NKCX and Commissioner of Taxation (Taxation)
[2019] AATA 124
•13 February 2019
NKCX and Commissioner of Taxation (Taxation) [2019] AATA 124 (13 February 2019)
Division:TAXATION & COMMERCIAL DIVISION
File Number: 2017/0446
Re:NKCX
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Mrs J C Kelly, Senior Member
Date:13 February 2019
Place:Sydney
The Tribunal affirms the reviewable decision, being the Objection Decision dated 25 November 2016.
..............................[SGD]..........................................
Mrs J C Kelly, Senior Member
CATCHWORDS
TAXATION – GOODS AND SERVICES TAX - whether assessments and amended assessments of net amount were excessive for purposes of s 14ZZK(b)(i) of the Taxation Administration Act 1953 - whether the Applicant was entitled to input tax credits - whether Applicant carried on enterprise of private investigations, mercantile agent, litigation support, and consultancy - whether Applicant carried on an enterprise of share trading - interpretation of s 14ZZE of the Taxation Administration Act 1953 – objection decision affirmed
LEGISLATION
A New Tax System (Goods and Services Tax) Act 1999 (Cth) ss 7-1, 9-20, 11-5, 25-55(2), 93-5, 93-10, 142-5, 142-10,
Income Tax Assessment Act 1936 (Cth) s 51(1)
Taxation Administration Act 1953 (Cth) ss 14ZZE, 14ZZJ, s14ZZK(a), s14ZZK(b)(i)CASES
AAT Case 6297 (1990) 21 ATR 3747
Devi and Commissioner of Taxation [2016] AATA 67
Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614
Federal Commissioner of Taxation v Radnor Pty Ltd (1991) 22 ATR 344
Ferguson v Federal Commissioner of Taxation (1979) 9 ATR 873
Re Executor for the Late Joan E Osborne and Federal Commissioner of Taxation (2014) 94 ATR 241
Re Hartley and Federal Commissioner of Taxation (2013) 93 ATR 985
Re Shields and Deputy Commissioner of Taxation (1999) 41 ATR 1042Re Smith and Federal Commissioner of Taxation (2010) 79 ATR 934
REASONS FOR DECISION
Mrs J C Kelly, Senior Member
The reviewable objection decision
The Applicant, NKCX, seeks the review of the Objection Decision dated 25 November 2016 in which the Respondent disallowed the Applicant’s objection against the assessment of net amounts for the tax period 1 July 2011 to 30 June 2012 and the amended assessment of net amounts for the periods 1 July 2012 to 30 June 2015, and disallowed reinstatement of GST registration.
The Applicant’s taxation objection was dated 26 August 2016.
The Objection Decision upheld the decision made on 29 June 2016 (the primary decision) following an audit that began on 31 March 2016. The primary decision determined that there was insufficient evidence to substantiate that the Applicant’s activities amounted to carrying on an enterprise for the purposes of section 9-20 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act) and disallowed all input tax credits for the tax periods 1 July 2011 to 30 June 2015 (the relevant periods). The Applicant’s registration for GST was cancelled from 30 September 2015 because he was not carrying on an enterprise for tax purposes.
On 29 June 2016, the Respondent issued the following assessments to the Applicant:
(i)A Notice of Assessments of Net Amount for the quarters ended 30 September 2011 to 30 June 2012, with an outcome of $15,734 DR.
(ii)A Notice of Amended Assessments of Net Amount for the quarters ended 30 September 2012 to 30 June 2015, with an outcome of $18,013 DR.
The statutory background
These proceedings are brought under Part IVC of the Taxation Administration Act 1953 (Cth) (the TAA). Pursuant to subsection 14ZZK(b)(i) of that Act, the Applicant bears the onus of proving that the assessment “is excessive or otherwise incorrect and what the assessment should have been”. In Federal Commissioner of Taxation v Dalco (1990) 168 CLR 614 at 621, Brennan J held that it is for the Applicant to prove what the correct assessment should have been.
Other statutory provisions that may be relevant depending on the Tribunal’s findings are set out in the Annexure to this decision.
