Commissioner of Taxation v Unit Trend Services Pty Ltd

[2012] HCATrans 361

[2012] HCATrans 361

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B61 of 2012

B e t w e e n -

COMMISSIONER OF TAXATION

Applicant

and

UNIT TREND SERVICES PTY LTD
(ACN 010 382 242)

Respondent

Application for special leave to appeal

FRENCH CJ
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 DECEMBER 2012, AT 12.02 PM

Copyright in the High Court of Australia

MR B.D. O’DONNELL, QC:   May it please the Court, I appear with my learned friend, MR S.R. LUMB, for the applicant.  (instructed by McInnes Wilson Lawyers)

MR F.L. HARRISON, QC:   May it please the Court, I appear with my learned friend, MR P.G. BICKFORD, for the respondent.  (instructed by MS & Cliff Lawyers Pty Ltd)

FRENCH CJ:   Thank you.  Yes, Mr O’Donnell.

MR O’DONNELL:   Your Honours will see that this is an issue as to the proper interpretation of section 165-5 of the GST Act, which is set out at page 116 of the application book. It is our submission that the division of opinion within the Full Court of the Federal Court as to the proper interpretation of the section justifies the grant of special leave. The section applies easily enough if the taxpayer makes a single choice, or a single agreement under an express provision of the statute and that confers a benefit. The problem with the application of the section arises where the taxpayer engages into a scheme involving a series of steps or actions, which are integrated and which together combine to produce the GST benefit.

FRENCH CJ:   Do you accept the correctness of the formulation of the question at paragraph 177 of the Full Court judgment at page 138?  The judgment of the majority, I am sorry, Justices Bennett and Greenwood, the last five or six lines, I think “the question to be decided is”?

MR O’DONNELL:   No, your Honour.  We say the issue is more correctly stated by his Honour Justice Dowsett in the dissenting judgment at page 99. 

FRENCH CJ:   He also says what the question is, I think.

MR O’DONNELL:   Yes, particularly paragraph 47.  That is, is the benefit to be attributed to the interaction of the components of the scheme, or is it to be attributed to an individual choice, taken discretely, and we say that is a correct interpretation.

GAGELER J:   There is a difference between a singular and a plural.

MR O’DONNELL:   Not only that, your Honour, also that where the scheme involves things which are not choices or agreements under the statute.  So there are commercial choices or commercial actions not under the statute and they are necessary integers to produce the GST benefit.  Then the question arises can you say that the benefit is attributed to the statutory choice.

FRENCH CJ:   The attribution is not simply an evaluative judgment which depends upon the particular constellation of circumstances you are dealing with.

MR O’DONNELL:   No, your Honour.  We say it arises ‑ ‑ ‑

FRENCH CJ:   There is a sort of bright line test here; if you have other necessary integers involved in deriving the GST benefit?

MR O’DONNELL:   Yes, your Honour.  Whether one can say that the benefit comes from the interaction of a number of integers, or from the statutory choice.  We say the proper interpretation should have been formed by the object introducing Division 165.  That was discussed in the joint judgment at page 142, paragraph 192, and their Honours were informed in that view by the supplementary explanatory memorandum which their Honours set out at page 137.  It records when the bill was first introduced in 1998, it included no equivalent of subsection (1)(b).  At paragraph 174 their Honours mention that there was a change to the bill intended to introduce (1)(b).

The explanatory memorandum in paragraph 1.118 in the second sentence records a recognition that without (1)(b), Division 165 “may have unintended” consequences of overriding express choices granted by the GST legislation.  Therefore, the idea of (1)(b) was to preserve the ability to make explicit choices under the legislation.  The effect of the majority judgment of the Full Federal Court is to make immune to the whole of Division 165 the scheme the taxpayer entered into, which has a number of elements to it, one of which is a choice under the legislation. 

Hence, we say that their Honours, though recognising the object for which the section was introduced, have reached a result which is different from that object, whereas the interpretation Justice Dowsett arrived at conformed to the object of simply not having a clash within the legislation.  We also point out that the result the majority reached at page 146, paragraph 205, is difficult, in our submission, to justify.  In paragraph 205 their Honours interpret the words “attributable to” as meaning “answerable to, explained by or belong to”, which are elusive concepts and highly subjective.

Their Honours concluded that in this particular scheme the GST benefit was “answerable to, explained by or belong to” the choices, under the statute, even though they recognise that a key element of the scheme which was necessary to produce the money benefit was the timing of the intra‑group sale, thereby achieving the uplift in the cost price.  Their Honours refer to that as a commercial decision at paragraph 200.  It was that timing of the intra‑group sale, which his Honour Justice Dowsett said was at the heart of the scheme and which persuaded his Honour Justice Dowsett that the scheme was not immune from 165.  That is at page 99, paragraph 48, of his Honour’s reasons.

