Ecosse Group Holdings Pty Ltd and Commissioner of Taxation (Taxation)
[2024] AATA 2073
•26 June 2024
Ecosse Group Holdings Pty Ltd and Commissioner of Taxation (Taxation) [2024] AATA 2073 (26 June 2024)
Division:SMALL BUSINESS AND TAXATION DIVISION
File Number(s) 2023/3211 and 2023/3253
Re:Ecosse Group Holdings Pty Ltd
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Mr Rob Reitano, Member
Date:26 June 2024
Place:Sydney
The Commissioner’s decisions to disallow both objections are affirmed.
....................................[SGD]....................................
Mr Rob Reitano, Member
CATCHWORDS
TAXATION – Goods and Services Tax – input tax credit – creditable acquisition – acquisition – supply – consideration – demand for payment – tax invoice – period to which input tax credit to be attributed – penalties – remission of penalties – recklessness
LEGISLATION
A New Tax System (Goods and Services Tax) Act 1999
Taxation Administration Act 1953CASES
Hart v Commissioner of Taxation (2003) 131 FCR 203BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347
REASONS FOR DECISION
Mr Rob Reitano, Member
26 June 2024
This decision is about whether Ecosse Group Holdings Pty Ltd (Ecosse) was entitled to claim an input tax credit in the amount of $340,000 for the tax period 1 November 2021 to 30 November 2021 under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and, whether a penalty assessed by the Commissioner of Taxation (Commissioner) in relation to the claimed input tax credit should be remitted in whole or in part.
WHAT HAPPENED?
Ecosse is an investment management business which provides financial services in the agricultural sector. Mr Anthony Guy (Mr Guy) is the sole director of Ecosse, and he and his wife are its only shareholders.
Siltstone Pty Ltd (Siltstone) was said to hold assets which are used by Ecosse in conducting its business. Mr Guy is the sole director and only shareholder of Siltstone. In a letter dated 21 February 2021, which most probably should have been dated 21 February 2022, to the Australian Taxation Office (ATO) signed by Mr Guy, Ecosse said:
We stress that Siltstone is an asset owning company (only) and does not conduct business activities. Business activities are conducted by Ecosse Co – using assets owned by Siltstone. It is those assets that have been sold from Siltstone to Ecosse Co.
It is a matter of some importance that it was Mr Guy who authored and signed the letter. There is an issue about what assets were owned by Siltstone that were used in Ecosse’s business which is something I will return to later. There is also an issue about whether Siltstone did in fact do more than only hold assets.
Ecosse was registered for Goods and Services Tax (GST) on 28 May 2014 and until 25 March 2021 accounted for GST on a cash basis. After 25 March 2021 Ecosse accounted for GST on an accruals basis. Siltstone first registered for GST on 9 April 2021 and only ever accounted for GST on a cash basis.
Mr Guy explained that in about July 2021 that ‘based on the growth of the business, we began to formally get the family group ready for external investment to fund the growing loan book.’ As a result of that Mr Guy said that various decisions were made about the business structure which till then had involved Siltstone holding the assets and Ecosse doing the business. That, so it was said, was the impetus for what followed.
On 28 June 2021 a document was brought into existence that on its face appeared to be an agreement between Ecosse and Siltstone. I will refer to this document as the licence agreement, but I should be clear that in describing it that way I do not intend that description to suggest an acceptance that the document is what it appears to be because that is one of the issues that needs to be decided.
The licence agreement contained terms that Siltstone agreed to permit Ecosse to use some intellectual property: the business name ‘Ecosse Capital Partners’; a domain name which was ‘ecosse.com.au’; and ‘intellectual property and know-how related to private credit lending in the agricultural sector’ and ‘any digital and social media connected with the registered business name’. There was no evidence, and it was never explained, how Siltstone came to hold or own those assets, if it did in fact hold or own any of them, in the first place. The licence agreement provided for the payment of licence fees but none were ever paid or, so it seems payable, because the condition precedent to paying them was never met. A curiosity about the licence agreement is that it was signed for both Ecosse and Siltstone by Mr Guy.
