CORYMBIA CORPORATION PTY LTD Applicant And COMMISSIONER OF TAXATION

[2010] AATA 401

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 401

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  2008/4882

TAXATION APPEALS DIVISION		)
Re		CORYMBIA CORPORATION PTY LTD

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal  Senior Member Bernard J McCabe

Date 31 May 2010

Place Brisbane

Decision

1. The taxpayer’s application for review of the objection decision in relation to the amount of the GST liability is dismissed pursuant to s 42B of the AAT Act.

2.    The taxpayer shall provide to the Tribunal and the Respondent any evidence that it proposes to rely on at the hearing in relation to penalties within 21 days.

............................[Sgd]..............

Senior Member

CATCHWORDS

TAXATION – whether application is frivolous or vexatious – review of GST assessment and penalty decision – taxpayer claimed margin scheme on sale of land – proceedings futile – natural justice afforded – application for review of objection decision dismissed – application for review of the penalty decision remains on foot

A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 75.5

Re Williams and Australian Electoral Commission (1995) 38 ALD 366

REASONS FOR DECISION

31 May 2010 Senior Member Bernard J McCabe

1.The Commissioner argues that the application for review by Corymbia Corporation Pty Ltd should be dismissed on the basis that the application is frivolous or vexatious within the meaning of s 42B of the Administrative Appeals Tribunal Act 1975 (“the AAT Act”).

Background to the proceedings

2.Corymbia Corporation Pty Ltd is a property developer. It was registered for GST at all material times. It was previously known as Scottsdale Homes No 4 Pty Ltd.

3.The taxpayer developed two properties that were subsequently sold in 98 separate lots in the period between 1 January 2005 through 31 December 2006. The taxpayer claimed the “margin scheme” applied. If that is so, the taxpayer’s GST liability would be lower. (I will say more of the margin scheme shortly.) The taxpayer was late lodging its business activity statements (BAS) during this period. When the Commissioner came to consider what the taxpayer had done, he reached a different view of the taxpayer’s entitlement to access the margin scheme.

4.The Commissioner issued an assessment of the taxpayer’s liability to GST in respect of land sales that occurred in the period 1 January 2005 through 31 December 2006. The assessment said the taxpayer owed $1,845,582. Administrative penalties were also imposed. The taxpayer objected. In the objection decision dated 5 September 2008, the amount of GST owing was reduced to $652,441 and the penalties were revised to $578,740.50. The Commissioner decided not to remit the penalty in whole or in part, and decided not to remit the general interest charge (“the GIC”) on the shortfall.  The taxpayer has asked the Tribunal to reconsider the objection decision.

The Margin Scheme

5.Sales of commercial property, vacant land and new residential premises may be taxable under the general provisions of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). Division 75 of the GST Act creates a special arrangement for calculating the amount of tax on the sale of a freehold interest in land, the sale of a strata unit or a long term lease. The “margin scheme” in Div 75 allows the supplier to remit GST equal to 1/11 of the margin for the supply rather than 1/11 of the whole consideration for the supply as would ordinarily be required. But there is a catch: if the supplier relies on the margin scheme, the acquirer will not be able to claim an input tax credit. It is therefore important that the vendor and purchaser agree on what is to occur in a sale where the margin scheme might apply since both of their interests might be affected.

6.Section 75.5 of the GST Act provides relevantly:

(1)  The margin scheme applies in working out the amount of GST on a ^*taxable supply of real property that you make by:

(a)  selling a freehold interest in land; or

(b)  selling a stratum unit; or

(c)  granting or selling a ^* long‑term lease;

if you and the recipient of the supply have agreed in writing that the margin scheme is to apply.

(1A)  The agreement must be made:

(a)  on or before the making of the supply; or

(b)  within such further period as the Commissioner allows.

7.The requirements of the GST Act are clear. If the parties intend that the margin scheme is to apply, they must record that agreement in writing. The agreement in question would ordinarily be entered into at the time the agreement for sale was reached, but the Commissioner may allow the taxpayer extra time to secure a written agreement after the sale is completed. The Commissioner does not have the discretion to waive the requirement to obtain an agreement in writing.

8.If a taxpayer is unable to satisfy the requirements of s 75.5, the margin scheme will not apply and the taxable supply will be dealt with in the ordinary way.

Is there an agreement in writing in this case?

9.The contracts for the sale of the real property in question in this case did not include an agreement with respect to the application of the margin scheme.

10.The Commissioner has twice exercised his discretion under s 75.5(1A) to extend the time allowed for securing a written agreement from the purchasers. The Commissioner even suggested a form of words in a template letter addressed to the various solicitors for the purchasers that would satisfy the requirements in s 75.5(1). Mr Green, an accountant who appeared on behalf of the taxpayer, explained there were significant practical difficulties in locating the purchasers and securing agreements in the form required by the Commissioner. He produced three letters from solicitors who had acted on behalf of purchasers that he said should suffice.

