Investa Properties Limited and Commissioner of Taxation
[2009] AATA 121
•25 February 2009
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2009] AATA 121
ADMINISTRATIVE APPEALS TRIBUNAL )
) No 2007/6118
TAXATION APPEALS DIVISION ) Re INVESTA PROPERTIES LIMITED Applicant
And
COMMISSIONER OF TAXATION
Respondent
DECISION
Tribunal Ms Robin Hunt, Senior Member Date25 February 2009
PlaceSydney
Decision
The tribunal finds it lacks jurisdiction to review the decision on the objection and dismisses the application for review under subsection 42A(4) of the Administrative Appeals Tribunal Act 1975.
...................[Sgd]....................
Ms Robin Hunt
Senior Member
CATCHWORDS
TAXATION – fringe benefits tax – review of objection decision – unfavourable private ruling – taxpayer’s objection to ruling – objection decision – proposed scheme identified in ruling – scheme involves employee benefit in connection with construction of house on own land –ruling issued on basis that employee receives 25% discount – scheme identified involves more steps – Commissioner has not ruled on the scheme identified or has ruled on a different scheme – tribunal lacks jurisdiction to review objection decision – application for review dismissed.
Administrative Appeals Tribunal Act 1975 s 42A(4)
Fringe Benefits Tax Act 1986 s 5
Fringe Benefits Tax Assessment Act 1986 s 136
Taxation Administration Act 1953 ss 359-65, 359-65(3) of Division 359 of Schedule 1
Corporate Business Centres International Pty Ltd v Commissioner of Taxation (2004) 137 FCR 108
Federal Commissioner of Taxation v McMahon and Anor (1997) 79 FCR 127
Keycorp Ltd and Anor v Federal Commissioner of Taxation (2007) 158 FCR 153
REASONS FOR DECISION
25 February 2009 Ms Robin Hunt, Senior Member introduction
1. Investa Properties Limited (‘Investa’) disagrees with the Commissioner’s private ruling issued on 5 June 2007 concerning an arrangement which would financially advantage an employee in meeting the cost of construction of a house on his or her land. Investa seeks review of the Commissioner’s objection decision, dated 16 October 2007, made after consideration of Investa’s objection to the ruling.
issue
2. The review concerns the correctness of a private ruling that the scheme identified by the Commissioner gives rise to a taxable fringe benefit.
background
3. The reviewable decision is the Commissioner’s decision on the objection of the taxpayer about the correctness of a private ruling issued to the taxpayer. The objection decision upheld the Commissioner’s private ruling that the scheme identified resulted in a taxable fringe benefit.
4. On 12 February 2007, Investa applied for a private ruling pursuant to Division 359 of Schedule 1 to the Taxation Administration Act 1953 (‘the TAA’). Briefly, Investa sought a ruling about an arrangement that would involve payment by it, as the employer, to an associated construction company, of 25% of the cost of construction of a house on an employee’s land, and reimbursement by the employee to Investa through a salary sacrifice arrangement. Investa contended that this arrangement would give rise to a fringe benefit of nil taxable value. The taxpayer suggested that the arrangement gave rise to a particular type of fringe benefit but the Commissioner did not rule on the type of benefit involved. The Commissioner simply ruled that a taxable fringe benefit resulted from the arrangement, which he described as the provision of 25% discount on the cost of construction of a house on the employee’s land.
5. The Commissioner requested further information. In response, Investa provided further details about the proposed scheme. Before and after the private ruling issued but before the making of the objection decision, Investa continued to supply information to the Commissioner at his request.
6. The tribunal review must be decided upon the facts comprising the arrangement on which the ruling was made: Federal Commissioner of Taxation v McMahon and Anor (1997) 79 FCR 127 per Lockhart, Beaumont and Emmett JJ (‘McMahon’), and Keycorp Ltd and Anor v Federal Commissioner of Taxation (2007) 158 FCR 153 per Allsop J (‘Keycorp’). As Lockhart J held, at the conclusion of his judgment in McMahon, with which Beaumont J agreed, the tribunal does not have power to consider facts other than those identified by the Commissioner in his private ruling as constituting the relevant arrangement. Emmett J also held that the tribunal cannot redefine the arrangement. Allsop J relied on these judgments when he commenced consideration of the taxpayer’s claims in Keycorp. As he pointed out, “the appeal is to be decided upon the facts comprising the arrangement on which the ruling was made.” Allsop J then recited the relevant facts taken from the ruling.
7. My difficulty in this case is that, although the Commissioner has identified an arrangement in the private ruling, the ruling then poses a question which restates the arrangement identified in the ruling and ignores most of the arrangement, which comprises several steps. As well, the decision on the objection contains additional facts in describing the scheme upon which the ruling issued but does not relate these facts to the only question upon which the ruling and decision on the objection issued.
