Nerang Subdivision Pty Ltd v Hutson - [2023] QSC 268

SUPREME COURT OF QUEENSLAND

CITATION:

Nerang Subdivision Pty Ltd & Ors v Hutson & Anor [2023] QSC 268

PARTIES:

NERANG SUBDIVISION PTY LTD
ACN 129 469 254

(first applicant)
KANAYA HOLDINGS PTY LTD
ACN 098 864 905
(second applicant)
PACIFIC VIEW FARM (QUEENSLAND) PTY LTD
ACN 114 561 081
(third applicant)

v
ROBERT HUTSON IN HIS CAPACITY AS ADMINISTRATOR OF THE ESTATE OF NANCY ULLMAN LOESKOW

(first respondent)
FEDERAL COMMISSIONER OF TAXATION

(second respondent)

FILE NO:

BS No 1209 of 2023

DIVISION:

Trial Division

PROCEEDING:

Originating Application

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

1 December 2023

DELIVERED AT:

Brisbane

HEARING DATE:

21 September 2023; 22 September 2023

JUDGE:

Cooper J

ORDER:

1.    It is declared that the first respondent is required to be registered for GST pursuant to s 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth).

2.   Otherwise the Further Amended Originating Application is dismissed.

3.   I will hear the parties as to costs.

CATCHWORDS:

TAXES AND DUTIES – GOODS AND SERVICES TAX – REGISTRATION – BASIC RULES – where over 300 hectares of land forms part of an estate administered by the first respondent – where the first respondent and first and second applicants entered a development deed for a master planned community on the land – where the development involves subdivision of the land and sale of thousands of lots – where the third applicant was appointed under the deed as project manager – where the first respondent and third applicant are parties to four leases provided for by the deed over different parts of the land – where the deed and leases provide for the distribution of the proceeds of sale of the lots including an owner’s return and developer’s return – whether the first respondent is “carrying on an enterprise” – whether the sale of lots in the development would amount to a supply by way of a transfer of a capital asset owned by the first respondent – whether the first respondent is, or will be, required to be registered for GST pursuant to s 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth)

CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – whether on the proper construction of the agreements the amount of the return on the sale of the lots is to be reduced by any GST payable by the first respondent regardless of whether the purchaser of the lot pays GST under schedule 1, subdivision 14E of to the Taxation Administration Act 1953 (Cth) – whether on the proper construction of the documents the developer’s return from the sale of a lot is to be increased by the amount of the first and second applicant’s liability for GST – whether on the proper construction of the documents an adjustment that increases the amount to be paid by a purchaser at settlement of the sale of a lot…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2023] QSC 268
Decision Date: 1 December 2023

CaseChat Overview and Summary

Nerang Subdivision Pty Ltd v Hutson is a case before the Queensland Land Court concerning the interpretation of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) and the Taxation Administration Act 1953 (Cth) in the context of a real estate development project. The primary dispute involves whether the estate administrator, the first respondent, is required to be registered for GST and whether the sale of lots in the development would constitute a supply of goods and services subject to GST. Additionally, the court had to determine the interpretation of certain contractual terms regarding the distribution of proceeds from the sale of lots, including whether GST payable by the administrator should reduce the return and whether the developer's return should be increased by the developer's liability for GST.

The legal issues addressed by the court included whether the estate administrator was carrying on an enterprise for GST purposes and whether the anticipated sales of lots would meet the GST registration turnover threshold. The court also had to interpret the contractual provisions regarding the distribution of sale proceeds among the parties involved in the development project, including the estate administrator, the developer, and the project manager. The questions arose whether the administrator’s return should be reduced by any GST payable, if the developer’s return should be increased by the developer’s GST liability, and whether adjustments for land tax paid prior to settlement were permissible under the leases.

The court concluded that the estate administrator was indeed carrying on an enterprise and that the anticipated sales of lots would exceed the GST registration turnover threshold of $75,000, thereby necessitating GST registration. The court determined that the sale of lots would constitute taxable supplies, and the administrator would be liable to pay GST, which would be collected from the purchasers under the GST withholding provisions. In interpreting the contractual terms, the court found that the administrator's return should not be reduced by GST payable, the developer’s return should not be increased by the developer’s GST liability, and adjustments for land tax paid prior to settlement were not permissible under the leases. This interpretation was based on a detailed analysis of the language used in the deeds and leases.

