that Barcia held the belief that it was a creditor of the vendor and therefore it did not act recklessly, but found that Barcia took less than reasonable care because the financial records of both Windslow and Barcia at the relevant time did not refer to the Guarantee Fee and did not indicate that Barcia was a creditor of Windslow for the amount thereof; and
(b)A reasonable person would have maintained proper financial records to support the contention that the price paid for the acquisition of real property included debts owed by the supplier.
46. The Commissioner did not further remit the penalty in part or in whole.
47. The Tribunal finds, for the reasons which follow, that there was a shortfall, that the penalty was correctly imposed and that there is no basis for further remittal.
2004 BAS: TIMING ISSUE
Facts
The Tribunal finds the relevant facts and contentions of the parties to be as follows.
48. On 11 February 2005, Barcia electronically lodged its BAS for the fourth quarter of 2004.
49. Susan Bacich the daughter of Peter Bacich and a director of Barcia prepared that BAS and in it she claimed an ITC of $72,000 based on a tax invoice issued by Windslow to Barcia for Barcia’s purchase of Unit 97 (the Tax Invoice). This was apparently based on the first contract (see para. 25.1 above).
50. The Tax Invoice is dated 31 December 2004 (i.e. within the 2004 BAS period).
51. However settlement of the sale only took place in the following BAS period, namely, on 25 February 2005 and therefore, the ITC could under the relevant GST provisions only be claimed in the BAS for the first quarter of 2005, and not in the 2004 BAS.
52. The Commissioner assessed the shortfall to be $71,986. This is not contested.
53. The original penalty imposed by the Commissioner on 8 March 2005 was 25%, and it was remitted in full.
54. The Commissioner subsequently revised the penalty on 11 October 2005 to 50%, which amounted to $35,993.
55. Following Barcia’s objection, the Commissioner on 18 October 2006 maintained his position.
56. The reasons given by the Commissioner for this decision were:
56.1At the time the BAS was lodged, Barcia was aware that settlement of the sale had not yet taken place, and this amounted to recklessness; and
56.2The Tax Invoice “lacked credibility” because it was issued by an associated entity (Windslow).
57. The Commissioner contends that the penalty for recklessness cannot be remitted, and hence there was no remission of the revised penalty.
58. Barcia claims that no penalty should be imposed because it is claimed that Barcia took reasonable care and made a genuine effort to comply with its tax obligations because the Tax Invoice was dated 31 December 2004, which fell within the period covered by the relevant BAS.
Penalties
59. The Tribunal notes that Susan Bacich who lodged the BAS by her own admission knew that at the time of lodgement settlement of the sale had not yet taken place. The Tribunal also notes that the second contract for the sale of Unit 97 (see para. 25.2 above) was entered into 13 days after the BAS was lodged.
60. The Tribunal notes further that Ms Bacich said she was uncertain at the time whether an ITC for the acquisition of real property could be claimed in the period in which the Tax Invoice is received, or upon settlement of the sale. Although she thought that it was only upon settlement she either prepared a tax invoice or arranged for one to be prepared on the instructions of her father, Peter Bacich (who was a director of both the vendor and the purchaser) and then lodged the BAS claiming the ITC.
61. Peter Bacich claimed that at the time he believed that an ITC could be claimed prior to settlement.
62. Ms Bacich claimed that in early February 2005 prior to lodging the BAS, she telephoned the ATO to seek clarification of this and was told that she could claim an ITC for the Tax Invoice in the December 2004 BAS period.
63. For the reasons which follow the Tribunal upholds the Commissioner’s decision on penalties and finds that no remittal is warranted.
Reasons For Tribunal’s Findings
Relevant legal principles
64. On review by the Tribunal in taxation matters the applicant bears the onus of establishing that the assessment is excessive: s 14ZZK(b) of the Taxation Administration Act 1953 (TAA).
