Henry and Commissioner of Taxation - [2002] AATA 174

DECISION AND REASONS FOR DECISION [2002] AATA 174

ADMINISTRATIVE APPEALS TRIBUNAL )

) No QT2000/249

TAXATION APPEALS DIVISION )
           Re      RONALD JOSEPH HENRY
  Applicant
           And    COMMISSIONER OF TAXATION
  Respondent

DECISION

Tribunal Mr KL Beddoe (Senior Member)

Date18 March 2002
PlaceBrisbane

Decision      The Tribunal decides that the decisions under review are affirmed.
  (Sgd) K L Beddoe
  Senior Member

Decision No: 174/2002
CATCHWORDS
TAXATION – Sales Tax – whether vessel used for demonstration or private use – whether exempt from Sales Tax
Sales Tax Assessment Act 1992 s 16, 24
Sales Tax (Exemptions and Classifications) Act 1992 s 3(2), First Schedule Item 59(1)

REASONS FOR DECISION

18 March 2002 Mr K L Beddoe (Senior Member)

By notice dated 10 November 1998 the respondent notified assessment of sales tax in respect of the taxable value of a motor cruiser "Omen" purchased by the applicant in July 1997 for his own use. Tax assessed is $75,406 and penalty assessed is $18,851 (ie 25% of tax assessed). By a letter dated 1 December 1998 the applicant's solicitor lodged an objection to the assessments. That objection was disallowed and the applicant sought review in the Tribunal.
I note in passing that the objection did not raise an issue in relation to penalty tax. Submissions were made in relation to the penalty tax by the parties.
Liability for sales tax on the boat is determined by the operation of the Sales Tax Assessment Act 1992 ("STA Act") and the Sales Tax (Exemptions and Classifications) Act 1992 ("ST(E&C) Act").
Section 16 of the STA Act provides that Table 1 of the STA Act sets out all the assessable dealings that can be subject to sales tax and where no exemption applies to an assessable dealing then:
(a)The dealing is a taxable dealing;
(b)The person specified in column 3 of the Table 1 is the person liable to the tax;
(c)The tax becomes payable at the time of the dealing as specified in column 4 of Table 1; and
(d)The tax is due for payment at the time determined under Division 2 of Part 5.
Table 1 is contained in Schedule 1 of the STA Act and sets out assessable dealings for goods that have been manufactured in Australia ("Australian goods") and goods that have been imported (whether or not the goods were manufactured in Australia) ("Imported goods").
Assessable dealing AD13C is applicable to imported goods applied to own use by a person who obtained the goods under quote. The time of dealing is the time the goods are applied to own use and the person applying to own use is liable for the tax. Taxable value is not at issue in this case.
The ST(E&C) Act provides for exemptions from sales tax and for the classification of categories of goods for the purpose of differential taxation.
However, a custom's dealing is not taxable if the taxpayer quotes for the dealing at or before the time of the dealing (s28 STA Act).
Section 24 of the STA Act provides that an assessable dealing is not taxable if:
(a)the goods are covered by an exemption item that is in force at the time of the dealing; and
(b)all the requirements of that exemption item have been met, at or before the time of the dealing.
If all the requirements of an exemption item are satisfied at or before the time of an assessable dealing then the dealing is not taxable because of the operation section 24(1) of the STA Act and the satisfaction of an item in Table 1 ST(E&C) Act.
Item 59(1) in Chapter 5 of the First Schedule to the ST(E&C) Act refers to a ship for use by a person mainly for purposes other than providing any of the following for any person (whether or not for reward);
(a)pleasure sport or recreation;
(b)private transport; and
(c)Accommodation.
Section 3(2) of the ST(E&C) Act defines "mainly" to mean "to the extent of more than 50%".
While an issue as to "parts" also arises on the evidence in this case that aspect was not dealt with before me.
By operation of section 5 of the ST(E&C) Act the exemption of the boat in question in this case is to be determined as at the time of quoting and the use requirement in item 51 is to be determined on the basis of intended use by the applicant during the whole of the statutory period. So far as is relevant, section 5 of the STA Act defines the statutory period as the period that starts at the time when the goods are first applied to a person's own use in Australia and ends at the end of two years after the time of that first application to own use. Whether there is any difference in time between the time of quoting at Customs and the application to own use is not apparent on the facts of this case. I have proceeded on the basis that the two dates were proximate.
At the hearing Mr Fraser appeared for the applicant and Mr Coulsen appeared for the respondent.
Somewhat surprisingly some of the documents lodged in the Tribunal by the respondent pursuant to section 37 of the Administrative Appeals Tribunal Act 1975 were contested by the respondent. In the event the Tribunal found the documents to be relevant.
Further documents were tendered and marked as exhibits. Oral evidence was given by the applicant, a boat broker, a marine manager of the Mooloolaba Yacht Club, the Marine Manager of Hamilton Island, and the National Lending Manager of a company that financed the purchase of Oliver boats.
At the date of hearing the applicant was 63 years of age and retired. In the past he had business interests irrelevant to these proceedings. He decided to support his son, Michael in the purchase of a motor vessel principally for the purpose of Michael operating a charter, dive and fishing business off the North Queensland coast. In so doing his intention was to purchase a second-hand vessel at a cost approximating $200,000.