11.The first letter is from Jennifer Davies, whom I infer acted as solicitor in relation to the purchase of six lots. Her letter of 7 May 2010 noted the vendor’s request to enter into an agreement so that the margin scheme would apply and concluded:

I wish to advise that had such a request been made of these clients at the time I believe that these clients would have agreed that the margin scheme applied to the sale of the subject property by the vendor to the clients.

12.The second letter from Queen Street Legal Group Pty Ltd dated 6 May 2010 makes a similar statement:

We wish to advise that had such a request been made of our clients at the time we would on our client’s behalf have agreed that the margin scheme applied to the sale of the subject property by the vendor to our client.

13.The third letter, from Edser Lawyers, is dated 19 May 2010. It makes the same statement as the other two letters.

14.None of these letters constitutes an agreement in writing like that contemplated by s 75.5 of the GST Act. Each of them is nothing more than an indication of what would have been agreed at the time of the sale if the matter had been raised. But the matter was not raised at the time, and it is unclear from the letters – perhaps intentionally unclear – whether the clients now agree that the margin scheme should and will apply. In any event, there is no agreement in writing to that effect.

are the proceedings futile?

15.The taxpayer can only satisfy the requirements in s 75.5 of the GST Act by producing agreements in writing. The extensions allowed by the Commissioner for that purpose have now lapsed. I understand the taxpayer has objected to the decision not to allow further extensions, but that decision is not before me. I need to consider whether the application for review can succeed on the basis of the evidence that is available.

16.There are no agreements in evidence. That means the application for review cannot succeed, at least in relation to the question of whether or not the GST should be imposed. I am satisfied that aspect of the proceedings is “so obviously untenable or manifestly groundless as to be utterly hopeless”: see Re Williams and Australian Electoral Commission (1995) 38 ALD 366 at 373.

17.It is unclear whether the taxpayer’s case in respect of the decision to impose and not remit penalties is also hopeless. There has been little evidence adduced in relation to this issue. It seems to me that aspect of the case should be allowed to proceed, although I propose making directions setting a timetable for the delivery of evidence that is relevant to the question of penalties so that aspect of the matter can be brought on for hearing as soon as possible.

Natural justice

18.Mr Green argued at the hearing that the taxpayer was being treated unfairly because it did not appreciate the import of the application to dismiss the proceedings pursuant to s 42B. Mr Green said the taxpayer would have obtained legal representation if it had realised what was going on.

19.The taxpayer filed its application for review in 2008. There have been a number of conferences and directions hearing since that date. The Commissioner wrote to the Tribunal and the taxpayer on 25 March 2010 to ask that the matter be set down for a dismissal hearing. That letter included an outline of its submissions on the application. A telephone hearing was listed for 9am on 11 May 2010.

20.At the telephone hearing on 11 May, the taxpayer’s representatives said they had been taken by surprise. I was told the taxpayer had not received a copy of the submissions from the respondent and did not appreciate the consequences that might flow if the Commissioner’s application was heard and decided against the taxpayer. The possibility of briefing a lawyer was raised. I agreed to allow an adjournment for the express purpose of permitting the taxpayer additional time to read the Commissioner’s submissions and obtain legal advice or representation if it wished to do so. I directed that the taxpayer file submissions in response to the Commissioner’s submissions. I also directed that the taxpayer provide an affidavit explaining how the Commissioner’s correspondence of 25 March 2010 might have been misplaced.

21.The dismissal hearing was re-listed for 27 May 2010 and the taxpayer filed submissions. The taxpayer did not brief lawyers to appear on its behalf at the hearing. I heard from Mr O’Seighin, who appeared on behalf of the Commissioner. I also heard from Mr Green, who said the taxpayer was not ready to respond to the matters raised by the Commissioner. He said he did not appreciate the purpose of the hearing and wanted the opportunity to brief a lawyer even though the respondent’s submissions had been in his client’s hands for at least two weeks before the resumed hearing.

22.I am satisfied the taxpayer had ample notice of the Commissioner’s application. The Commissioner’s written submissions make his arguments clear.  An adjournment was allowed to give the taxpayer additional time to prepare and respond. It provided me with written submissions of its own, and I conducted a hearing and entertained oral submissions. The taxpayer has had its opportunity to present its case. If the Tribunal’s statutory objective of providing a mechanism for review that is “fair, just, economical, informal and quick” is to be met, it is now incumbent upon me to minimise the delay and expense by dismissing a case that plainly cannot succeed on the facts before me: see AON Risk Services Australia Limited v Australian National University (2009) 239 CLR 175.

Conclusion

23.The taxpayer’s application for review of the objection decision in relation to the amount of the GST liability is dismissed pursuant to s 42B of the AAT Act. The proceedings in relation to the administrative penalty remain on foot.

24.The taxpayer shall provide any evidence that it intends to rely upon in connection with its application for review of the penalty decision within 21 days.

I certify that the 24 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

Signed: ...................[Sgd]........................................................
  Patrick MacDonald

Date of Hearing  27 May 2010 
Date of Decision  31 May 2010

Advocate for the Applicant            Mr V P Green

Advocate for the Respondent        Mr K O’Seighin