Confidential and Commissioner of Taxation
[2013] AATA 701
•30 September 2013
[2013] AATA 701
Division TAXATION APPEALS DIVISION File Number(s)
2012/5543
Re
Confidential
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal F D O'Loughlin, Senior Member
Date 30 September 2013 Place Melbourne The Tribunal affirms the decision under review.
........[sgd]................................................................
F D O'Loughlin, Senior Member
TAXATION – Goods and Services Tax – whether Input Tax Credits allowable – whether an enterprise carried on – whether creditable acquisitions made – whether burden of proof satisfied.
Legislation
A New Tax System (Goods and Services Tax) Act 1999 (C’th)
Income Tax Assessment Act 1936 (C’th)
Income Tax Assessment Act 1997 (C’th)
Taxation Administration Act 1953 (C’th)Cases
F. C. of T. v SNF (Australia) Pty Ltd [2011] FCAFC 74
Davis v F. C. of T. (2000) 171 ALR 654
F. C. of T. v Dalco (1990) 168 CLR 614
Galea v F. C. of T. 90 ATC 5060
Gauci v F. C. of T. (1975) 135 CLR 81
George v F.C. of T. (1952) 86 CLR 183Imperial Bottleshops Pty Ltd & Egerton v F. C. of T. 91 ATC 4546
McAndrew v F. C. of T. (1951) 98 CLR 263
Moreau v F. C. of T. (1926) 39 CLR 65Pascoe v F. C. of T. (1956) 30 ALJR 402
Spriggs v F. C. of T. (2009) 239 CLR 1
Tisdall v Webber [2011] FCAFC 76
Trautwein v F. C. of T. (1936) 56 CLR 63
Vu v F. C. of T. [2006] FCA 889
REASONS FOR DECISION
F D O'Loughlin, Senior Member
30 September 2013
The Applicant contends that she had attempted to conduct a services business that comprised an enterprise within the meaning of s 9-20 of the GST Act[1] and made purchases in pursuit of that business. The Applicant claimed ITCs[2] in respect of those purchases in the relevant Review Periods[3] and contends she was entitled to them, pursuant to s 11-20 of the GST Act.
[1]A New Tax System (Goods and Services Tax) Act 1999 (C’th).
[2]Input Tax Credits.
[3]The respective tax periods under review referred to in Table 1.
The Commissioner has issued an assessment of GST net amount for each of the Review Periods denying any entitlement to the ITCs claimed because, he contends:
(a)the Applicant did not carry on an enterprise; and/or
(b)the Applicant has not demonstrated that she did carry on an enterprise or that she made the purchases she contends; and/or
(c)the Applicant has not demonstrated that she held tax invoices for the purchases she contends; and/or
(d)the Applicant has not demonstrated that the purchases were creditable acquisitions, as the purchases lacked a nexus with pursuit of the enterprise.
The Applicant’s disputed entitlements to ITCs relate to what she contends were purchases of assets and consumables. Table 1 below sets out the taxable supplies the Applicant reported in her BASs,[4] the purchases she contends were made and the GST on those purchases for the Review Periods.
[4]Business Activity Statements.
Table 1: Sales, Purchases and ITCs claimed Tax period ending Taxable Supplies
($)
Total Purchases
($)
GST on Purchases/ITCs claimed
($)
31 March 2009 0 41,400 3,615 30 June 2009 0 41,400 3,615 31 December 2009 0 17,000 1,700 31 December 2010 0 12,500 1,250 31 March 2011 0 14,540 1,454 31 December 2011 0 25,436 2,312 31 March 2012 0 600,000 60,000 TOTAL 0 752,276 73,946 The legislative framework
If an entity registered for GST makes a creditable acquisition, and holds a tax invoice in respect of those acquisitions for the tax period of claim, it is entitled to the ITCs associated with the acquisition.[5] An entity makes a creditable acquisition if:
(a)it acquires anything solely or partly for a creditable purpose;
(b)the supply of the thing to the entity was a taxable supply;
(c)the entity provided or was liable to provide consideration for the supply; and
(d)the entity was registered or required to be registered for GST.[6]
[5]GST Act, s 11-20 and s 29-10(1)
[6]GST Act, s 11-5.
An acquisition is made for a creditable purpose if it is made in carrying on an entity’s enterprise.[7] Carrying on an enterprise includes steps taken in the course of commencing or terminating the enterprise.[8]
[7]GST Act, s 11-15(1).
[8]GST Act, s 195-1 definition of “carrying on” an *enterprise.
The term, enterprise, is defined.[9] That definition is:
[9]GST Act, s 9-20.