Consequently, the court declared that the estate administrator was required to be registered for GST under section 23-5 of the GST Act. The court dismissed the rest of the application for further relief. The case highlights the complexities involved in GST registration and the interpretation of contracts in real estate development projects, particularly in the context of large-scale subdivisions.

Orders

Orders of the court

1. It is declared that the first respondent is required to be registered for GST pursuant to s 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth).

2. Otherwise the Further Amended Originating Application is dismissed.

3. I will hear the parties as to costs.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

My conclusion on the foregoing issues means that the value of sales of subdivided blocks are to be included in the calculation of the Administrator’s projected GST turnover. Based on the evidence that the Developer expects settlement of the sales contracts already executed by the Administrator—each of which has a purchase price not less than the GST registration turnover threshold of $75,000—will commence in November 2023, I am satisfied that (when calculated from September 2023 being the month in which the matter was heard) the sum of the values of all the supplies that the Administrator person has made, or is likely to make, during that month and the following 11 months exceeds $75,000. This means that, by reason of s 188-10(1)(b) of the GST Act, the Administrator’s GST turnover meets the registration turnover threshold.Conclusion In circumstances where I am satisfied that:(a)the Administrator is carrying on an enterprise in the form of a business (or alternatively, on a regular and continuous basis, in the form of a lease); and(b)the Administrator’s GST turnover meets the registration turnover threshold, I have concluded that, under s 23-5 of the GST Act, the Administrator is required to be registered for GST. Accordingly, I will make the declaration sought in paragraph 2 of the Further Amended Originating Application.The Administrator’s liability to pay GST on sales of Lots The requirement that the Administrator be registered for GST has the consequence that the sale of a Lot will be a taxable supply pursuant to s 9-5 of the GST Act. The Administrator will be the person who makes the taxable supply upon the sale of a Lot. Consequently, he must pay the GST payable on the supply pursuant to s 9-40 of the GST Act. The mechanism by which the Administrator’s liability to pay GST on the sale of a Lot will be satisfied is found in the GST withholding provisions in subdivision 14E of schedule 1 to the Taxation Administration Act 1953 (Cth) which apply to certain real estate sales after 1 July 2018. Under the GST withholding provisions, the person who receives a taxable supply that includes new residential premises or potential residential land (i.e. the purchaser of a Lot) would be the person liable to pay the Commissioner an amount in respect of GST at the time of settlement.[65] The person who makes the taxable supply (i.e. the Administrator) would be entitled to a credit in respect of the third party purchaser’s payment.[66][65]Taxation Administration Act 1953 (Cth), sch 1 s 14-250.[66]Taxation Administration Act 1953 (Cth), sch 1 s 18-60. I turn now to the construction issues in dispute between the parties to the Project.Calculation of the Owner’s Return The Owner’s right to receive the Owner’s Return is provided for in cl 5.1 of the Deed: “5.1The Owner is to receive the Owner’s Return in accordance with the terms of each Development Lease.” The Developer’s entitlement is provided for in cl 5.7 of the Deed:“5.7The Developer is entitled to receive and be paid the Developer’s Return.”