On 1 July 2021 another document was brought into existence, this time on the face of things the document appeared to be an employment agreement between Siltstone and Mr Guy. Again, I will refer to this document as the employment agreement and again me describing it that way should not be taken to be an acceptance that it is was what it appears to be.
The employment agreement was for the employment of Mr Guy by Siltstone in the position of Managing Director – Agricultural Private Lending. The remuneration was $180,000 per annum and a potential bonus of up to the same amount inclusive of superannuation. The agreement provided superannuation was to be paid [i]n accordance with Federal SGC legislation.’ The agreement provided for terms about various forms of leave such as annual leave, personal leave and so on. The employment agreement had a commencement date of 1 July 2021. Mr Guy signed the agreement on behalf of Siltstone and on his own behalf. It was a little curious that company that simply owned assets required someone in a position with such an apparently high level of remuneration.
On 30 November 2021 another document was signed by Ecosse and Siltstone which on the face of things appeared to be an agreement for the sale of various business assets by Siltstone to Ecosse. I will refer to this document as the sale agreement and once again in describing it that way it should not be thought that I accept that it is what it appears to be.
The sale agreement contained terms for the purchase by Ecosse of various business assets that at least so far as the sale agreement was concerned were owned by Siltstone. The assets that were sold were defined by the sale agreement as ‘the goodwill, industrial and Intellectual Property, permits and licences set out in the attachments and schedules to the agreement.’ The defined term ‘Intellectual Property’ was defined specifically but only included what might ordinarily be within that term as well as ‘the Trading Names’ which also had a particular meaning and specifically included the business names in one of the schedules to the sale agreement.
The assets that were sold can be identified by trawling through the annexures and schedules to the sale agreement. First, Annexure A referred to ‘plant and equipment (unencumbered)’, ‘interest in Secured Assets,’ ‘Stock’, ‘WIP’, ‘Goodwill’, ‘Intellectual Property’, ‘Employee Entitlements’, ‘Offsets/Allowances’, ‘Retentions’ and ‘Pre-payments’. Second, Annexure D contained the ‘Intellectual Property’ referred in Annexure A which was the business name ‘Ecosse Capital Partners’, the domain name ‘ all email address ‘attaching to ecosse.com.au’, ‘Rights Pursuant to any employment (sic) Agreement between the Vendor and Anthony Guy in his personla (sic) capacity’, ‘Customer Lists’, ‘Broker Database’, ‘Investor Data Base’ and ‘Benefits of all employee contractual restraints’. Third, Annexure F referred to relevant “Licences, Contracts and Agreements’ which were the employment agreement, and two lots of shares one in ‘Ecosse Bare Fund 7 Pty Ltd (sic)’ and the other in ‘Ecosse Bare Fund 8 Pty Ltd’. I will say some more about these assets later but for now it is only necessary to say that it was not entirely clear how some of them came to be Siltstone’s assets in the first place. It was also a little odd that Ecosse was proposing to ‘purchase’ an employment agreement that Siltstone had with Mr Guy that had so recently been entered into at the instigation of Mr Guy who was the person responsible for executing the sale agreement on behalf of both parties.
The sale agreement provided at clause 2 for ‘The Purchase Price identified in Item 6 of the Schedule is the total value of the business assets as allocated in Annexure A being $3,400,000’. Clause 7(3) provided that on completion (defined in the agreement as 30 November 2021) Ecosse was required to pay the purchase price which was $3,400,000 less the “Deferred Price” which was defined as ‘$3,400,000’. The effect of those clauses was Ecosse would pay nothing on completion. The Deferred Price was to be paid under clause 7(4) and Item 9 ‘On demand by the Siltstone’. The sale agreement provided a ‘Final Date for Payment’ of 30 November 2022, but it was by no means clear what the effect of the ‘Final Date for Payment’ term was if no demand was ever made.