8. The scheme identified in the ruling is set out under the heading, ‘the scheme that is the subject of the ruling’, and is described as follows:
Investa Properties Limited (IPL) is part of the Investa Stapled Group (IPG) consisting of Investa Property Trust and IPL.
IPG is a diversified group carrying on internal and external funds management businesses and residential and commercial development
Clarendon Homes (NSW) Ltd (Clarendon Homes) is a wholly owned subsidiary of IPL and offers project homes and land packages across NSW. Specifically, Clarendon Homes offers contracts whereby it knocks down and rebuilds homes on land owned by other persons.
IPL is proposing to enter into arrangements with its employees which involve Clarendon Homes contracting with an IPL employee to build a new home, to the employee's specifications, on land which the employee owns.
Clarendon Homes will invoice the employee for 75% of the purchase price of the house to be built. Clarendon Homes will invoice IPL for 25% of the purchase price of the house to be built. This will be paid by an internal journal entry.
As part of the salary packaging arrangement associated with the building of the home by Clarendon Homes, the employer, IPL, will recoup from its employees the twenty five per cent discount off the value of their house from their pre-tax salary.
Should the relevant employee leave their employment with IPL prior to the 25% discount being recouped through the salary package arrangement for that employee, the employee will have a liability to pay the outstanding amount to IPL.
In the particular example provided the total purchase price tendered for the construction of the home will be $312 277.
The following table gives the details of a proposed salary package arrangement being considered in respect of one particular employee. The estimate salary package for the employee as at 30 June 2007:
Salary Package Component $ Base Salary 109 759.00 Superannuation (includes company and sacrificed super) 72 336 .00 Motor Vehicle 14 194.00 Total 196 289.00 The amount to be invoiced to the employee in respect of the construction will be $234 207.75. This amount represents 75% of the current tender total ($312 277) in respect of the construction of the new house.
On the assumption that the house is constructed during the year ended 30 June 2008, the proposed salary package for the employee for that year is as follows:
Salary Package Component $ Base Salary 31 689.75 Discount 78 069.25 Superannuation (includes company and sacrificed super) 72 336 .00 Motor Vehicle 14 194.00 Total 196 289.00 The amount of $78 069.25 shown as a 'discount' is the amount invoiced to the employer. This amount represents 25% of the total cost of the construction of the house ($312 277) to be built on the employee's land.
9. Before identifying the above as the scheme the subject of the ruling, the delegate has set out “Issue 1:” followed by “What this ruling is about:” and there poses the following question:
Does the provision of a twenty five percent discount by the employer to its employees, in respect of the construction costs of a house, by way of a salary package arrangement, give rise to a taxable fringe benefit?
10. No further issue or question is the subject of the ruling. After describing the scheme involved, the ruling’s next heading is “Assumptions”. Under this heading, the ruling states that it is given on the basis of the facts stated in the description of the scheme as set out above, and any material variation of or departure from the facts will mean that the ruling will have no effect. This statement is absolutely correct as to the application of the ruling but also gives me cause for concern about the efficacy of the ruling.
11. In my view, the Commissioner has not dealt with the scheme which the taxpayer raised in the request for a ruling. The taxpayer requested, on 12 February 2007, a ruling providing, or not:
confirmation that fringe benefits tax will not be payable by (Investa), as employer, in entering into contracts with its employees to build houses on the employee’s land.
12. The Commissioner has raised a different question and ruled upon that alone. The answer to the question posed by the Commissioner is useless to the taxpayer as it does not consider the question on which the taxpayer seeks a ruling.
13. The taxpayer must indicate clearly what the arrangement is, as Hill J observed in Corporate Business Centres International Pty Ltd v Commissioner of Taxation (2004) 137 FCR 108. The taxpayer has met this requirement. However, although the ‘arrangement’ in question for the Commissioner’s ruling has been identified, the Commissioner has ruled on only one aspect of the arrangement whereby the employee obtains a 25% discount on the construction of a house. The ruling has not considered additional aspects of the scheme which require the employee to repay the amount of the discount.
14. In that part of the reasons for the objection decision headed ‘(W)hy we have made this decision’, the Commissioner says the benefit to the employee is that he or she will not have to pay for 25% of the house. This is not correct. The arrangement between employer and employee is that the employee has to pay the employer 25%, albeit by way of salary sacrifice while employed. A further part of the scheme that is the subject of the ruling involves the employee having to repay any residual debt should employment cease.
15. The real issues that arise under the scheme are dealt with in an ‘explanation’ attached to the private ruling. This explanation, however, commences with the injunction that ‘(T)his does not form part of the notice of private ruling’. This injunction further confuses the matter as it is not the ‘notice’ that is binding on the Commissioner when issuing a private ruling but it is the private ruling itself that is binding.
