FEDERAL COURT OF AUSTRALIA
Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2023] FCA 257
ORDERS
VID 492 of 2021 BETWEEN: KONEBADA PTY LTD AS TRUSTEE FOR THE WILLIAM LEWSKI FAMILY TRUST
Applicant
AND: COMMISSIONER OF TAXATION
Respondent
ORDER MADE BY:
HESPE J
DATE OF ORDER:
24 MARCH 2023
THE COURT ORDERS THAT:
1.The application be dismissed.
2.The applicant pay the respondent’s costs, to be taxed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
HESPE J:
INTRODUCTION
This is an application by Konebada Pty Ltd (the Applicant) under Pt IVC of the Taxation Administration Act 1953 (Cth) (TAA) appealing against objection decisions of the Commissioner of Taxation disallowing the Applicant’s objection against amended assessments…
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Details
- AGLC
- Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation [2023] FCA 257
- Case
- [2023] FCA 257
- Decision Date
CaseChat Overview and Summary
The case before the Federal Court of Australia was Konebada Pty Ltd ATF the William Lewski Family Trust v Commissioner of Taxation. The Applicant, Konebada Pty Ltd, as trustee for the William Lewski Family Trust, sought to challenge the Commissioner of Taxation's decision to disallow input tax credits claimed in respect of payments made for litigation services and other services. The Applicant argued that it was entitled to claim these credits under the A New Tax System (Goods and Services Tax) Act 1999 (Cth). The court was required to determine whether the Applicant was entitled to input tax credits for the services it had paid for, specifically whether these services were acquired in the course of carrying on an enterprise as defined in the Act.
The court considered whether the services in question were acquired for the purpose of carrying on an enterprise. It found that the services were not related to carrying on an enterprise because they were primarily for litigation and advisory services within the family group. The Applicant's activities, though varied, did not constitute carrying on an enterprise for the purposes of the GST Act. The court held that the Applicant was not entitled to the input tax credits it claimed because the services in question were not acquired in the course of carrying on an enterprise. This conclusion was reached without needing to address other issues such as whether the services constituted financial supplies that would be input taxed.
The court dismissed the Applicant's application and ordered that the Applicant pay the Commissioner's costs. The dismissal of the application and the awarding of costs were based on the finding that the Applicant was not entitled to the input tax credits it sought to claim.
The court considered whether the services in question were acquired for the purpose of carrying on an enterprise. It found that the services were not related to carrying on an enterprise because they were primarily for litigation and advisory services within the family group. The Applicant's activities, though varied, did not constitute carrying on an enterprise for the purposes of the GST Act. The court held that the Applicant was not entitled to the input tax credits it claimed because the services in question were not acquired in the course of carrying on an enterprise. This conclusion was reached without needing to address other issues such as whether the services constituted financial supplies that would be input taxed.
The court dismissed the Applicant's application and ordered that the Applicant pay the Commissioner's costs. The dismissal of the application and the awarding of costs were based on the finding that the Applicant was not entitled to the input tax credits it sought to claim.
Orders
Orders of the court
1. The application be dismissed.
2. The applicant pay the respondent’s costs, to be taxed if not agreed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Only if both (a) and (b) are answered in the affirmative will it be necessary to address question (c).FACTUAL BACKGROUND The Applicant is the trustee of the William Lewski Family Trust. During the relevant periods, Mr Ari Lewski was a director of the Applicant. Mr William Lewski was a director of the Applicant from its incorporation on 3 March 1979 until 20 December 2014, and again from 12 August 2016 until 11 October 2019. Irrespective of whether he held the office of director or not, Mr William Lewski at all times controlled the Applicant. Mr William Lewski was also the “Specified Beneficiary” of the William Lewski Family Trust. The “General Beneficiaries” of that Trust were defined by reference to their relationship with the Specified Beneficiary. Relevantly, the General Beneficiaries included Mr William Lewski’s wife, Mrs Roslyn Lewski, and their sons, Mr Ari Lewski, Mr Joshua Lewski and Mr