On 30 November 2021 Siltstone issued to Ecosse a document headed ‘Tax Invoice’ and the words ‘Invoice for Sale of business assets pursuant to the Sale of Business Agreement dated 30 November 2021’. I will refer to this as the tax invoice. Separate amounts were identified as the consideration for the sale of business, $3,400,000, and for GST, $340,000 and a ‘Total (including GST)’ of $3,740,000. The tax invoice recorded alongside the word ‘Due’ the words “As per contractual terms’. That plainly meant that the payment was due ‘on demand by Siltstone’ because that was the relevant contractual term. It is necessary to say a little more about the evidence concerning this issue as it becomes important when dealing with whether the input tax credit could be attributed to the relevant period.
Mr Guy suggested during his evidence that the tax invoice was a demand for payment even though it did not say any such thing. The word alongside the word ‘Due’ would simply have needed to have been “Now’ rather than referring to the contractual terms found in the sale agreement. Further, that suggestion was contrary to what Ecosse had said on objection to the Commissioner. Mr Guy’s evidence about the invoice being a demand for payment was to say the least difficult to follow. He said:
This tax invoice linked to the fact it refers to the contractual terms that say its payable on demand. I’ll be really pragmatic. What was I going to do? Ask – demand it from myself? This satisfies all the requirements of a demand for payment. Its an invoice pursuant to a contract that says ‘Payment is payable on demand’.
The problem, naturally enough, is the invoice said no such thing. Later in his evidence when it was suggested to Mr Guy that there was no demand for payment made on completion he said:
There was, as evidenced by the tax invoice referencing the contractual terms. And as common sense would dictate, given that I was acting for both the purchaser and the vendor, I could have simply demanded it of myself in my head, and that would have been satisfied.
The observation about demanding it from himself was remarkable given that all the relevant documents, such as the sale agreement, the licence agreement and the employment agreement were all documents that had him on both sides, so he had some history of saying things to himself. Further, the sale agreement was executed on both side by Mr Guy the same day so that if the tax invoice was in fact a demand for payment there would have been utterly no need for the device of deferred payments and demand to give rise to the obligation to pay: the sale agreement simply could have said payment was due on completion.
Mr Guy’s evidence was also completely at odds with what Ecosse told the Commissioner in its objection lodged on 1 June 2022 where it was said that: ‘To date, the consideration has neither been demanded by Siltstone nor paid by Ecosse’. Mr Guy tried to explain the discrepancy presented by the statement in the objection form by suggesting he had not drafted it. On being reminded that he was the moving mind for both companies and, that in any event the objection form would have been run past him before being lodged, his only response to that was ‘had I been aware of the Tax Office’s line of inquiry, I probably would’ve paid more attention to the use of the word ‘demand’. It was not entirely clear what Mr Guy meant by that because ‘paying attention to the use of the word demand’ would not have changed anything about whether a demand had been made or not.
There was no demand for payment ever made by Siltstone from Ecosse for payment under the sale agreement. The objective evidence, in particular the terms of the tax invoice, is the foundation for that conclusion. The changed position about there being a demand for payment constituted by the invoice appears more responsive to Commissioner’s reliance on the fact that there was not ever an obligation to make payment so that there could have been no input tax credit in the relevant period rather than anything else. I will return to that and the reasons for saying that later. The conclusion about this issue carries with it another consequence which is that given Mr Guy’s unsatisfactory evidence about the issue about whether a demand for payment was ever made, I will take some care in accepting his evidence on other matters especially where it is not confirmed by other evidence.
On 21 December 2021 Ecosse lodged its business activity statement (BAS) for the period 1 November 2021 to 30 November 2021 and claimed an input tax credit of $340,000 which was obviously referable to the amount of $3,400,000 contained in the sale agreement.