(1) … an activity, or series of activities, done:
(a) in the form of a *business; or
(b) in the form of an adventure or concern in the nature of trade; or
…
[but not]
(2) … an activity, or series of activities, done:
…
(c) by an individual … without a reasonable expectation of profit or gain; or
…
The questions for resolution
The requirement that the Applicant was registered or required to be registered for GST[10] was satisfied in this case. The Applicant was registered for GST on 10 January 2006 to report quarterly on a cash basis. Further, the Applicant was issued with an Australian Business Number and lodged BASs for the Review Periods.
[10]GST Act s 11-5(d).
The remaining requirements for ITC entitlements to arise are in dispute. The disputed issues are whether the Applicant:
(a)carried on an enterprise;
(b)held tax invoices for the period in which ITCs were claimed;
(c)has demonstrated the requisite nexus between the purchase and the conduct of her business; and
(d)has discharged the burden of establishing that the assessments of GST net amounts (the assessments) are excessive.
The contentions
The Commissioner contends that the Applicant has the onus of proving that she made creditable acquisitions[11] and in circumstances where the only evidence is the Applicant’s evidence without supporting records, the Tribunal should be reluctant to find that the Applicant’s onus has been discharged.[12]
[11]Within the meaning of the GST Act, s 11-5.
[12] F. C. of T. v SNF (Australia) Pty Ltd [2011] FCAFC 74 at [81] and [82] per Ryan, Jessup and Perram JJ and their explanation of the remarks of Fullagar J in Pascoe v F. C. of T. (1956) 30 ALJR 402 at 403).
The Commissioner submits that on the evidence led, the Tribunal cannot find that there were creditable acquisitions with the consequence that the Applicant was not entitled to the ITCs claimed.
The Applicant resists these contentions.
Facts and evidence
Given the foregoing contentions, it is necessary to deal with the evidence in some detail. The evidence of what the items purchased were, the purchases being made and the activities that constituted the business the Applicant contends she began is limited to the Applicant’s oral testimony and her letters to the Tribunal. All of that evidence was imprecise.
The Applicant’s evidence was that:
(a)before she was required to serve a term of imprisonment, she tried to start a services business that involved use of a motor vehicle. The attempts straddled her term of imprisonment and did not succeed;
(b)the steps that she took in attempting to start the business entailed buying two motor vehicles, a computer, printer, fax, desk, filing cabinet and business cards and promotional material for distribution, distributing that material, and making phone calls and door knocks;
(c)when attempting to start her business she had a disabled child who caused her problems, another infant who, at the time, required hospitalisation and intensive care (as a result of being born premature), and a disruptive or dysfunctional relationship with her now ex-partner who had an addictive behavioural problem;
(d)from November 2009 until approximately May 2011 she served a sentence that entailed approximately 12 months imprisonment and six months home detention;
(e)her ex-partner ransacked her house twice and any records she had of the purchases she had made for her business were lost or destroyed. This made it impossible for her to produce them to the Commissioner or to the Tribunal;
(f)she reported the second ransacking to the police between May 2011 and August 2012. She was unsure of the date because it was a stressful time for her;
(g)the $41,400 total purchases reported in the 31 March 2009 BAS would have been for a motor vehicle;
(h)one of the $41,400 contended to have been spent on purchases reported in the 31 March and 30 June 2009 BASs was probably a mistaken duplication;
(i)the $14,540 total purchases reported in the 31 March 2011 BAS would have been for furniture or for a motor vehicle. She purchased two Mazda motor vehicles for the business;
(j)she possibly had registration papers for the vehicles at her home that would prove ownership and purchase of these vehicles. They had not been produced to the Tribunal because she had not been asked to do so;
(k)she undertook a small number of jobs during the Review Periods but was either not paid for them at all or was paid in cash;
(l)the $600,000 total purchases reported in the 31 March 2011 BAS was for a house purchased to live in. The Applicant claims to have had a tax invoice for the purchase and to have been advised that she could claim the ITCs if she ran her business from her home. The Applicant also asserted that she had not produced the documentation in relation to the house purchase because she had not been asked for it by the Commissioner’s officers or Tribunal staff;
(m)the printing business from which she had purchased the business cards and promotional material for distribution had closed and she could not locate the owners to obtain records of the purchase;
(n)the items purchased for the business were either kept in storage or given away to needy people after the Applicant’s business attempts were abandoned; and
(o)she had not sought to lead any corroborating evidence from family members, (for example a sibling) because there were intra family problems and bad relations over management of one of her parent’s affairs that had led to a litigious process that was hoped would regularise those affairs.
None of this evidence, including the Applicant’s assertions as to why substantiating evidence was not available, was corroborated by any evidence from any other person. Nor was it corroborated by any contemporaneous documents. The Applicant has not produced a copy of a business card or promotional document she contends she distributed.