The issues to be decided
The Applicant was unrepresented in these proceedings. It is relevant and useful to note how he set out the issues in his Statement of Issues, Facts and Contentions (SoIFC) dated 15 October 2017 and prepared after he received the Respondent’s SoIFC:
(a)He was carrying on an enterprise of share trading during the relevant periods and was entitled to deductions for significant losses incurred in relation to shares held in Buccaneer Energy Limited (BCC); and
(b)He was carrying on an enterprise of private investigations, mercantile agent, litigation support and consultancy during the relevant periods and contended that legal expenses incurred in relation to that enterprise were creditable acquisitions.
The Applicant had not raised the issue of deductions for losses from shares held in BCC in his taxation objection or thereafter. The Respondent opposed that issue being dealt with. That matter is referred to later in this decision.
The question the Tribunal has to decide is whether the Respondent’s Notices of Assessments and Amended Assessments of net amounts for the relevant tax periods are excessive for the purposes of subsection 14ZZK(b)(i) of the TAA.
To decide that question, the Tribunal has to determine whether each of the transactions made by the Applicant during the relevant tax periods was a creditable acquisition for the purposes of section 11-5 of the GST Act, such that the Applicant was entitled to claim input tax credits.
Fundamental to that question is whether the Respondent’s decision to cancel the Applicant’s GST registration with a date of effect of 30 September 2015 was correct. That decision followed from the Respondent being satisfied that the Applicant was not carrying on an enterprise and believed on reasonable grounds that the Applicant was not likely to carry on an enterprise for at least 12 months pursuant to subsection 25-55(2) of the GST Act.
Other issues that may arise, depending on the finding on the issue of whether the Applicant was carrying on an enterprise, are:
(a)Whether the Applicant was required to report the amount of GST at label 1A on his activity statement for the tax periods ended 30 September 2014, 31 December 2014, 31 March 2015 and 30 June 2015; and
(b)Whether the Applicant was out of time to claim input tax credits for the tax period ending 30 September 2011 and 31 December 2011.
The factual background
The following facts are not contentious.
The Applicant was a police officer from 2001 to 10 March 2011.
He registered his business name from 20 March 2011 under an Australian Business Number (ABN). The Applicant told the Tribunal that he intended to undertake the businesses of share trading and mercantile agent/litigation support after he left the police force.
On 28 November 2012, the Applicant lodged his income tax return for the financial year ended 30 June 2012. He reported that his main salary and wage occupation was “police officer”. He reported no business activity. When asked about that at the hearing, the Applicant said that his accountant prepared the document, he was not familiar with it, and they had discussions but he did not know the responses she provided.
On 5 August 2015, the Applicant registered for GST effective from 1 January 2011 accounting for GST on a cash basis with quarterly tax periods. When asked during the hearing about the four year delay in registering for GST, the Applicant explained that he had an accountant work on his personal income matters, she was aware of his share trading but not of his commercial agent/litigation support work, and he told her that he wanted to take advantage of the businesses. When asked how registering for GST arose in August 2015, the Applicant said that he became aware that he could seek a refund for GST spent by a business on legal fees. He said that he had been unwell, his accountant may have given him advice, he must have told her about the business he started in 2011, as well as about his other employment and investment property. He believed that he had told her about the business earlier.
On 4 September 2015, the Applicant’s GST registration was cancelled, effective from 3 September 2015, because “our records show that you’re not carrying on an enterprise”.
The Applicant first reported that his main business activity was “stockbroking or trading”, on 30 October 2015 when his income tax returns for the financial years ended 30 June 2014 and 30 June 2015 were lodged. In those tax returns he reported that his main salary and wage occupation was “investigator - police”.
When those returns were amended on 2 March 2016 and 21 March 2016 respectively, an additional business activity of “Detective Agency Service” was included.
On 9 December 2015, the Applicant’s income tax return for the financial year ended 30 June 2013 was lodged. He declared his main business activity as “stockbroking or trading”. He did not declare any salary or wage occupation.
On 22 March 2016, the Applicant’s ABN was re-activated with an effective date of 3 September 2015.