The Commissioner’s interest was it would seem immediately aroused by the BAS. The Commissioner’s reasons for being interested in taking a closer look at Ecosse’s claimed input tax credit are as irrelevant as they are obvious: the effect of what had happened was that Ecosse was able to claim a substantial credit which entitled it to a refund of almost $340,000, but because Siltstone accounted on a cash basis and no cash had changed hands there was no corresponding tax debit. It was not surprising at all that someone at the ATO was saying ‘It simply cannot be right that we have to pay over $340,000 with no certainty that we will get it back.’ No refund was issued whilst a review and audit took place.
On 1 April 2022 following the audit, the Commissioner issued a Notice of amended assessment of net amount with the total amount payable being $340,000. The notice reflected the disallowance of the input tax credit that Ecosse had claimed in the BAS.
On 6 April 2022 the Commissioner issued a Notice of assessment for a shortfall penalty. The penalty assessment was for an amount of $136,000 which was arrived at because the Commissioner considered the BAS lodged by Ecosse on 21 December 2021 contained a statement that was false or misleading in a material particular because it claimed an input tax credit when there was no creditable acquisition.
On 1 June 2022 Ecosse objected to both assessments. At about the same time, in June 2022, Ecosse and Siltstone ‘abandoned the transaction . . . because [Ecosse] would not be able to realise the commercial benefit of the transaction (being to raise equity in itself) as it now bore a liability to a substantial penalty to the ATO arising from the GST Audit.’.
On 10 March 2023 the Commissioner disallowed the objection to both assessments and shortly afterwards Ecosse applied for a review of both decisions.
WHAT ARE THE RULES?
Section 14ZZK of the Tax Administration Act 1953 (TAA) is the starting point. The effect of that provision is that that Ecosse has the burden of proving that the assessments are excessive or otherwise incorrect and what the assessment should have been. That means that Ecosse is required to prove that it is more likely than not that the assessments are excessive or otherwise incorrect. The onus is no mere matter of technicality in circumstances like those that exist here where the Commissioner has made clear his reliance on s.14ZZK from the outset. Section 14ZZK applies to both the assessment in respect of GST and the penalty assessment.
Next, section 195 - 1 of the GST Act defines ‘input tax credit’ to mean ‘an entitlement arising under 11 - 20 or 15 - 5’. Section 15 - 5 is irrelevant because that section is concerned with imported goods and there is no suggestion that his case concerns imports.
Section 11 - 20 of the GST Act provides that a person is entitled to ‘the input tax credit for any creditable acquisition that you make’.
Section 11 - 25, so far as is relevant, provides that ‘[t]he amount of the input tax credit for a creditable acquisition is an amount equal to the GST payable on the supply of the thing acquired’.
Section 11 - 5 of the GST Act defines what a ‘creditable acquisition’ is:
You make a creditable acquisition if:
(a) you acquire anything solely or partly for a creditable purpose; and
(b) the supply of the thing to you is a taxable supply; and
(c) you provide, or are liable to provide, consideration for the supply; and
(d) you are registered, or required to be registered.
Section 9 - 5 provides for the meaning of ‘taxable supply’ and two of the preconditions for a ‘taxable supply’ are relevant here, First, s.9 - 5(a) requires that ‘the supply is made for consideration’. Second s.9 - 5(b) requires that ‘the supply is made in the course or furtherance of an enterprise that you carry on’.
Section 195 - 1 defines ‘carrying on’ as including ‘doing anything in the course of the commencement or termination of the enterprise’.
Section 9 - 15 of the Act provides for a definition of ‘consideration’, but that definition is expressed to ‘include’ various kinds of payments. The term ‘consideration’ otherwise should be taken to have its ordinary meaning, namely that which is exchanged for something else.