Between the date of the Applicant’s objection and date of the hearing of this application, the Applicant has been requested on no less than five occasions to substantiate the claims that she has made and to provide substantiating documents.
These substantiation requests made by the Commissioner and the Tribunal do not reconcile well with the Applicant’s assertions that documents that are available were not provided because they were not requested. Nor do the assertions that there may have been documents available but not provided to the Commissioner or the Tribunal because they were not requested reconcile well with the assertions that documentation was destroyed when the Applicant’s ex-partner twice ransacked her home.
The burden of proof
In a matter such as this, it is necessary to give some scrutiny to what the burden of proving that an assessment is excessive means and whether that burden has been met.
The burden of proof imposed by s 14ZZK of the Administration Act[13] requires a taxpayer to establish that his or her assessment is excessive. In this context, excessive means the amount of the assessment exceeds what it should be.[14] What this means is that a taxpayer must establish the claim he or she asserts.[15] It is not enough to show that the Commissioner made an error[16] or that an assessment may be wrong.[17] Taxpayers must go further and show what the correct position should be,[18] or what correction should be made to make the assessment right or more nearly right,[19] or the amount that should be assessed for tax,[20] or show that he or she has been assessed to a liability which the GST Act does not impose.[21]
[13]Taxation Administration Act 1953 (C’th).
[14]F. C. of T. v Dalco (1990) 168 CLR 614 at 621 per Brennan J with whom Mason CJ and Dawson, Gaudron and McHugh JJ agreed and 631 per Toohey J, McAndrew v F. C. of T. (1951) 98 CLR 263.
[15]Trautwein v F. C. of T. (1936) 56 CLR 63 at 87 per Latham CJ, Moreau v F. C. of T. (1926) 39 CLR 65 at 70 per Isaacs J.
[16]Trautwein above at 87 per Latham CJ, Dalco above at 621 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed.
[17]Trautwein above at 112 per Dixon and Evatt JJ, Dalco above at 625 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed and at 631 and 633 per Toohey J.
[18] Trautwein above at 87 per Latham CJ.
[19]Trautwein above at 88 per Latham CJ.
[20]Trautwein above at 103-4 per Starke J., Dalco above at 625 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed.
[21]Trautwein above at 111 per Dixon and Evatt JJ, Dalco above at 624 per Brennan J with whom Mason CJ and Dawson Gaudron and McHugh JJ agreed and 626 per Deane J and 631 per Toohey J, George v F.C. of T. (1952) 86 CLR 183 at 201 per Dixon CJ, McTiernan, Williams, Webb and Fullagar JJ.
There is no onus on the Commissioner under the GST Act or the Administration Act[22] and there is no requirement that an assessment be supported by evidence.[23] It is not necessary for the Commissioner to show that a taxpayer’s GST net amount was at least a particular figure or that a particular amount is taxable or that a particular amount is not creditable. And if the Commissioner chooses to make such an assertion and fails to prove it, that failure does not bear upon whether the taxpayer has discharged the statutory burden of proving an assessment is excessive.[24]
[22]Income Tax Assessment Act 1936 (C’th) and Income Tax Assessment Act 1997 (C’th).
[23]Gauci v F. C. of T. (1975) 135 CLR 81 at 89 per Mason J (in the minority but not on this point, see Dalco above per Brennan J at 624).
[24]Vu v F. C. of T. [2006] FCA 889 at [9] per Finn J., Galea v F. C. of T. 90 ATC 5060 at 5067 per Hill J.
There are two further principles connected to the burden of proof principles outlined above that have a particular relevance in this application, given the only evidence led is a personal testimony of the Applicant who is also the assessed taxpayer.
(a)The first concerns self-serving evidence. The evidence of witnesses who have interests that turn on whether that evidence is accepted, typically parties to an application in the Tribunal, needs to be approached critically,[25] and will necessarily be the subject of careful scrutiny.[26] In Imperial Bottleshops Pty Ltd & Egerton v F. C. of T.[27] (“Imperial Bottleshops”), where business expenditures were said to have been incurred, Hill J expanded on the caution required and said:
A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be "tested most closely, and received with the greatest caution": Pascoe v Federal Commissioner of Taxation (1956) 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as "prima facie unacceptable", cf McCormack v Federal Commissioner of Taxation (1978-9) 143 CLR 284 at 302 per Gibbs J.[28]
Importantly, in Imperial Bottleshops, there was substantial, corroborating evidence from two employees of a supplier to the taxpayer and six current or former employees of the taxpayer. In addition, the statement of wealth did not show unexplained accumulations of assets that were inconsistent with the taxation position asserted by the taxpayer. The corroborating evidence, together with a rational reason for an absence of records, allowed Hill J to form a view that the taxpayer should be believed.[29]
(b)The second concerns the limited circumstances in which inferences can be drawn. They can be drawn from observed facts. Mere assumptions, guesswork and speculation are not accommodated in the process of arriving at conclusions.[30] There must be a body of evidence that might reasonably sustain a relevant finding of fact or permit the Tribunal to draw an inference.[31]
[25]See F. C. of T. v SNF (Australia) Pty Ltd [2011] FCAFC 74 at [81] and [82] per Ryan, Jessup and Perram JJ and their explanation of the remarks of Fullagar J in Pascoe v F. C. of T. (1956) 30 ALJR 402 at 403.