Ratio Decidendi

Legal Principle Established

The Project is expected to result in the creation of thousands of residential Lots from the Land with sales of those Lots to occur over more than a decade. The Developer expects the Project to generate more than $2 billion in revenue. Registration for GSTLegislative framework The GST Act imposes an obligation to pay the GST payable on any “taxable supply” made by a person.[4] The person will make a taxable supply if they make the supply for consideration, the supply is made in the course or furtherance of an enterprise that the person carries on, and the person is registered or required to be registered under the GST Act.[5][4]GST Act, s 9-40.[5]GST Act, s 9-5. A person is required to be registered for GST if they are carrying on an enterprise and their GST turnover meets the registration turnover threshold.[6][6]GST Act, s 23-5. An “enterprise” is relevantly defined to be an activity, or series of activities, done:[7](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 and continuous basis, in the form of a lease, licence or other grant of an interest in property.[7]GST Act, s 9-20(1). However, an enterprise does not include an activity, or series of activities, done by an individual without a reasonable expectation of profit or gain.[8][8]GST Act, s 9-20(2)(c). The concept of “carrying on” an enterprise is defined to include doing anything in the course of the commencement or termination of the enterprise.[9][9]GST Act, s 195-1. A “business” is defined as including any profession, trade, employment, vocation or calling, but does not include occupation as an employee.[10][10]GST Act, s 195-1. The GST registration turnover threshold is set at $75,000.[11] A person’s GST turnover will meet the registration turnover threshold if:[12](a)the person’s current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that the person’s projected GST turnover is below the turnover threshold; or(b)the person’s projected GST turnover is at or above the turnover threshold.[11]GST Act, s 23-15(1)(b) and A New Tax System (Goods and Services Tax) Regulations 2019 (Cth) (GST Regulations), reg 23.15.01.[12]GST Act, s 188-10(1). A person’s “current GST turnover” in a particular month is defined to be the sum of the values of all the supplies that the person has made, or is likely to make, during the 12 months ending at the end of that month, other than (relevantly) supplies that are not made in connection with an enterprise that the person carries on.[13][13]GST Act, s 188-15(1). A person’s “projected GST turnover” in a particular month is defined to be the sum of the values of all the supplies that the person has made, or is likely to make, during that month and the next 11 months, other than (relevantly) supplies that are not made in connection with an enterprise that the person carries on.[14] Further, in working out a person’s projected GST turnover, any supply made, or likely to be made, by the person by way of transfer of ownership of a capital asset of the person is to be disregarded.[15][14]GST Act, s 188-20(1).[15]GST Act, s 188-25(a).

CITATION:	Nerang Subdivision Pty Ltd & Ors v Hutson & Anor [2023] QSC 268
PARTIES:	NERANG SUBDIVISION PTY LTD ACN 129 469 254 (first applicant) KANAYA HOLDINGS PTY LTD ACN 098 864 905 (second applicant) PACIFIC VIEW FARM (QUEENSLAND) PTY LTD ACN 114 561 081 (third applicant) v ROBERT HUTSON IN HIS CAPACITY AS ADMINISTRATOR OF THE ESTATE OF NANCY ULLMAN LOESKOW (first respondent) FEDERAL COMMISSIONER OF TAXATION (second respondent)
FILE NO:	BS No 1209 of 2023
DIVISION:	Trial Division
PROCEEDING:	Originating Application
ORIGINATING COURT:	Supreme Court at Brisbane
DELIVERED ON:	1 December 2023
DELIVERED AT:	Brisbane
HEARING DATE:	21 September 2023; 22 September 2023
JUDGE:	Cooper J
ORDER:	1. It is declared that the first respondent is required to be registered for GST pursuant to s 23-5 of the *A New Tax System (Goods and Services Tax) Act 1999* (Cth). 2. Otherwise the Further Amended Originating Application is dismissed. 3. I will hear the parties as to costs.
CATCHWORDS:	TAXES AND DUTIES – GOODS AND SERVICES TAX – REGISTRATION – BASIC RULES – where over 300 hectares of land forms part of an estate administered by the first respondent – where the first respondent and first and second applicants entered a development deed for a master planned community on the land – where the development involves subdivision of the land and sale of thousands of lots – where the third applicant was appointed under the deed as project manager – where the first respondent and third applicant are parties to four leases provided for by the deed over different parts of the land – where the deed and leases provide for the distribution of the proceeds of sale of the lots including an owner’s return and developer’s return – whether the first respondent is “carrying on an enterprise” – whether the sale of lots in the development would amount to a supply by way of a transfer of a capital asset owned by the first respondent – whether the first respondent is, or will be, required to be registered for GST pursuant to s 23-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – whether on the proper construction of the agreements the amount of the return on the sale of the lots is to be reduced by any GST payable by the first respondent regardless of whether the purchaser of the lot pays GST under schedule 1, subdivision 14E of to the Taxation Administration Act 1953 (Cth) – whether on the proper construction of the documents the developer’s return from the sale of a lot is to be increased by the amount of the first and second applicant’s liability for GST – whether on the proper construction of the documents an adjustment that increases the amount to be paid by a purchaser at settlement of the sale of a lot…