Investigations were carried out over time to find such a vessel that was suitable for the intended use. Those investigations relied on Michael who had experience in professional fishing and charter boat operations in Papua New-Guinea. Those investigations initially proved to be fruitless.
In the course of the investigations the applicant made the acquaintance of Mr Knaggs who was a boat broker and controlling mind of Bay Brokerage Pty Ltd. Mr Knaggs suggested to the applicant that he consider the purchase of a new vessel. In particular Mr Knaggs suggested the purchase of an "Oliver" vessel, he being the recently appointed agent for sale of "Oliver Royale" range of vessels built by G I Oliver Ltd of New Zealand.
After investigation the applicant became satisfied that an Oliver vessel would "best fit our requirements" but it was more expensive than the applicant had allowed for so that he was not in a financial position to purchase such a vessel. It is clear on the evidence that it was the financial considerations that initially stopped the applicant purchasing the vessel.
However, Mr Knaggs subsequently suggested to the applicant's son that there was an opportunity for the applicant to purchase an Oliver vessel at a lower price if the boat was made available to Knaggs for demonstration purposes in Australia as required by Knaggs' principals and Knaggs. The boat was to be made available on 48 hours notice. While the number of such requests is uncertain they were few in the context of the statutory period. Costs of demonstrations were paid by Oliver or Knaggs. It seems the applicant merely allowed use of the boat in such cases.
The boat was offered to the applicant at what I understand to be a wholesale price exclusive of sales tax. In 1996 the applicant and his son went to New Zealand to inspect Oliver boats and the Oliver factory.
The applicant was satisfied that "Oliver Royale" boat had potential for sale in Australia. He was also satisfied by advice from a firm of accountants that use of a boat as a demonstrator for two years would exempt the boat from sales tax.
The applicant then entered into arrangements with Knaggs and Oliver Ltd for the purchase of a boat for $NZ350,000 with delivery on 30 June 1997. In anticipation of delivery the applicant signed a sales tax quotation claiming exemption in terms of item 51.
The applicant and his son also had discussions with Knaggs as to a sub-dealership but did not proceed with a written agreement to that effect. The applicant says however that the agreement was given effect on an oral agreement basis. Knaggs said that the applicant was not a dealer, to his knowledge.
In the event the subject boat was imported at the Port of Sydney at an invoice price of $NZ376,279, the applicant having requested extras so as to better demonstrate that the boat had dive and fishing charter capabilities.
The vessel was entered into Australia with a value for duty of $AUD330,134.95. No sales tax was assessed on entry by Customs, because, I infer, the applicant's declaration for exemption was submitted to Customs on entry. A copy of the declaration is at T4-28.
The boat was exhibited at the Sydney Boat Show and was also used, on a spasmodic basis, for demonstrations to potential purchasers. The boat was also used as a basis for publicity including an article in an industry magazine.
By December 1997 the boat had been taken to Papua New-Guinea for Michael to use, including demonstrations and including use by a Mr Martin in the Yellowfin Fishing Tournament in early 1998. The boat remained in Papua New-Guinea for approximately six months.
The boat was then moved to Sanctuary Cove and subsequently to Mooloolaba. At both moorings the boat was on what the applicant described as "static display". However, I was left with the clear impression that this was a euphemism for "moored".
During the trip south individual demonstrations had been given at Cairns and Townsville.
In December 1998 the boat was displayed at Burnett Heads Marina through a local marine broker. It was then sailed to Hamilton Island off the Queensland Coast and remained on "static display" there for three months moored in a not prominent part of the marina.
In March 1999 the boat returned to Port Moresby to again participate in the Yellowfin Fishing Tournament, this time for the use of international anglers. In April 1999 the vessel was slipped for a major overhaul and refit so as to return it to "as new" condition. That refit appears to have been complex and not completed until June 1999. The boat remained in Papua New-Guinea until after June 1999.
In his oral evidence the applicant described private use by his family which mainly consisted of family social days and fishing trips. He agreed that the boat had been used for an extended family holiday in addition to the day trips.
The evidence of Shane O'Brien is the only evidence of a disinterested party as to the actual use of the boat as distinct from the moorings referred to by Mr Douglas and Mr Sheffield. It is clear enough that the applicant was the owner but not the operator of the boat. That is made clear by Mr O'Brien who was interested as a possible purchaser and also as a financier of other purchasers. I am satisfied that Mr O'Brien was taken on a trip to sea that was conducted for the purpose of demonstrating the boat.