On 23 March 2016, the Applicant’s Business Activity Statements (BAS) for the relevant tax periods were lodged. The Applicant told the Tribunal that he was unwell at that time and during discussions with his accountant/tax agent he made it clear that he wanted her to do whatever was necessary to get up-to-date.
The Applicant’s accountant/tax agent completed a Business Profile Questionnaire on 12 April 2016. The questionnaire was “to help (the Respondent) obtain information to verify your GST refund”. The Applicant’s business activity was described as:
Firstly, private investigations, mercantile agent, litigation support and consultancy. Secondly, share trading.
The response to the question:
If purchases exceed sales, how is the business being funded? How long until you expect sales to exceed purchases?
was:
Business growth has been affected by medical conditions and has been funded by a personal injury payment. Business sales should exceed expenses within 12 months.
The address of a serviced office was provided as the business address. The business was advertised by “Business to business referral based marketing”. The type of client generally supplied to were “Creditors, Litigants, Research Consultants, Investigative Journalists”.
The following additional information was provided about the business in support of the Applicant’s claim:
Business activity is based on goodwill and good reputation built from servicing clients in professional and diligent manner. Marketing expenses and reputation management is critical to be able to build future revenue. The lost revenue is unquantifiable where prospective referrals decided not to proceed with my services due to inaccurate, defamatory or misrepresentations made about my professional capacity and integrity.
(The above statement was repeated in the Applicant’s statement dated 9 October 2017, with one change. The word “conduct” was included after the word “capacity” in the last line of the above statement.)
On 1 July 2016, the Applicant’s GST registration was cancelled effective as at 30 September 2015.
On 18 May 2017, the Applicant provided two documents showing two payments he had received from his former employer in about January 2011 and January 2012 (for partial and permanent disability benefit and to settle legal proceedings) totalling about $1,086,651.02 to demonstrate how he funded his claimed business activities. He provided the documents in response to a request from the Respondent.
On 18 May 2017, the Applicant provided 99 pages of tax invoices for legal services issued to him from barristers and solicitors to support his claim for input tax credits for the relevant periods. Those services related to various legal proceedings. That information was provided in response to a request from the Respondent. The Tribunal did not understand the Applicant to claim input tax credits in relation to his claimed share trading activity.
In his 9 October 2017 statement at paragraph 98, the Applicant stated that the tax invoices “have been paid in full by me or on my behalf”.
In an email dated 24 April 2018, the Applicant advised the Tribunal that he pressed his claim only in relation to tax invoices relating to legal proceedings which will be referred to as matters G, R, B, L and P. The first relevant tax invoice is dated 5 May 2012 and the last is dated 8 April 2015.
During the hearing, the Applicant told the Tribunal the following. From March to December 2011, he spoke to colleagues and found that he had a tarnished reputation, including on the internet. He was involved in litigation from 2011 to 2015 trying to clear his name. That was his focus for a long part of that period. When asked about the time he spent on litigation, the Applicant said that he engaged lawyers and there were a lot of conferences and emails, he was giving instructions and reading documents. He also said that it did not take a significant amount of time.
The Applicant provided copies of court decisions in three of the matters, although he claimed that the decisions related to the five matters. Matter L was a defamation action the Applicant commenced against L in 2014 in relation to an incident that occurred in 2008. The decision related to an interlocutory matter.
Matter R were unsuccessful proceedings the Applicant commenced in 2012 about a complaint R had made to the police service about the Applicant. The proceedings were finalised in September 2013.
The Applicant described the P matter as relating to his purchasing choses in action including debts, from P (a company in liquidation). It is apparent from the decision in R, that the Applicant had taken other proceedings against P for damages and that R was the decision in the damages action against P. It shows that the claim arose sole director, secretary and shareholder of P. The Respondent provided a copy of the from the Applicant’s attending an aptitude test preparation course for the Jetstar cadet pilot program. Those proceedings were commenced and finalised in 2012. From the Applicant’s evidence, it seems that he took action to have P liquidated after his damages claim. The Tribunal did not have any court decision in relation to the choses in action matter.