[26]See Davis v F. C. of T. (2000) 171 ALR 654 at [47] per Hill J.
[27]91 ATC 4546.
[28]Imperial Bottleshops above at 4552.
[29]Imperial Bottleshops above at 4554-4555.
[30]See Tisdall v Webber [2011] FCAFC 76 at [128] per Buchanan J, with whom Tracey J agreed.
[31]See Tisdall above at [127] per Buchanan J, with whom Tracey J agreed.
Did the Applicant carry on an enterprise or take steps to commence one?
The first test the Applicant must satisfy is whether she carried on an enterprise.[32] An enterprise is an activity (or series of activities) in the form of a business[33] or in the form of an adventure in the nature of trade.[34] An activity (or series of activities) undertaken by an individual is not an enterprise unless there is a reasonable expectation of profit or gain from those activities.[35]
[32]GST Act, s 11-15(1).
[33]GST Act, s 9-20(1)(a).
[34]GST Act, s 9-20(1)(b).
[35]GST Act, s 9-20(2).
Given the structure of the definition of an enterprise and its connection to the concept of a business (albeit the requisite test may impose a lesser standard) the authorities which inform whether activities constitute a business throw light on what is required to characterise whether activities constitute an enterprise. Those authorities are to the effect that whether an entity’s activity or series of activities constitutes carrying on a business and whether a particular activity forms part of any business, requires a wide survey and an exact scrutiny of the activities under review.[36]
[36]Spriggs v F. C. of T. (2009) 239 CLR 1 at 20 [60] and the authorities there cited per French CJ, Gummow, Heydon, Crennan, Kiefel and Bell JJ.
In the present circumstances, and particularly where the Applicant is an individual who must also meet the reasonable expectation of profit test, there has not been sufficient evidence led for the Tribunal to undertake the examination required and/or to form the requisite views as to a reasonable expectation of profit or gain. This is so whether the enquiry is as to whether the steps taken were in commencing an enterprise or in carrying on the enterprise after commencement. This lack of evidence also precludes any inferences being made.
An applicant, on review of an objection decision, does not satisfy the burden of proving that an assessment is excessive by giving personal testimony of an imprecise nature and detail without any corroborating evidence of either the activities undertaken, or of the reasons why the corroborating evidence of those activities is not available.
Was the Applicant entitled to the ITCs claimed if she was carrying on an enterprise?
Even if there were evidence on which conclusions could be reached that the Applicant did carry on an enterprise, some of the ITCs claimed by the Applicant must be denied. The ITCs claimed in respect of the duplicated purchases of $41,400 disclosed in the 31 March and 30 June 2009 BASs could not be allowed as the Applicant admits that one of the BASs was wrong.
The ITCs claimed in connection with the house purchase cannot also be allowed as claimed. Even if there was GST payable or paid on the sale of the house by the vendor to the Applicant, the house was purchased at least principally if not wholly for private use and as such ITCs, as claimed, cannot be allowed. Even if an apportionment was allowable, no evidence was led as to the appropriate proportion that might be allowed.
Finally, there is insufficient evidence that the purchases leading to the ITCs claimed by the Applicant were taxable supplies made by the vendors of the goods (although the Applicant asserts that she purchased and/or she held tax invoices in the periods in which the ITCs were claimed).
Decision
The consequence of this is that the evidence does not establish that the assessments are excessive with the result that the ITCs were not available to the Applicant.
The Tribunal affirms the decision under review.
I certify that the preceding 29 (twenty -nine) paragraphs are a true copy of the reasons for the decision herein of F D O’Loughlin, Senior Member ..........[sgd]..............................................................
S Herath, Associate
Dated 30 September 2013
Date(s) of hearing 16 June 2013 Date final submissions received 9 July 2013 Applicant In person Counsel for the Respondent Mr Nasos Kaskani Solicitors for the Respondent Ms Zoe Harwood, Australian Taxation Office Legal Services Branch
Key Legal Topics
Areas of Law
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Taxation Law
Legal Concepts
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Tax Invoices
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Input Tax Credits
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Substantiating Evidence
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Admissibility of Evidence
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