The applicant's son, Michael, did not give evidence albeit, on the evidence, he was the person most familiar (together with Mr Knaggs) with the boat's operations in the two years July 1997 to July 1999. I can only conclude that his evidence would not have assisted the applicant's case any more than the applicant's evidence and the evidence of Mr O'Brien. In particular the Tribunal is without evidence as to the son's intended and actual use of the boat. I am therefore left to conclude that the principal purpose for purchase of the boat was, as stated by the applicant, ie for Michael to operate a charter, dive and fishing business. As to the nature of the fishing business I do not understand that the proposed use was for professional fishing but was for sport fishing, the boat being of a type unsuitable for professional fishing.
Consideration
Upon setting out to purchase a boat for the use of his son, the applicant must be taken to have adopted the purpose of his son in relation to the use of the boat. That purpose was for use in North Queensland waters for recreational charters, diving and fishing no doubt directed at and relying on the tourist trade in that region. The boat purchased was suitable for such uses, having been modified at the applicant's expense, with these uses in mind.
The applicant did not wish to purchase a new boat and sought to purchase a second-hand boat suitable for the intended uses. No such boat was found and the applicant was persuaded to purchase a new and much more expensive boat. In so being persuaded the applicant undertook to make the boat available to others for use as a demonstration boat, as required by them and in consideration for a substantial reduction in price. I understand that he was offered the boat at wholesale price. The subsequent increase in price representing modifications etc requested by the applicant.
There is nothing in the evidence to suggest that the original intended uses were abandoned. Rather, it is the case, that the applicant maintained his reasons for purchasing the boat but agreed to use as a demonstrator in consideration for the reduction in price. That agreement was part of the means to finance the purchase of a boat for the original intended uses.
That those intended uses may have been deferred because of the commitment to make the boat available for demonstrations is relevant to the intended use during the statutory period.
The difficulty in this case is that the evidence does not support a finding of purchase for intended use mainly as a demonstrator. The intended use as a demonstrator was ancillary to but not in place of the original intended uses.
It may well be the case that the original intended uses were deferred because of the use as a demonstrator but those intended uses were not set aside albeit that they have now been abandoned. The intended use for charter, dive and fishing business was the principal reason for purchase of the boat. That is the objective reality of both the purpose for purchase and the motive for purchase.
That the purchase was facilitated by a reduction in price in consideration for making the boat available for use for a demonstrator does not, in my view, alter the motive and purpose for purchase of the boat.
Intended use as a demonstrator is however relevant in determining intended use which can also be a relevant purpose. There is no doubt, and I find, that the boat was used for demonstration purposes as was intended at the time of entry for home consumption.
Can I be satisfied that the use by the applicant was mainly for purposes other than pleasure, sport, recreation, or private transport or accommodation?
The facts of this case do not admit of a finding that the intended use was mainly for use as a demonstrator unless it can be found that such use was to be the main use during the statutory period.
The evidence shows private use, use as a demonstrator, use for game fishing outside Australia and significant non-use.
Confining myself to the statutory period I am not satisfied, on the balance of probabilities, that intended use during this period was mainly as a demonstrator. Actual use as a demonstrator by Oliver and Knaggs was spasmodic. In that regard I do not regard mooring in a marina as use as a demonstrator. Such non-use is neutral. I note that the applicant paid the mooring fees whereas Oliver or Knaggs paid costs of demonstrations.
It follows, in my view, that the objective intended primary uses and the subjective intended primary uses were the same, namely principally for the purpose of operating a charter, dive, and fishing business by the applicant's son. Any use as a demonstrator was secondary and on an as required basis. In that regard use of the boat as a demonstrator was by Oliver, Knaggs and the applicant's son.
I am not satisfied that the boat was ever intended for use, or was in fact, used during the statutory period mainly for demonstration purposes.
The decision under review as to liability for sales tax was correct and will be affirmed.
Given that the quotation at entry for home consumption was a false declaration, I am satisfied that the respondent's decision in relation to penalty tax was appropriate and is the preferable decision. That decision will also be affirmed.
I certify that the 53 preceding paragraphs are a true copy of the reasons for the decision herein of Mr K L Beddoe (Senior Member)
Signed:         .....................................................................................
  Associate
Date/s of Hearing  5 February 2002
Date of Decision  18 March 2002
For the Applicant  Mr Fraser
For the Respondent                 Mr Coulsen