Matter B was a successful defamation case the Applicant commenced in December 2011 in relation to an alleged defamatory publication sometime in the period 2006 to 2009. Judgment was given on 20 March 2014. It is apparent from the decision in Matter B that Matter G were related defamation proceedings commenced by the Applicant which had been struck out.
On 21 May 2017, the Applicant provided 194 pages of his bank and credit union statements in response to a request from the Respondent for bank payments for the period 1 January 2012 to 30 June 2015 showing payment of the expenses which make up his claims for input tax credits. The earliest transaction was dated 16 January 2012 and the most recent transaction was dated 30 November 2014.
During the hearing, the Applicant said that he kept bank statements as his record of expenses.
The evidence supporting the claim that the Applicant carried on an enterprise of private investigations, mercantile agent, litigation support, and consultancy
The Applicant claims that he carried on an enterprise of private investigations, mercantile agent, litigation support and consultancy from about April 2011 to about July 2015.
When he filed his objection against the GST assessments issued on 29 June 2016, the Applicant enclosed a two page print-out of Google search results for his name and “investigator”. It is not apparent when the Google search was carried out. The results mention that the Applicant was a detective and investigator in NSW, Sydney, and Melbourne.
The Applicant provided copies of the following licences he held:
·Queensland Commercial Agent, expires 9 October 2013;
·New South Wales Commercial & Private Inquiry Agents Licence, expiry date 15 February 2014, which authorised Investigation of Persons and Surveillance of Persons;
·New South Wales Commercial & Private Inquiry Agents Licence, expiry date 15 February 2018, which authorised Process Serving, Repossession of Goods, and Debt Collection.
He told the Tribunal that it was not necessary to be licensed in Victoria.
He claimed that he had undertaken research and made inquiries in relation to this business but acknowledged that he had no business plan and no experience. He claimed that he conducted this business from his home office but used a serviced office address in Sydney.
Services provided to Mr M
Mr M was a former work colleague of the Applicant. The Applicant claimed to have performed services for Mr M from about December 2011 to June 2013. Those services included drafting documents, conducting legal research, acting as an address for service of documents, and giving advice in relation to workplace entitlements and dispute resolution.
The Applicant claimed that those services were performed pursuant to an oral agreement.
He provided a bundle of copies of 250 emails that he sent to Mr M “evidencing my services”. The first was dated 6 December 2011 and attached “Draft Application for Recovery of Money dated 19 July 2011”. The last email was dated 19 January 2013 and attached a document entitled “Amended deed of Release” in relation to proceedings against NSW Police force. The Applicant stated that he redacted some of the emails to maintain Mr M’s confidentiality. In fact, the redactions were so extensive that essentially the emails only disclose the sender, the recipient, date of transmission and identify attachments. The Applicant also claimed to have had “hundreds” of conferences with Mr M by telephone. No corroborating evidence of that claim was provided.
The identified attachments to the emails included letters to various individuals, police officers, doctors, ICAC, and Employers Mutual, and documents identified as medical reports, submissions, applications to the ADT (Administrative Decisions Tribunal), a workers compensation claim form, a freedom of information request, and a Model Litigant Policy.
On 22 May 2017, the Applicant provided two tax invoices he had issued to Mr M on 19 April 2013 for $20,000 and on 1 June 2013 for $5,000. Both invoices were headed “Tax Invoice”, stated a “GST inclusive” amount, were marked “Invoice #0001”, and were “For professional consultancy services”. The Applicant did not register for GST until August 2015. He provided two emails he sent to Mr M to which those invoices were attached which were of the same dates as the invoices.
The Applicant told the Tribunal the following. The fees were an agreed fixed sum to be paid if Mr M’s workers compensation claim succeeded. He issued the invoices when Mr M said that he could pay them. He did not know how much Mr M received. He was trying to do a good job so word would get around.
The Applicant told the Tribunal that he did not speak to Mr M about the GST, he did not know that GST was added to the amount and he was trying to present it in a professional way. He explained that he looked up GST on line which also showed the heading “Tax Invoice”.