65. The question for determination is not whether the grounds of objection have been made out, but whether the GST amount assessed is wrong. The burden which rests on the applicant is to prove that the assessment is excessive. That burden is not necessarily discharged, for example, by showing an error by the Commissioner in forming a judgment as to the amount of the assessment: FC of T v Dalco (1990) 168 CLR 614 at 621. Those principles are equally applicable to a review of a decision on an objection in respect to GST: Vadesz v Commissioner of Taxation [2006] AATA 682 at [31]. These principles apply in the Tribunal’s view to the substantive tax, penalties and remissions at issue in this matter.
Analysis of the evidence generally
66. In the course of the hearing, the Tribunal heard evidence from Peter Bacich, Susan Bacich and David Coote on behalf of the applicant, and Brett Halvorson on behalf of the respondent and was provided with numerous documentary exhibits, including the “T” documents.
Peter bacich
67. Mr Bacich’s evidence is relevant to all matters before the Tribunal.
68. The evidence of Mr Bacich and other witnesses shows that he is an experienced and astute businessman and property developer. The manner in which he gave evidence clearly showed him to also be an intelligent and articulate man. His suggestion that he has a poor grasp of the English language is in the Tribunal’s opinion disingenuous in light of the way in which he gave evidence. As noted below various other aspects of his evidence also lack credibility in the view of the Tribunal, which makes the following general comments in regard to his evidence:
68.1He did not hesitate to make what appear to be unfounded and unsubstantiated allegations of dishonesty and impropriety against Halvorson and others (see e.g. T68.17-18; T72.2-3 and his claims that the respondent is “victimising” him at T99.32).
68.2Mr Bacich is clearly a person who maintains a high degree of control over his entities (T24.33ff; T50.15 “one man band”; see too the evidence of Ms Susan Bacich T122.45; T123.8; T123.31-38).
68.3It appears that at best, Mr Bacich has a somewhat indifferent attitude to his taxation obligations, admitting that he failed to lodge income tax returns between 1995 and 2004 (T40.39) and that he barely looked at BAS for his entities as they came across his desk (T40.23-24). If he is to be believed, Mr Bacich rarely sought professional advice in relation to issues that arose in relation to his tax obligations, and those of his entities, even where he claimed to have little understanding of the relevant law. He claims that he deliberately chose not to seek advice or assistance between 2002 and 2005 “out of loyalty” to his former long-standing accountant who was dying. However, he also said under cross-examination (see T95-15 and following) “I don’t know whether we received advice or not or whether we sought advice. Maybe we did, maybe we didn’t”.
68.4Under cross-examination Mr Bacich was often reluctant to answer questions, instead seeking to debate or argue issues with Counsel, and at times claiming not to understand questions, the meaning of which was obvious, or giving obviously disingenuous answers, or otherwise prevaricating – see eg the series of questions and answers at T77 to T79.
68.5The Tribunal finds that the general demeanour of Mr Bacich in the witness box was unsatisfactory and was not that of a credible witness.
68.6The Tribunal refers further to its findings in relation to the King Edward Road issue which appear below.
69. Given:
(a) the onus which rests on the applicant;
(b)the manner of Mr Bacich’s evidence the Tribunal finds that Mr Bacich’s evidence cannot generally be relied upon in respect to any substantive factual matters that are in dispute in these proceedings, except where there is acceptable corroboration thereof.
Susan bacich
70. Ms Bacich’s evidence is relevant to all matters which are before the Tribunal.
71. Ms Bacich freely accepted that, notwithstanding her position as a director of entities controlled by her father, she handed most of her responsibilities as a director to her father and deferred to him in respect to the affairs of the companies. Further, Ms Bacich said that her father had a “good handle” on what was contained in documents lodged with the respondent, which is to be contrasted with his assertions to the contrary.
72. The Tribunal accepts that Ms Bacich was generally a truthful witness, although as indicated below the Tribunal has some reservations about her evidence regarding the alleged telephone discussion with the ATO in regard to the Timing Issue.
David coote
73. Mr Coote’s evidence is relevant to the Station Street Issue.
74. In the Tribunal’s view Mr Coote is a reliable and truthful witness whose evidence ought to be given considerable weight.