Matthew Lewski. The Applicant, as trustee for the William Lewski Family Trust, accounted for GST on a cash basis and lodged the BASs for the trust on a quarterly basis. Both the Applicant and Mr William Lewski were registered tax agents. Aside from the BASs lodged for the William Lewski Family Trust, there were no financial statements before the Court relating to the Applicant. The BASs disclosed that the Applicant returned no GST on sales or income in all but four of the twelve GST returns lodged in the relevant periods. The amounts of income on which GST was returned were:(1)GST inclusive fees of $146,685 from the Reynolds Road Unit Trust received on 11 March 2015;(2)GST inclusive fees of $28,600 from the Reynolds Road Unit Trust received on 15 July 2015;(3)GST inclusive fees of $317,000 relating to the management of “Glendale” and a refund of legal fees of $27,983.14, both received on 31 March 2013; and(4)GST inclusive fees of $1,443,000 relating to the management of “Glendale” received on 20 November 2017.Litigation Funding Agreements The Applicant, as trustee for the William Lewski Family Trust, was a party to the following deeds dated 16 November 2016, each entitled “Litigation Funding Agreement”:(1)An agreement between the Applicant as “Litigation Funder” and Mr William Lewski as a “Beneficiary”. Schedule 2 of the deed listed the following proceedings:1Supreme Court of Victoria proceeding no. SCI 2012 01199 (Listing Fee Proceeding)2Supreme Court of Victoria proceeding no. SCI 2013 05042 (Auditor’s Proceeding)3Supreme Court of Victoria proceeding no. SCI 2014 06713 (Management Rights Proceeding)4Federal Court of Australia proceeding number VID 594 of 2012 (ASIC Proceeding)5Federal Court of Australia proceeding number VID 752 of 2012 (ASIC Appeal Proceeding)6Supreme Court of Victoria proceeding no. SCI 2013 013417Supreme Court of Victoria proceeding no. SCI 2014 01136(2)An agreement between the Applicant as “Litigation Funder” and Mrs Roslyn Lewski, Mr Matthew Lewski and Mr Joshua Lewski, each as a “Beneficiary”. Schedule 2 of the deed listed the following proceedings: 1Supreme Court of Victoria proceeding no. SCI 2013 05042 (Auditor’s Proceeding)2Supreme Court of Victoria proceeding no. SCI 2014 06713 (Management Rights Proceeding)3Supreme Court of Victoria proceeding no. SCI 2013 013414Supreme Court of Victoria proceeding no. SCI 2014 01136(3)An agreement between the Applicant as “Litigation Funder” and Carey Bay Pty Ltd, Retirement Guide Pty Ltd, Daytree Pty Ltd, Australian Property Custodians Pty Ltd and Australian Property Administrators Pty Ltd, each as a “Beneficiary”. Schedule 2 of the deed listed the following proceedings:1Supreme Court of Victoria proceeding no. SCI 2012 01199 (Listing Fee Proceeding)2Supreme Court of Victoria proceeding no. SCI 2013 05042 (Auditor’s Proceeding)3Supreme Court of Victoria proceeding no. SCI 2014 06713 (Management Rights Proceeding)4Supreme Court of Victoria proceeding no. SCI 2013 013415Supreme Court of Victoria proceeding no. SCI 2014 011366Supreme Court of Victoria proceeding no. SCI 2013 054167Supreme Court of Victoria proceeding no. SAPCI 2016 00198Supreme Court of Victoria proceeding no. SCI 2016 01357(4)An agreement between the Applicant as “Litigation Funder” and Daytree as the “Beneficiary”. Schedule 2 of the deed was divided into two parts:(a)Part 1 was entitled “Proceedings” and listed the following proceedings:1Supreme Court of Victoria proceeding number SCI 1990 of 2012 (Daytree Proceeding)2County Court of Victoria proceeding number CI‑16‑03211 (Kidder Communities Proceeding)(b)Part 2 was entitled “Other Proceeding” and listed the following proceedings: 1Supreme court of Victoria proceeding no. SCI 2012 01199 (Listing Fee Proceeding)2Supreme Court of Victoria proceeding no. SCI 2013 05042 (Auditor’s Proceeding)3Supreme Court of Victoria proceeding no. SCI 2014 06713 (Management Rights Proceeding)4Federal Court of Australia proceeding number VID 594 of 2012 (ASIC Proceeding)5Federal Court of Australia proceeding number VID 752 of 2012 (ASIC Appeal Proceeding)6Supreme Court of Victoria proceeding no. SCI 2013 013417Supreme Court of Victoria proceeding no. SCI 2014 011368Supreme Court of Victoria proceeding no. SCI 2013 054169Supreme court of Victoria proceeding no. SAPCI 2016 001910Supreme Court of Victoria proceeding no. SCI 2016 0135711Federal Court of Australia proceeding no. VID 1496 of 201612Administrative Appeals Tribunal proceeding no. 2015/4655‑4656
Evidence
Evidence Before The Court