In his statement dated 9 October 2017, the Applicant detailed when and to which financial institutions the payments of the two invoices were made. The payments, in various amounts, were made from 19 April 2013 until 7 June 2013.
The Applicant told the Tribunal that Mr M had had lawyers who were dealing with litigation as opposed to departmental procedures.
Services for D Corporation
The Applicant claimed in his 9 October 2017 statement that he performed services for a company, which the Tribunal will refer to as D corporation, from about September 2012 to about March 2014. He claimed that his services included drafting documents, conducting legal research, private investigations, debt recovery, litigation support and general administration. During the hearing, the Applicant said that he was permitted to use the serviced office he had referred to while working for D corporation which paid for it.
The Applicant claimed that he provided those services pursuant to an oral agreement made on or about September 2012.
He stated in his 9 October 2017 statement that he no longer has access to the records of D Corporation and that he had not issued invoices because he believed that they would not be paid, however, D corporation did reimburse him for out-of-pocket expenses incurred when he performed services for it. The Applicant listed the amounts, dates and bank account into which those reimbursements were paid.
During the hearing, the Applicant said the following. He did not render invoices to D corporation because being paid depended on success. He had not taken steps to write the debt off as a bad debt because he wanted to see the outcome of these proceeding. He said that he was filing documents in court, making inquiries about fraudulent matters, small debtors, had multiple things going on, and did not keep track hour by hour. He said that he was entitled to 50% of funds recovered.
The Tribunal does not accept that all the reimbursements claimed were from D corporation. Some of the reimbursements the Applicant claimed did not refer to D corporation. At most, receipts referable to D Corporation were in the order of less than $6,000. The first was paid on 25 September 2012 and the last was paid on 18 July 2014.
The evidence supporting the claim that the Applicant carried on an enterprise of share trading
In his statement of 9 October 2017, the Applicant stated:
For the purpose of trading shares, I conducted research on the internet, including company websites, ASX releases, news websites, share trading forums and government websites, to enable me to make decisions about what type of shares to trade and when to trade them. I did not purchase subscriptions to databases because there was free information on the internet.
In his statement of 25 March 2018, he explained that he subscribed to E*TRADE Pro trading platform from about April to December 2011 and stopped subscribing because the same information was free on the internet. He attached four “Confirmation of Re-subscription to E*TRADE Pro” for each of April, May, June and November 2011.
The Applicant explained his trading strategy as follows. The funds he received from his former employer enabled him to engage in high volume trades of selected stocks. He focussed on a limited number of stocks in the mining, oil and gas exploration sectors. He familiarised himself with the various company activity schedules and traded high volumes of shares at times that he expected the share prices to rise based on his research. His objective was to generate larger but less frequent profits.
During the hearing, the Applicant said that he did not do enough research and lost a lot of money.
The Applicant lodged with the Objection form, “a printout of my share trading history from ANZ for my business”. The document stated that it covers the period 1 March 2011 to 26 August 2016 but shows transactions from 6 April 2011 to 15 February 2016.
The number of buy and sell orders executed during the income years ending 30 June 2011 to 30 June 2015 are summarised in the following table which is based on one set out in the Respondent’s Outline of Submissions but amended to show three buy orders in the year ending 30 June 2013.
Financial year Number of buy orders Number of sell orders Value of buy orders Value of sell orders 2011 7 6 $384,978.18 $72,831.56 2012 85 60 $3,962,735.59 $3,115,446.38 2013 3 27 $174,324.71 $280,472.86 2014 3 14 $38,007.46 $115,241.95 2015 2 1 $15,353.95 $30,324.25 Total
100
108
During the 2011 financial year, the Applicant bought and told shares with the codes BCC and AVQ. In the 2012 financial year he bought and sold those shares and shares with the codes SSN, RIA, AGS and LYC. In the 2013 financial year he bought BCC twice and AGS once. He sold both. In the year ending 30 June 2014, the Applicant bought and sold only BCC shares. His last transaction in that year was a sale of BCC shares on 18 November 2013. In the financial years ending 30 June 2015 and 30 June 2016 he bought and sold only AVQ shares.