The majority judgment effectively adopts – their Honours do not use this term but effectively adopts the “but for” test.  If you can say that but for the statutory choice would the GST benefit have been derived, then the majority judgment seems to mean that then the subsection (1)(b) test is satisfied.  Division 165 does not apply at all to the scheme, whatever its purpose.  It is our submission that is a wrong interpretation and sits uncomfortably with the object with which the section was introduced. 

In our submission, this case is a suitable vehicle to consider the proper interpretation of the subsection.  The facts as to the scheme, purpose of entering into the scheme and the GST benefit are not in dispute.  The outcome turns upon how one interprets “attributable to” in the section.  What is put against us as to the appropriate vehicle is the change in the legislation after the events here.

FRENCH CJ:   It is how one applies “attributable to” in the circumstance where the benefit derives from a number of steps, including elections available expressly under the Act.

MR O’DONNELL:   I would put it differently, your Honour.  I would say how one interprets “attributable to” that is ‑ ‑ ‑

FRENCH CJ:   Yes, well, that is the question, is it not?  That is a special leave issue.

MR O’DONNELL:   How tight does the nexus need to be between the choice and the GST benefit?  The majority seem to reach a result which accepts a more relaxed choice than did Justice Dowsett and the tribunal. 

GAGELER J:   Do you place weight on the objects stated in section 165‑1?

MR O’DONNELL:   Yes, your Honour.  What is said against us is that the legislation has changed since the events here.  Could I take your Honours to that?  That is in the applicant’s list of authorities at page ‑ ‑ ‑

FRENCH CJ:   This is new paragraph (3), is it?

MR O’DONNELL:   Yes, your Honour, pages 52 to 53.

FRENCH CJ:   I think you have dealt with that in your reply, have you not?

MR O’DONNELL:   Yes, your Honour.

FRENCH CJ:   You say (b) is still there and has to be dealt with?

MR O’DONNELL:   Exactly and we say in the ordinary course one would first consider (1)(b), before you get to (3).  You will first ask yourself, well, is the GST benefit here attributable to a statutory choice.  It is only if you answer that that it is that you then move to subsection (3).  Moreover, subsection (3) does not affect the interpretation of (1)(b).  It does not shed any light on what ‑ ‑ ‑

FRENCH CJ:   It does not feed back into the concept of attributable in any way?

MR O’DONNELL:   No, that is our submission, your Honour.  We apply it to the special leave questions we raised in our outline.  Subsection (3) does not answer any of those special leave questions.  Unless I can assist your Honours further?

FRENCH CJ:   Yes all right thank you, Mr O’Donnell.  Yes, Mr Harrison.

MR HARRISON:   If the Court pleases, our argument may be boiled down briefly to three points.  The first is that my learned friend’s suggested interpretation cannot be right because the terms of the section itself, when one contrasts (a) and (b), which I will come to in a moment.  The second point is that the section itself simply does not disclose any sufficient basis for reading down the words “attributable to” beyond its ordinary meaning, and the third is that your Honours hearing the appeal lacks utility because even if my learned friend’s interpretation were right for the section as it originally stood, that interpretation cannot stand with the wording of the new subsection (3).

If I could take your Honours to the submission that the interpretation cannot be right.  Perhaps though first I should go to precisely what my learned friends are posing as the correct interpretation, and that is in their written submissions they put it very briefly in the application book at 169 at the end of paragraph 15 in the last sentence.  What they say earlier in the paragraph they say:

suggests that the section should be construed so as to only be satisfied where a person makes a specific choice, et cetera under the GST law, and the GST benefit flows from that choice, taken discretely.

That is put, perhaps, in a more readily understandable way in their application at page 158, paragraph 2(d) where they say:

in concluding that s.165‑5(1)(b) excluded the application of Division 165 when the elements of the scheme which produced the GST benefit included an element:

(i)which is not a choice expressly provided for by the GST law; and

(ii)absent which the GST benefit would not be produced or would be different.

That is taken up in the draft notice of appeal a few pages on.  Now, my learned friend’s construction, in my submission, essentially involves saying that the scheme in question must comprise only the choice.  One cannot go to a wider scheme and say that the choice is a part of the wider scheme because they say if the choice is part of a wider scheme then a benefit cannot be said to be attributable to the choice.