75. Mr Coote gave evidence that Mr Bacich was a person who “understood his business very well”, and that Mr Bacich was “a little bit untidy” in relation to the recording of transactions between group companies.
76. Relevantly, Mr Coote accepted that despite having the opportunity “to carefully go through the books of account and carefully go through and request any information needed” to prepare accounts for the applicant, he was unaware of the alleged “guarantee fee” until Mr Bacich raised it with him, some 18 months after he completed the accounts in question. Furthermore, he gave evidence that, prior to Mr Bacich signing the accounts prepared by Mr Coote in June 2006, he met with Mr Bacich and spent the morning going through the accounts without Mr Bacich ever mentioning the ‘guarantee fee”.
Brett halvorson
77. Mr Halvorson’s evidence is relevant to the King Edward Road Issue.
78. His evidence is in the Tribunals’ opinion both honest and complete to the best of his recollection in relation to the issues relevant to the preparation of the Contract and the issue of the first “tax invoice” central to the King Edward Road Issue. Insofar as Mr Halvorson’s evidence diverges from that of Mr Bacich, Mr Halvorson’s evidence is preferred by the Tribunal. In particular, this is significant in the Tribunal’s assessment of the evidence as to Mr Bacich’s knowledge and understanding of the application of the margin scheme in 2002 and the events leading up to the signing of the contract to purchase the property, as well as the claiming of the ITC by Barcia.
consideration of the Legal and factual issues in light of the evidence
King edward road issue
79. Barcia contends that Leivick (the vendor) is bound by the action of it’s agent Halvorson, in issuing the first invoice and that this resulted in the terms of the Contract being varied so that the Margin Scheme did not apply.
80. The Tribunal is of the view that the applicant’s agency argument is wrong both in fact and at law because it seeks to equate the act of the agent in issuing the invoice with an implied authority to amend the terms of the contract. Even if Halvorson had the express authority to issue a tax invoice (and the evidence shows that he did not) this cannot mean that the agent also had authority to alter the terms of the contract. The question is does a real estate agent have implied authority to alter the terms of a contract? If not, the issuing of an incorrect tax invoice cannot amend the contract, regardless of the agent’s authority to issue the tax invoice.
81. The Tribunal finds that, in line with widely accepted principles of the law of agency, as they apply specifically to real estate agents, the agency argument made by the applicant is without foundation. Subject to any specific delegation of authority, a real estate agent’s authority is limited to locating a purchaser and undertaking administrative matters. See in particular Brien v Dwyer (1978) 141 CLR 378 at 387 (Barwick CJ), 395 (Gibbs J) and Petersen v Moloney (1958) 84 CLR 91 at 95 (on appeal from the Supreme Court of Western Australia), where the Court said:
In connection with sales and purchases of property the word "agent" is apt to be used in a misleading way. The legal conception of agency is expressed in the maxim "Qui facit per alium facit per se", and an "agent" is a person who is able, by virtue of authority conferred upon him, to create or affect legal rights and duties as between another person, who is called his principal, and third parties. When a person is employed to find a buyer of property, he is commonly said to be employed as an agent, and the term "estate agent" is a common description of a class of persons whose business is to find buyers for owners who wish to sell property. But the mere employment of such a person under the designation of agent does not, apart from the general rule that the employer will be responsible for misrepresentations made by him, necessarily create any authority to do anything which will affect the legal position of his employer. He may, of course, be given any express authority which the employer thinks fit to give him, and estoppels may arise, but the law does not imply from the mere fact of employment to find a purchaser a general authority to do on behalf of the employer anything which may be incidental to the effecting of a sale. (emphasis added)
82. For a recent example of the application of these principles see Markson v Cutler and Anor [2007] NSWSC 1515, esp at [7] where his Honour said, in respect to a claim that the vendor was bound by the agent’s acceptance of a reduced deposit, in circumstances where the agent expressly told the purchaser that the vendor would accept the lesser amount:
. . . appointment as a real estate agent does not confer authority to bind the vendor to anything. A real estate agent has authority to find a purchaser, not to bind the vendor to terms with the purchaser.