The Applicant explained in his statement dated 9 October 2017 that the 13,500,000 BCC shares he held became worthless following suspension from quotation on the ASX on 19 February 2014 and subsequent events.
Consideration of the Applicant’s claims to be carrying on the enterprises of private investigations, mercantile agent, litigation support, and consultancy and share trading
In Ferguson v Federal Commissioner of Taxation (1979) 9 ATR 873 at 876-7, Bowen CJ and Franki J considered whether the appellant was carrying on a business for the purposes of subsection 51(1) of the Income Tax Assessment Act 1936 (Cth), the predecessor of subsection 8-1 of the 1997 Act. Their Honours said:
The nature of the activities, particularly whether they have the purpose of profit-making, may be important. However, an immediate purpose of profitmaking in a particular income year does not appear to be essential. Certainly it may be held a person is carrying on business notwithstanding his profit is small or even where he is making a loss. Repetition and regularity of the activities is also important. However, every business has to begin, and even isolated activities may in the circumstances he held to be the commencement of carrying on business. Again, organization of activities in a business-like manner, the keeping of books, records and the use of system may all serve to indicate that a business is being carried on. The fact that, concurrently with the activities in question, the taxpayer carries on the practice of a profession or another business, does not preclude a finding that his additional activities constitute the carrying on of a business. The volume of his operations and the amount of capital employed by him may be significant. However, if what he is doing is more properly described as the pursuit of a hobby or recreation or an addiction to a sport, he will not be held to be carrying on a business, even though his operations are fairly substantial.
In Federal Commissioner of Taxation v Radnor Pty Ltd (1991) 22 ATR 344 at 357, Hill J said: “There is no single factor that can be isolated as determinative of the question whether a taxpayer is carrying on a business”.
The Tribunal accepts that the considerations set out by Deputy President Todd in AAT Case 6297 (1990) 21 ATR 3747 are generally relevant to deciding the question whether a taxpayer is carrying on a business. Those factors have been analysed in a number of cases in the Tribunal.[1] Deputy President Todd said at 3755-6 [22]:
[1] Re Shields and Deputy Commissioner of Taxation (1999) 41 ATR 1042 at 1047-8; Re Hartley and Federal Commissioner of Taxation (2013) 93 ATR 985 at 988; Re Executor for the Late Joan E Osborne and Federal Commissioner of Taxation (2014) 94 ATR 241 at 246-7; See also Re Smith and Federal Commissioner of Taxation (2010) 79 ATR 934 at 939-40, referring to Shields.
In deciding this issue the case law has established the following factors as generally relevant considerations:
(a)the nature of the activities and whether they have the purpose of profitmaking;
(b)the complexity and magnitude of the undertaking;
(c)an intention to engage in trade regularly, routinely or systematically;
(d)operating in a business-like manner and the degree of sophistication involved;
(e)whether any profit/loss is regarded as arising from a discernible pattern of trading;
(f)the volume of the taxpayer's operations and the amount of capital employed by him;
and more particularly in respect of share traders:
(a)repetition and regularity in the buying and selling of shares;
(b)turnover;
(c)whether the taxpayer is operating to a plan, setting budgets and targets, keeping records;
(d)maintenance of an office;
(e)accounting for the share transactions on a gross receipts basis;
(f)whether the taxpayer is engaged in another full-time profession.
While there are many emails to M, they do not assist the Tribunal to identify what the Applicant actually did. For example, the email dated 6 December 2011 that he sent to M attached a “drafted Application for Recovery of Money dated 19 July 2011.docx 23K”. Emails attaching letters to individuals do not indicate the subject matter of the letters or the Applicant’s role, if any, in their preparation.
He claimed that his services were performed pursuant to an oral agreement and that payment of the agreed fixed sum depended on M being successful in workers compensation proceedings. He did not provide details of that agreement. If the services were performed pursuant to an agreement, the Tribunal would have expected that the Applicant would have been able to set out its terms which would have provided a context in which to consider the little information disclosed in individual emails. The Applicant has chosen to redact information he says because of M’s privacy.