16. In McMahon’s case, the Full Court remitted the matter to the tribunal for reconsideration because it held that the only function which the tribunal may exercise is to review the opinion of the Commissioner stated in the ruling. The tribunal in that case had made the mistake of taking into account further material placed before it and finding the ruling incorrect on that basis. While the Commissioner is permitted to take into account new material, which identifies the scheme, the tribunal is not.
17. In the present case, the ‘facts’ considered by the Commissioner in making a decision on the objection differ from the ‘facts’ described in the ruling. The Commissioner has nevertheless persisted with reconsideration of the private ruling without altering or expanding the only question he has answered for the purposes of the private ruling. The other questions the Commissioner considered and classed as an “explanation”, which did not form part of the ruling, are the real issues that come about pursuant to the scheme but the ruling does not address them. Certainly, these were the issues on which the parties presented arguments for the tribunal’s review. As these questions were not considered in the ruling as arising from the scheme which the Commissioner identified, I take the view that I would exceed the tribunal’s jurisdiction in making findings upon these matters.
18. Despite being able to obtain and consider more information when reconsidering the ruling, it is only the ruling which the Commissioner may review when making an objection decision on that ruling. If the Commissioner identifies different facts or a different scheme that alters the identification of the scheme or arrangement on which the ruling was based, this requires a new ruling which takes into account the further facts. If the result is that the scheme is different, the taxpayer may lodge another application for a ruling. While the Commissioner has identified new facts in the objection decision, he has not found that the scheme is different and has ruled upon the same question.
19. The Commissioner is entitled to request and consider further information under section 359-65 of Schedule 1 to the TAA. However, in terms of subsection 359-65(3), the Commissioner did not indicate that the additional information provided by the taxpayer was such that the scheme to which the application related was materially different from the scheme to which the ruling relates.
20. In my view, the Commissioner has not issued a ruling on the scheme he identified as he asked himself only one question or the wrong question. The question he raised is only a small part of the scheme he identified in the ruling. When issuing reasons for decision on the objection, the Commissioner still formally raised only the one question although using a plural in the heading, ‘(Q)uestions raised and our response’. Various other issues and questions are discussed in the reasons for decision on the objection but these still are not treated as the subject matter of the ruling upheld in the decision on the objection.
21. In persisting with the wrong question as the only issue for the ruling, the Commissioner has stymied the taxpayer’s efforts to obtain a private binding ruling of any relevance to the scheme identified. However, in my view, the tribunal’s powers do not extend to reframing the only issue arising under the scheme identified in the ruling. While a 25% discount may give rise to a taxable fringe benefit, this is not an accurate description of the proposed scheme identified. As the question asked by the Commissioner misstates or reframes the scheme identified, I am unable to review the opinion of the Commissioner in any meaningful way. The tribunal does not have power to consider facts other than those identified by the Commissioner in his private ruling as constituting the relevant arrangement. By confining the issue for the ruling to only one step in the arrangement, that is, “whether the provision of a twenty five percent discount by the employer to its employees, in respect of the construction costs of a house, by way of a salary package arrangement, gives rise to a taxable fringe benefit”, the ruling prevents me from considering other facts.
22. The real issues raised by the taxpayer in seeking a private ruling are those discussed in the ‘explanation’ attached to the Commissioner’s ruling which states it is not part of the ruling. These issues are further discussed and expanded in the Commissioner’s reasons for decision in making the objection decision under the heading, ‘(W)hy we have made this decision’. However, as the question answered in the ruling has not changed, this does not create a situation where the ruling has dealt with the scheme identified.
23. As I have no power to restate the scheme for review of the objection decision on the ruling, I cannot proceed to consider the matters argued before me in relation to the reviewable decision, being the decision on the objection made on 16 October 2007. It follows that I must dismiss the application in the hope that the Commissioner will reconsider the actual scheme identified and issue a new ruling on the subject matter of the scheme about which the taxpayer sought a private ruling.
decision
24. The tribunal finds it lacks jurisdiction to review the decision on the objection and dismisses the application for review under subsection 42A(4) of the Administrative Appeals Tribunal Act 1975.
I certify that the 24 preceding paragraphs are a true copy of the reasons for the decision herein of Ms Robin Hunt, Senior Member
Signed: .........................[Sgd]...........................
Jennifer Wong, AssociateDate/s of Hearing 1 October 2008
Date of Decision 25 February 2009
Counsel for the Applicant Mr C Catt
Applicant’s Representative Greenwoods & Freehills
Counsel for the Respondent Mr T M Thawley with Mr W A D Edwards
Respondent’s Representative ATO Legal Services
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