Section 9 - 20 defines enterprise:
(1)An enterprise is 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
(c)on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or
…
Section 11 - 10 provides for the meaning of the word ‘acquisition’ which by s.11 - 10(1) means ‘any form of acquisition whatsoever’. Sub-section 11 - 10(2) provides a list of things that are included within the definition, but that list is not exhaustive. The word ‘acquisition’ is an ordinary English word and usually means to get or to obtain something. The use of the word ‘whatsoever’ at the end of s.11 - 10(1) suggest that it is intended to have the full extent of its ordinary meaning as do the examples provided in s.11 - 10(2).
Sub-section 29 - 10(1) provides the time or period in which to input tax credits are to be attributed. Sub-section 29 - 10(1)(a) provides that creditable acquisition attributable to ‘the tax period to which you provide any of the consideration for the acquisition’. Alternatively, s.29 - 10(1)(b) provides that if before any consideration is provided an invoice is issued relating to the acquisition, the input tax credit applies to the period in which the invoice is issued. The word ‘invoice’ is defined by s.195 - 1 to mean ‘a document notifying an obligation to make a payment’.
Next, s.284 - 75 of the TTA provides that a person is liable to an administrative penalty if they make a ‘statement to the Commissioner’ which ‘is false or misleading in a material particular, whether because of things in it or omitted from it’.
Section 284 - 85 of the TTA provides for the base penalty by reference to s.284 - 90. The amount of the penalty is equal to 25% of the shortfall amount where a statement is false or misleading in a material particular and the shortfall resulted from a failure to take reasonable care to comply with taxation law; 50% where the amount was the result of recklessness and 75% where the amount was the result of intentional disregard for a taxation law.
WHAT ARE THE ISSUES?
There are three issues. The first issue is whether Ecosse was entitled to claim an input tax credit in relation to the sale of business transaction. That issue is resolved by reference to the question of whether the transaction involved a creditable acquisition which in turn requires a consideration of whether all the four pre-requisites to a transaction being a creditable acquisition are satisfied.
The second issue is even of there was creditable acquisition, was Ecosse entitled to claim an input tax credit for the period 1 November 2021 to 30 November 2021. That is, was the input tax credit by reason of s.29 - 10 of the GST Act to be attributed to that period or to some other period.
The third issue concerns the penalty assessment and whether the Commissioner’s assessment of the penalty was excessive and if so what the correct penalty, if any, should have been. That issue involves consideration of whether the statement in the BAS was false or misleading in a material particular and, more importantly whether the statement was reckless.
WAS THERE AN ACQUISITION?
I have set out earlier the business assets that were said to be the subject of acquisition under the sale agreement. It is useful to deal with some of them in categories because some of the assets have much in common and to deal with others separately.
First, although the sale agreement identified as being subject to the sale of Plant and Equipment, Interest in Secured Assets, Stock, WIP, Retentions and Pre-payments, Mr Guy frankly conceded that none of those things were sold or acquired because they did not exist. This was explained as having been the result of the use of a ‘template agreement’ containing those things and they were not omitted from it. The failure to omit those things from the sale agreement so that on its face the agreement suggests they were subject to a sale creates doubt about the authenticity or reality of the agreement itself, such that I should approach the question of whether there has been any acquisition of anything under the agreement with caution in addition to the caution I have already referred to that I will adopt in respect of Mr Guy’s evidence more generally. It does strike me as a little remarkable that in an agreement that had a total apparent value of $3,400,000 things were addressed so shabbily. In any event there is no question that none of those things were acquired.