The Applicant’s oral evidence was that he was entitled to 50% of funds recovered when he worked for D Corporation. The Applicant said that he did not render invoices to D corporation because his being paid depended on success, which the Tribunal understands means that he had not been successful. That is inconsistent with his evidence that he had not taken steps to write off the debt because he wanted to see the outcome of these proceedings. If he had not been successful, he was owed nothing and there was no bad debt. Further, his claim that his being paid depended on success is inconsistent with being reimbursed for out-of-pocket expenses. Why would D corporation pay him for out-of-pocket expenses if there might be no income from the activity and he was only to be paid if there was a successful outcome? There is no contemporaneous documentary evidence identifying what the payments from D Corporation to the Applicant were for. The Applicant’s oral and written evidence is the only evidence.
The Applicant said that he no longer has access to the records of D corporation. The implication is that he has no records of his own to support his claim which is not consistent with carrying on a business.
The nature of the Applicant’s claimed undertaking the enterprise of private investigations, mercantile agent, litigation support, and consultancy is not apparent from the documentary evidence. There is no evidence of a business plan. The Tribunal cannot discern an intention to engage in trade regularly, routinely or systematically. The Applicant was not operating in a business-like manner or with any degree of sophistication. He relied on business to business recommendations for work. Some limited information about him being a private investigator could be found by searching Google. He had only two clients during a period of four years.
The documentary evidence does not demonstrate what service the Applicant provided to M or D Corporation or when. It does not demonstrate expenses he incurred in carrying out the enterprise. In making those findings, the Tribunal has taken into account the receipts of money from both as described above, and his claim that his bank records show his expenses.
The Tribunal does not accept that the Applicant was carrying on the enterprise of private investigations, mercantile agent, litigation support, and consultancy. It follows that the Applicant was not entitled to input tax credits in relation to this claimed enterprise, including in relation to the legal expenses he claimed were incurred to protect his reputation. It is therefore unnecessary to consider whether they were creditable acquisitions in carrying on that enterprise.
Did the Applicant carry on an enterprise of share trading?
The Tribunal accepts that the Applicant wished to make a profit from buying and selling shares. However, as Senior Member Lazanas said in Devi and Commissioner of Taxation [2016] AATA 67 at [24], that is consistent with being a share trader and being a share investor.
The Applicant’s buying and selling of shares was not complex. There is no evidence that he had any risk management strategies in place. He had no background in buying and selling shares. The only record of his trading activity is the ANZ Trading History. He referred to various pages of bank statements to show details of payments he made to himself from the ANZ share trading account for his personal and business expenses. He relied on publicly available resources for information on which to base his decisions.
While he claims that he engaged in a business of share trading from April 2011 to 18 November 2013, the ANZ Trading History shows that he continued to buy and sell shares after that date. It is apparent from the table set out earlier in this decision that the Applicant carried out the most activity in the year ending 30 June 2012 and the value of his buy and sell orders was much higher than in any other year. Thereafter his purchases each year were few in number.
The Tribunal has concluded that from April 2011 to June 2012, the Applicant was learning about shares through his research and buying and selling. Thereafter he consolidated his position. From 7 November 2012 until 18 November 2013 he only bought and sold BCC shares. He bought four times and sold 23 times. He held more than 13,500,000 BCC shares after his last sale.
The evidence shows that a large part of the Applicant’s capital was involved in the share trading and he claims a loss for the reasons he explained in his statement.
The Tribunal does not accept that the Applicant traded shares regularly, routinely and systematically throughout the period April 2011 to 18 November 2013, or thereafter.
For the above reasons, the Tribunal does not accept that he carried on the enterprise of share trading as he claimed.
The Applicant’s claim for losses from share trading
The following are the Tribunal’s reasons for refusing the Applicant leave to expand the grounds of review to include a claim for losses from share trading.
There had been lengthy engagement between the Applicant and his accountant/tax agent with the Respondent from the beginning of the audit in March 2016 until the Objection Decision was issued on 25 November 2016. The application for review was filed on 24 January 2017. There were two conferences in the matter.