But if one goes to the section itself, and it is probably convenient to go to the current version because subsection (1) has not been amended, and that is to be found at page 107 of our book of authorities and legislation.  The way the section proceeds is:

This Division operates if:

(a)an entity (the avoider) gets or got a GST benefit from a scheme –

and the words we emphasise here are the getting of a benefit from a scheme, and then (b) proceeds –

(b)the GST benefit is not attributable to the making, by any entity, of a choice . . . that is expressly provided for by the GST law –

Which, in our submission, the switch from getting a benefit from and that benefit being attributable to a choice implies that the choice is contained within a larger scheme; whereas my learned friend’s interpretation would limit (b) to a case where the entire scheme comprises the making of the choice.  The second submission as I put it was that there is nothing in the section to require reading down the provision to the extent that my learned friend has and I do not want to elaborate on what is said in the written submissions there. 

The third basic point we wish to make is that notwithstanding what my learned friend has said that interpretation could not survive when one is considering the current legislation for this reason, and if I could perhaps deal with something as an aside?  In our submission, my learned friend is wrong to say that you interpret (1)(b) in isolation first.  One should interpret the section as a whole and in interpreting (1)(b) also have regard to (3).  The second preliminary point is to note that (3) is drafted in a form that affects the meaning of “attributable to” rather than ‑ ‑ ‑

FRENCH CJ:   Just how does the argument on that run?  This is a question whether it feeds back into attributable and (b).

MR HARRISON:   If one looks at (1), going back to what I said before, (1) has:

an entity gets . . . a benefit from a scheme –

and that benefit not being attributable to a choice.  Then (3) says:

A GST benefit that the avoider gets or got from a scheme is not taken . . . to be attributable to a choice . . . if:

(a)the scheme, or part of the scheme, was entered into or carried out for the sole or dominant purpose of creating a circumstance or state of affairs –

Which, in our submission, necessarily implies that (3) is to operate in a case where there is a scheme that comprises more than the choice; and in that sense necessarily excludes the one‑step schemes.

FRENCH CJ:   It carves out a subset of such schemes.

MR HARRISON:   Yes, and it could simply have no work to do if (b) is limited to a one‑fact scheme, a scheme that comes within the definition of scheme in subsection (10), I think it is what the ‑ ‑ ‑

FRENCH CJ:   Do you say that reflects a legislative assumption about the pre‑existing meaning or does it change the meaning?

MR HARRISON:   I say that it makes – and this perhaps is not directly at the moment answering your Honour – if one comes to interpret this section as a whole, it does not allow my learned friend’s interpretation to exist.  We say, in fact, that it does not change it, but if my ‑ ‑ ‑

FRENCH CJ:   You say it meant that all the time?

MR HARRISON:   It has been there all the time and this has not changed it.  It does happen to reflect an assumption as to the meaning of the term so we would put it in the alternative.

FRENCH CJ:   But your fall‑back position is if it changes the meaning it is the reason for refusing special leave?

MR HARRISON:  Yes, your Honour. My learned friend makes a number of points in the submissions in reply, which we have not dealt with specifically. But, with respect, they all come back to this particular point and that is that the Court’s hearing of the present matter would have no utility for the future and it is not suggested that there are any cases in the pipeline that might raise the issue. The only other thing perhaps one may mention is that my learned friend refers to other legislation that uses the similar provision, two of which simply pick up the GST Act provision, and I think it is the third one has not picked up that amendment that has been made.

My learned friend says well there is utility for that third statute because conceivably the question could arise, but we say, well, it is better to wait because the matter will depend on the particular scheme and it is better to wait for that actually to arise, rather than decide the question here just on the off chance that a question may arise under one of those ancillary pieces of legislation that are not empowering material with the GST Act. Those are our submissions, your Honours.

FRENCH CJ:   Thank you.  Yes, Mr O’Donnell.

MR O’DONNELL:   Dealing with subsection (3), your Honour, I do not say the scheme is limited just to a choice, nor, with respect, did his Honour Justice Dowsett.  Subsection (3) contemplates that the scheme can produce a set of circumstances which enables a choice to be made, and from that choice you get your GST benefit.  But subsection (3) is dealing with something producing a set of circumstances, which enables a choice to be made, and that is not inconsistent with the argument that I have put and which Justice Dowsett adopted in the Full Federal Court.  Thirdly, under subsection (1)(b) the benefit must directly flow from the choice, not from the interaction of a number of things within the scheme.

All subsection (3) does is to exclude from the field of operation of subsection (1)(b) the situation where a scheme is designed to generate a choice.  We also point out, as my learned friend said, under the fuel tax legislation subsection (1)(b) is effectively reproduced in the fuel tax legislation, but does not have subsection (3).  Thank you, your Honour.

FRENCH CJ:   Thank you.  The application will be referred to an enlarged bench.  How long do you anticipate, Mr O’Donnell?

MR O’DONNELL:   A day, your Honour.

FRENCH CJ:   Do you agree with that?

MR HARRISON:   Yes, your Honour.

FRENCH CJ:   Yes all right, thank you.  The Court will now adjourn to reconstitute.

AT 12.24 PM THE MATTER WAS CONCLUDED