Second, there is no evidence that Siltstone owned or possessed any ‘Customer Lists’, ‘Broker Databases’ or ‘Investor Databases’. In the usual run of cases that might not be significant or even remarkable, but in this case the Commissioner specifically raised the lack of evidence concerning their existence. It would ordinarily be relatively easy to bring evidence about them by providing them or even copies of them. None were produced. There was a list produced, but it was a list of transactions titled ‘List of loans history’. That was not a customer list. Mr Guy conceded that ‘the actual list’ had not been provided in evidence. In the absence of the customer list being produced I am not willing to conclude one existed especially where Mr Guy was asserting in his evidence that the list of transactions was in fact the customer list which it clearly was not. The investor database was not produced either. I am unable to conclude that those things were the subject of any acquisition. Again, that conclusion has something of a knock on effect in that so far as the agreement suggests that they were subject to a sale when they could not have been doubt is cast on the authenticity or reality of the agreement itself.
Third, there is no evidence of any ‘benefits of all employee contractual restraints’ or ‘employee entitlements’ other than that which it was suggested was ‘evidenced’ by the employment agreement. I will deal with those matters so far as they concern the agreement with Mr Guy in a moment but again, it is necessary to observe that if there was evidence about ‘benefits of all employee contractual restraints’ or of ‘employee entitlements’ it is curious that none were produced. The task of producing written agreements containing any restraints or of producing records recording employee entitlements would not have been difficult yet none were produced. If there were no other ‘restraint’ or ‘employee entitlements’ then again it is not immediately apparent why they were referred to in the sale agreement. I am unable to find that any such things were the subject of an acquisition.
Fourth, so far as the employment agreement is concerned the document contained ‘restraints’. If there was any employment that was regulated by that agreement it would have generated employee entitlements. If there really was an employment relationship that was regulated by that document it would have been relatively simple to produce an array of documents, for example, wage records, leave records, payslips, and so on, evidencing that the agreement was in fact being performed. No records at all were produced. The evidence is that Siltstone did not pay any wages to Mr Guy which suggests that whilst there was a document called ‘Employment Agreement’ it was no more than a mere document and it did not operate to regulate an employment relationship between Siltstone and Mr Guy. Mr Guy did not distinguish between a ‘piece of paper’ on the one hand and an actual contract of employment that in fact and law existed between the parties.
Fifth, the domain name ‘ecosse.com.au’ was at all times registered in Mr Guy’s name. That suggests he, not Siltstone, owned it so that Siltstone was in no position to transfer it or give it to Ecosse and that Ecosse could not have acquired it, or at least could not have acquired it from Siltstone. It may be accepted that registration is not evidence of ownership, but where the only evidence is about registration and there is no other satisfactory evidence about ownership it is simply not possible to be satisfied about who the owner in fact is, other than by deferring to the inference created by registration.
Sixth, the shares in Ecosse Bare Fund 8 Pty Ltd are in much the same position. They are recorded in the relevant Australian Securities and Investment Commission (ASIC) database as being owned by Mr Guy personally. There is no evidence that suggest that have been or were even owned by anyone else. They could not have been subject to an acquisition by Ecosse from Siltstone.
Seventh, so far as the registered business name ‘Ecosse Capital Partners’ and the shareholding in Ecosse Bare Fund 7 Pty Ltd they at all times have been registered to Siltstone, that is before and after the sale of business was completed. It is true that registration is not a precondition to ownership but the failure to ever see the business name or the shareholding in Ecosse’s name is a matter that points against a satisfaction as to there ever having been an acquisition by Ecosse of those things. This is more the case given the very serious doubts I have expressed about the other assets that on the face of the sale of business agreement were not subject to an acquisition.
Finally, so far as goodwill is concerned there was no evidence, other than Mr Guy’s evidence, about the existence of and value of any goodwill that could be subject to the acquisition. That evidence amongst other things is self-serving and absent corroboration I am not prepared to accept it. Moreover, it is difficult to understand how a company that only owned assets could in fact generate any goodwill.