83. See too Monastra (As Trustee of the Giuseppe Monastra Family Trust) v Van Ratingen & Anor [2003] WASC 194 at [29] per Wheeler J and Poulet Frais Pty Ltd & Anor v The Silver Fox Company Pty Ltd (ATF The Baker Family Trust) & Ors (2005) 220 ALR 211; [2005] FCAFC 131 at [113] for recent applications of the principle in other jurisdictions.
84. Furthermore, in order for the applicant to succeed, it would need to show that Mr Halvorson had Leivick’s express authority to amend the terms of the contract to delete the application of the margin scheme. There is no evidence before the Tribunal that could amount to proof of the necessary authority. Not only is this the case, but the applicant in effect concedes this, by basing its argument on the tenuous premise that the authority to issue a tax invoice (assuming that there was authority to do so and there is no evidence to show this) amounts to authority to alter the terms of the contract. If that argument were to be accepted then it may also be argued that, if the agent had issued a tax invoice for an incorrect purchase price, the parties were bound to settle at that price. Plainly that cannot be the case.
85. If the Tribunal were to accept that, in an appropriate case, an agent could alter the GST clause in the contract by way of issuing a tax invoice calculated on a basis different from that contemplated in the express terms of the contract, it could only do so with clear evidence of express actual authority given to the agent by the vendor to alter the terms of a contract. This would be necessary because, as is clear on the authorities, a real estate agent’s usual authority does not extend to unilaterally altering the terms of the contract. This is a matter which not only is clear on the law, but which would have been known, as a matter of practice to Mr Bacich, a very experienced property dealer who in his evidence, accepted that real estate agents are only entitled to negotiate terms of contracts within the limits set by their principal.
86. There is no evidence of this nature before the Tribunal. Indeed, the evidence is that the vendor received only one tax invoice, being that for $10,000 GST (T documents at 275) and that any contention that Leivick had “elected” to change the GST clause was “news to me” (Mitchell, the vendor’s Director) (T Documents at 276). It is clear that Leivick did not give Mr Halvorson express actual authority to amend the contract on behalf of the vendor.
87. The applicant’s submission regarding the fact that the vendor’s director was not called as a witness and the application of Jones v Dunkel (1959) 101 CLR 298, is in the Tribunal’s view wrong for several reasons. The principle in Jones v Dunkel provides that, if a material witness should have been called by a party bearing the onus on that issue and there is no explanation as to why that witness was not called, it is open to the court to draw an inference that the witnesses’ evidence would not have assisted the party. In the present case:
87.1As noted above the applicant bears the onus to prove that the assessment was excessive, there is no onus on the respondent to disprove the applicant’s assertions;
87.2Mitchell, the vendor’s Director, spoke to the ATO as shown at T documents page 275 and following. The T documents have been provided to both the Tribunal and the applicant;
87.3it was always open to the applicant to call Mitchell, an entirely independent person; given the onus on the applicant under the TAA it was necessary for it to prove that there was express authority and it chose not to call Mitchell.
88. On the question of penalty, the applicant was assessed as being reckless and a penalty imposed on that basis. In the Tribunal’s view the evidence clearly supports this conclusion. As already noted Mr Bacich is an experienced businessman who was clearly well aware of the limits of the authority of the vendor’s real estate agent. He had attended GST seminars and admits that he was aware that he needed a tax invoice and a valuation of the property at 1 July 2000 for the purposes of the Margin Scheme. He obtained both. In the Tribunal’s opinion he must have, despite his denials and his claim that after attending the seminars he was “more confused” about the Margin Scheme than before, been aware that under the Margin Scheme GST was only levied on the difference between the 1 July 2000 value and the contract price. This is clearly why he obtained a valuation dated 1 July 2000. He insisted on the Margin Scheme being used. In this regard Mr Halvorson’s evidence is accepted by the Tribunal, over Mr Bacich’s denials. While there is no suggestion that the applicant engineered or influenced the amount for which the Tax Invoice was issued, it nevertheless clearly sought to take advantage of an innocent error made by Mr Halvorson in preparing the Tax Invoice. This is the conduct which in the Tribunal’s view demonstrates recklessness that justifies the penalty imposed; any reasonable person with Mr Bacich’s knowledge would in the opinion of the Tribunal have responded to Mr Halvorson’s facsimiled query (“Is this what you were after” T documents at 98) or, having had the discussions earlier with Mr Halvorson in which he (Mr Bacich) calculated the GST at $10,000, (in regard to which the Tribunal accepts Mr Halvorson’s evidence, despite Mr Bacich’s denials) have responded and asked why the GST was now so much greater.