At the hearing of the proceeding, the Applicant called evidence from the following lay witnesses, each of whom was cross‑examined:(1)Mr William Lewski;(2)Mr Ari Lewski;(3)Mr Andrew Joseph;(4)Mr Samuel Bond;(5)Mr John Young; and(6)Mr Steven Casper.Evidence of Mr William Lewski Mr William Lewski gave evidence concerning the history of the Applicant’s activities. From 1979, the Applicant had carried on a clothing retail business which it sold in 1987. In 1987, Mr Lewski commenced to carry on a practice of providing accounting and commercial consulting as well as being a registered tax agent. When the rules changed to permit trustees to act as tax agents, the Applicant also registered as a tax agent. Mr Lewski’s evidence was that the Applicant then took over his consultancy and tax agent practice, providing services to members of the Lewski family, the entities they controlled and members of the public. Mr Lewski testified that, between 1991 and 1994, the Applicant also conducted a litigation and forensic accounting speciality practice through which expert valuation reports were prepared for third parties. From 1995 to 2001, the Applicant conducted a practice involving the provision of advice in relation to commercial property syndications. Between 1997 and 1998, the Applicant conducted chattel leasing businesses and was involved in film production. In 1998, the Applicant ceased providing accounting and other services to the public and unrelated third parties but continued to provide consultancy, advisory and accounting services to the Lewski Family Group. From 2001 to 2007, the Applicant carried on a consultancy and advisory practice providing services to the trustee of the Prime Retirement and Aged Care Property Trust. The termination of that Trust and the winding up of its trustee, Australian Property Custodian Holdings Pty Ltd (APCHL), resulted in significant litigation for the Lewski Family Group. The Applicant was not a party to that litigation. The Applicant continued to provide consultancy services in respect of retirement villages, and residential aged care and home care businesses conducted by companies and trusts controlled by, or affiliated with, the Lewski family. Mr William Lewski was the individual engaged by the Applicant to provide the consulting and advisory services. Mr Lewski’s evidence was that the Applicant paid the invoices rendered by solicitors, barristers and accountants, including those relating to the litigation to which members of the Lewski Family Group were parties. Mr Lewski’s evidence was that the Applicant was authorised to “conduct” the litigation on behalf of those persons who were the parties to that litigation. Although he had no specific recollection of any particular conversations with other members of the Lewski Family Group, his recollection was that each member “approved of the [A]pplicant managing [the] litigation”. All instructions to the lawyers were provided by Mr Lewski. He considered that he was providing those instructions “as a representative of the [A]pplicant”.
Decision
Reasons for decision
The Applicant contended that it was not unusual for intra‑family group dealings to be conducted informally and it was not for the Commissioner to dictate how the Applicant might choose to conduct its affairs. So much may be accepted. However, if a taxpayer chooses to conduct its affairs informally, there may be practical consequences for its ability to prove its case: Stone v Federal Commissioner of Taxation (1918) 25 CLR 389 at 393 (Isaacs J). Such may be said to be the case here.CONCLUSION For these reasons, the Applicant is not entitled to input tax credits in respect of its payment of invoices for the provision of the Litigation Services and Other Services. Any acquisition by the Applicant was not made in carrying on an enterprise as defined in s 9‑20 of the GST Act. This conclusion makes it unnecessary to consider whether, if the Applicant acquired legal services by way of taxable supplies in carrying on an enterprise, the acquisitions relate to making supplies that would be input taxed by reason of being financial supplies. As noted above, this conclusion also makes it unnecessary to resolve the disagreement between the parties as to whether the Applicant is entitled to now claim input tax credits in an amount in excess of the adjustment made by the Commissioner in the quarter ended 30 June 2015. The parties made submissions concerning the application of s 14ZV of the TAA to amended assessments issued in a single notice of decision (and therefore deemed by s 14ZR of the TAA to be a single taxation decision). The Court notes that it was not addressed on the application of s 29‑10(4) of the GST Act which, as Edmonds J observed in Professional Admin Service Centres at 449 [7], operates to deem an input tax credit not to be attributable to a tax period if the GST return for that tax period does not take that input tax credit into account. The application is to be dismissed with costs.
Ratio Decidendi
Legal Principle Established
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