Mr Guy suggested that all the assets that were the subject of the sale agreement ‘existed’. He said those assets existed because Ecosse was generating profits by using them. No evidence about the value of the so called ‘unidentifiable intangible assets’ was brought other than that of Mr Guy himself which is self-serving and having regard to what I have said about Mr Guy’s evidence about other matters I am not prepared to accept. Further, the fact that Ecosse was making money does not persuade me about the existence of any of the particular assets or all of them taken together. Finally, Mr Guy suggested that $3,400,000 was ‘a reasonable price for those assets.’ Again, there was no evidence other than Mr Guy’s self-serving evidence about that which I am not, absent corroboration, prepared to accept.
The matters I have identified are sufficient to dispose of the question about whether there was an acquisition by Ecosse. I am not satisfied that under the sale agreement that it acquired anything for the reasons I have stated. There is another basis that resolves the issue of whether there was an acquisition under the sale agreement which is the fact that the agreement completely failed because there was no consideration ever paid at any time further, and in any event to use the language of Ecosse, the whole transaction was eventually ‘abandoned’. If there was intended to have been a sale agreement its abandonment put paid to any suggestion that Ecosse had acquired anything from Siltstone.
I am not satisfied there was an acquisition in whole or in part for a creditable purpose so that there could not be a creditable acquisition.
WAS THERE A TAXABLE SUPPLY?
It is not strictly necessary to deal with this issue because I have been unable to find that that there was an acquisition so Ecosse cannot succeed in showing there was creditable acquisition. Nonetheless I will deal with this issue albeit briefly.
The issue is about whether Ecosse was supplied with a ‘taxable supply’ which presupposes there was an acquisition by it which of course is contrary to the conclusion I have reached.
I have already referred to Mr Guy’s evidence that Siltstone was an ‘asset owning company (only) and does not conduct business activities.’ That left Ecosse to rely upon that part of the definition of enterprise in s.9 - 20(1)(c) concerning ‘an activity or series of activities, done…on a regular or continuous basis in the form of lease, licence or other grant of an interest in property’ in order to make good the contention that the supply was ‘made in the course of or furtherance of an enterprise that you carry on’ as required by s.9 - 5(b). That in turn called in reliance on the licence agreement. But sight should not be lost of that fact that the suggestion was inconsistent with the claim that Siltstone was only an ‘asset owning company’. If it was only an asset owning company that would suggest that the licence agreement was never in fact performed or intended to be performed.
The licence agreement it is to be recalled licenced the domain name which I have already referred to was registered to Mr Guy and not Siltstone. There was no other evidence about its ownership in particular there was no evidence about how Siltstone claimed to be its owner. The licenced agreement also licenced intellectual property and know-how relating to private credit lending in the agricultural sector. That appeared to rely on the employment agreement with Mr Guy which I have already indicated I am not satisfied establishes that Mr Guy was employed by Siltstone. Further, as the Commissioner pointed out no licence fees were ever paid by Ecosse to Siltstone.
I am not satisfied that licence agreement is sufficient to establish that Siltstone was in fact carrying on a business as required by s.11 - 5(b) of the Act.
WAS THERE CONSIDERATION?
For the same reasons as I expressed in relation to the previous issue it is not necessary to deal with this issue at length. As with the previous issue the question assumes that under the sale agreement Ecosse acquired the assets to which I have referred, which I have already said I am not satisfied that it did. The issue is whether under the sale agreement Ecosse provided consideration or was liable to provide consideration.
The effect of the terms of the sale agreement concerning payment was that Ecosse was not liable to pay the purchase price of $3,400,000 because it was ‘deferred’ and only payable upon a demand for payment from Siltstone. There was no evidence of any demand ever being made at any time before the sale agreement was abandoned. I have already dealt with the suggestion that the tax invoice was a demand for payment. I have rejected that suggestion. I need say no more about it. No consideration was paid and none was ever liable to be paid under the sale agreement.
I am satisfied that Ecosse did not provide any consideration and nor was it liable to provide any consideration in connection with the sale of business agreement so that there could be no creditable acquisition in respect of that transaction.
WHEN COULD THE INPUT CREDIT BE CLAIMED?