89. In the Tribunal’s opinion if, as claimed by Mr Bacich he did not understand the Margin Scheme and was confused after the GST seminars, it is highly improbable that he did not then seek advice from his accountants on a matter which was of such significance and financial importance to him as a property developer, yet he claims not to have done so. The Tribunal rejects his claim that he did not understand the implications of the Margin Scheme when he entered in to the contract and when he received the first invoice.
Station street issue
90. It is undisputed that only $474,500 in cash was paid to Windslow in respect of the transfer to the applicant of Unit 97, 1 Station Street Subiaco. The respondent says that this amount comprised the totality of the consideration, whereas the applicant says that the difference between the cash paid and the contract price of $720,000, was the extinguishment of a debt owing by Windslow to the applicant in respect of the Guarantee Fee being a fee allegedly payable to the applicant as consideration for the applicant guaranteeing a loan (or a number of loans) given by third parties for the benefit of Windslow.
91. It is common ground that the existence of a Guarantee Fee is not recorded in the Financial accounts of either Windslow or the applicant, prior to the “corrected” accounts dated January 2008 prepared by David Coote on the instructions of Peter Bacich (T150. 21ff).
92. The suggestion by the applicant in it’s submissions that the “uncorrected” accounts somehow include reference to the Guarantee Fee by dint of the recording of loans made to Windslow by Bridgecorp and HSBC is in the opinion of the Tribunal not acceptable. The so-called Guarantee Fee was supposedly a debt owed by Windslow to Barcia, an entirely separate transaction, albeit commercially related, arising from a loan by a third party commercial lender to Windslow. Indeed, the failure to disclose the Guarantee Fee to Mr Coote and his initial preparation of the accounts without reference to it, in circumstances when the primary transactions (i.e. the loans) were so disclosed, supports the inference that it did not exist as a debt legally owing to the applicant.
93. The Tribunal takes the view that the subsequent preparation of the amended accounts on the instructions of Mr Bacich appears to be designed to assist the applicant in these proceedings, being a step undertaken some 6 years after the time that the guarantees were given and well after the proceedings in the Tribunal had commenced and apparently in response to a specific issue raised by the respondent.
94. Furthermore, the accuracy of the amended accounts is in any event doubtful in the Tribunal’s opinion. The evidence shows that in preparing the original accounts for all the Bacich associated entities, over a period of six months in the first half of 2006, Mr Coote had access to all the documents and records of the companies, without impediment, any questions or queries he had were answered and, once they were prepared, he spent half a day with Mr Bacich going through the accounts. The only hold up was when documents that were with solicitors were required and these took time to get. Mr Coote’s evidence is that in that entire process, the Guarantee Fee was never raised and no documents were identified as being relevant to that issue in the context of the preparation of the accounts. This was all taking place against the backdrop of the respondent having issued an assessment in respect to the Station Street Issue and the applicant having lodged, on 14 December 2005, an objection (T documents at 4).
95. In order to succeed on this issue, the applicant must show:
95.1Barcia received consideration to the value of the “Guarantee Fee” for the granting of guarantees on behalf of Windslow;
95.2as a result of this, a debt was owed by Windslow to the applicant;
95.3the debt remained legally owing at the date of Barcia’s purchase of Unit 97; and
95.4Windslow repaid the debt by way of offset against the consideration for Unit 97.
96. The Tribunal is of the view it is insufficient for the applicant to show that Windslow derived a “commercial benefit” for the granting of a guarantee; this of itself does not give rise to a debt. Indeed there is no documentary evidence of a debt at all until the amended accounts were prepared. The highest that can be said is that there is evidence that at various times there were intercompany loans between Windslow and Barcia, none of which are directly referrable to any guarantee in respect to any of the three loans made in 2002 to Windslow by its Financiers, Bridgecorp and HSBC.
97. The applicant sought to prove that “Unit 34” was the consideration for guarantees given by Barcia in respect of three separate loans over a period of about 6 months in 2002 (T93.16ff), being the First Bridgecorp Loan in April 2002, the HSBC Loan in August 2002 and the Second Bridgecorp loan in October 2002.
98. There is no contemporaneous documentary evidence to support the assertion of Mr Bacich that the parties agreed that Unit 97 was to be substituted for Unit 34, as being the consideration for any of the guarantees. The valuation merely goes to prove the market value of Unit 34, it says nothing about what consideration Barcia actually paid, much less the circumstances or authority for the substitution of Unit 97.
99. Given the lack of supporting documentary evidence, the timing of the transaction and the relationship between the two entities at the time of the transfer of Unit 97 from Windslow to Barcia, the Tribunal is of the opinion that it was reasonable for the respondent to conclude that the transfer was at a substantial undervalue, for consideration of only $474,500, notwithstanding what was purported in the Contract. In these circumstances it cannot be said that the assessment was excessive.
100. Penalty was assessed on the basis that the applicant failed to take reasonable care. The matters set out above clearly support that conclusion in the Tribunal’s view. Failing to keep proper records, failing to record transactions in accounts and reconstructing evidence after the fact are not the actions of a person who has taken reasonable care to comply.
Timing issue
101. It is common ground that the applicant’s claim for input tax credit in respect of the acquisition of Unit 97 in its BAS for the last quarter of 2004 was incorrect. What is at issue is the rate of penalties, which have been imposed at the rate of 50%, on the basis that the applicant was reckless.
102. It is material that the transaction was not arms length; both the purchaser and the vendor in the transaction in question were entities controlled by Peter Bacich and all relevant accounting documents were produced using the same MYOB package by, or under the instruction, of Ms Bacich who also prepared the BAS.
103. On the evidence of Ms Bacich, there was a discussion between herself and her father as to the appropriateness of making the claim for an input tax credit notwithstanding that settlement had not yet occurred. Notwithstanding this discussion, and the difference of opinion as to its GST treatment between Peter Bacich and Susan Bacich, no professional advice was sought. Yet, it was clear to Ms Bacich that she and her father had quite different views on the topic. She was of the view that an ITC could not be claimed prior to settlement. This is of course the correct position.
104. Ms Bacich says she telephoned the ATO in January or February 2005 for advice about the treatment of the GST on Unit 97 in the December 2004 BAS and was told that an ITC could be claimed. Assuming that she did make a telephone call at that time, the details of what was in fact disclosed to the ATO, are far from clear. Even if Ms Bacich did have a conversation with an officer of the respondent broadly along the lines claimed, as to which the Tribunal makes no finding, the Tribunal finds that the applicant was nevertheless reckless in making the claim in light of her concerns, and in light of the failure to take any professional advice from those advisors in a far better position to have knowledge of the intricacies of the applicant’s business affairs than any officer of the respondent, and who were readily available to her, as her evidence shows.
105. In the Tribunal’s view, this conduct is sufficient to be considered reckless for the purposes of calculating the appropriate penalty.
Decision
106. The Tribunal, for the reasons set out above, finds that the decisions under review are the correct or preferable decisions and affirms them accordingly.
I certify that the 106 preceding paragraphs are a true copy of the reasons for the decision herein of Mr A Sweidan
Signed: ...(sgd) T Freeman..................
AssociateDate/s of Hearing 22 and 25-26 August 2008
Date of Final Submissions 31 October 2008
Date of Decision 24 November 2008
Counsel for the Applicant Mr C Pruiti
Solicitor for the Applicant Norton Smailes
Counsel for the Respondent Ms C Thompson
Solicitor for the Respondent Mr M McCoy
Australian Taxation Office
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