This issue presumes that there was a creditable acquisition contrary to what I have already found. As no consideration was paid on 30 November 2021 the only basis upon which the input tax credit could have been claimed in respect of the period 1 November 2021 to 30 November 2021 is found in s.29 - 10(1)(b), an invoice, that is ‘a document notifying an obligation to make a payment’ was issued.
The tax invoice did not notify Ecosse of any obligation to pay as it simply referred to payment being ‘as per contractual terms’. Those terms did not contain any obligation or duty to pay any amount at all. The only time that there would be such an obligation would have been on Ecosse having made a demand for payment which, as I have already observed it never did. Ecosse was not entitled to attribute any input tax credit if there was one arising from the sale agreement to the period 1 November 2021 to 30 November 2021.
THE ADMINISTRATIVE PENALTY
The Commissioner assessed the administrative penalty imposed as $136,000 on the basis that Ecosse had made false or misleading statement in a material particular as a result of Ecosse’s recklessness as to the operation of a taxation law.
In general, the standard of recklessness in the context of administrative penalties has been held to consist of making claims not caring whether they are true or not[1] or:
. . . to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to fanciful risk that the material maybe incorrect, or be grossly indifferent to whether or not the material is true and correct, and a reasonable person in the position of the statement maker would see that there is a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the statement. So understood the prescribed conduct is more than mere negligence and must amount to gross carelessness.[2]
[1] Hart v Commissioner of Taxation (2003) 131 FCR 203 at 212-213 per Spender J.
[2] Supra at 214 per Hill and Hely JJ citing with approval BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347.
The Commissioner pointed to Mr Guy’s qualifications as a chartered accountant, bachelor’s degrees in commerce and law and his masters degree in business administration. To my mind it is more significant that Mr Guy had his fingerprints all over the transactions especially given his role as sole director and the controlling mind of both entities. Mr Guy had knowledge of the intricacies of the apparent transactions such that he should well have known, for example, that some of the assets that were said to have been subject to the transaction simply were not part of it at all despite what the sale agreement said about them, some of the assets did not exist despite what the sale agreement said, that some of the assets that were subject to the acquisition were not Siltstone’s to sell and that there was no independent fair value of that which was claimed to have been sold. He well would have known he was not receiving entitlements under the employment agreement such that in reality there was no employment. All of those things at least were important to the transaction, yet it appears that simply went through to the keeper.
Further, it is relevant that Mr Guy so it seems had particular knowledge about aspects of GST as in his evidence and his submissions he referred to the existence of what he called ‘timing differences’ giving rise to anomalies like the one that he claimed arose here. The most cursory regard to s.29 - 10 would have alerted him to the fact that an input tax credit could not be claimed in the absence of an obligation to pay. That he knew there was no obligation to pay was apparent from what had been included in the objection form to which I have referred. Further again, the notion that the ATO would if the matter had gone further refunded such a large amount of money based on a transaction for which no money at all had changed hands and where the supposed vendor had unloaded all its assets so was in no position to satisfy any GST liability must reasonably have appeared counter intuitive to a person with the kind of experience and qualifications that Mr Guy held. Those things to my mind speak of gross carelessness.
I can see no basis for remitting any part of the penalty beyond what the Commissioner has done in remitting 20% of the penalty as a result of Mr Guy’s co-operation, the fact that Siltstone was eventually de-registered, and no refund was actually ever paid.
DECISION
For these reasons I affirm the Commissioner’s decisions to disallow both objections.
I certify that the preceding 68 (sixty-eight) paragraphs are a true copy of the reasons for the decision herein of Mr Rob Reitano, Member
...................................[SGD].....................................
Associate
Dated: 26 June 2024
Date(s) of hearing: 9 May 2024 The Applicant: Mr A Guy Counsel for the Respondent: Ms W Wong Solicitors for the Respondent: Mr A Fama, Australian Taxation Office
0
2
0