Although mentioned as an issue by the Applicant in his SoIFC dated 15 October 2017, it was first addressed by the Respondent in its Outline of Submissions filed with the Tribunal on the Friday before the hearing on the Monday, and raised with the Tribunal in final submissions when the Applicant said that he wanted the Tribunal to deal with the matter. He claimed prejudice if it were not because he would be out of time. The Respondent argued he could submit new tax returns and lodge an objection. The Respondent addressed the issue only to the extent of opposing the grounds of review being extended to include it.
The case had been prepared and run before the Tribunal on the grounds raised in the taxation objection and the Objection Decision.
The Tribunal has taken into account that the Applicant was unrepresented and his claim of prejudice, but in the circumstances, concluded that it was not appropriate to grant leave to raise a new ground at the end of the case which would have required a lengthy adjournment for the Respondent to address the issue and prepare its case.
The Tribunal makes the following observations about the Respondent’s contentions about the scope of the Tribunal’s review in its Outline of Submissions.
At paragraph 9(a) the Respondent stated:
The application for review is limited to the grounds stated in the taxation objection decision (emphasis added) and it is not within the scope of these proceedings for the Tribunal to consider whether the applicant is entitled to a deduction for any loss incurred in his alleged enterprise of share trading.
Subsection 14ZZK(a) of the TAA Act provides that the Tribunal’s review of a reviewable objection decision is, “unless otherwise ordered, limited to the grounds stated in the taxation objection to which the decision relates” (emphasis added).
Later, at paragraphs 47 and 48, the Respondent quoted subsection 14ZZK(a) but stated:
The Objection Decision does not refer to whether the applicant is entitled to claim deductions and the Applicant has not sought leave for the grounds to be expanded.
Subsection 14ZZK(a) of the TAA is directed to the “grounds stated in the taxation objection to which the decision relates”, not the grounds in the objection decision. In this case, the distinction did not matter because the Applicant’s taxation objection was confined to the topic “Goods and services tax” and he therefore required leave from the Tribunal for the grounds to be expanded to include losses from his claimed share trading activity. In other cases the distinction may be important.
Procedural matters
At the end of the hearing, the Tribunal granted the Applicant 28 days within which to lodge further submissions. He advised the Tribunal that he was unable to do so because of full-time study commitments. Consequently, the Respondent advised the Tribunal that it would not file further submissions.
The Applicant requested to be heard on the question of costs if he were successful. He was not successful. In any event, there is no statutory provision conferring power on the Tribunal to make an order for costs in a matter such as this.
The Applicant requested after the hearing that he not be identified in the decision by the Tribunal referring to the various legal proceedings relevant to the decision. He had requested a private hearing pursuant to section 14ZZE of the TAA, which is reflected in the anonomisation of his identity in the proceedings. Section 14ZZJ provides that where such a request has been made, “the Tribunal must ensure, as far as practicable, that its reasons for the decision are framed so as not to be likely to enable the identification of the person who applied for the review”. Consequently, the Applicant’s concerns are met by the statutory effect of his request for a private hearing.
Conclusion
For the above reasons, the Tribunal was not satisfied that the Applicant carried on the enterprise of private investigations, mercantile agent, litigation support, and consultancy or the enterprise of share trading. He did not claim to be carrying on or proposing to carry on any other enterprise in the future. The Commissioner was required to cancel his GST registration. The Applicant was not entitled to claim input tax credits in respect of either enterprise. Given those findings, the other issues that were foreshadowed do not arise.
The Tribunal affirms the reviewable decision, being the Objection Decision dated 25 November 2016.
I certify that the preceding 99 (ninety-nine) paragraphs are a true copy of the reasons for the decision herein of Mrs J C Kelly, Senior Member
..................................[SGD]......................................
Associate
Dated: 13 February 2019
Date(s) of hearing: 26 March 2018 Date final submissions received: 26 April 2018 Applicant: In person Solicitors for the Respondent: L Zhou, Australian Taxation Office ANNEXURE
Creditable acquisitions
Section 7-1 of the GST Act provides that an entitlement to input tax credits arise on creditable acquisitions. Relevantly, section 11-5(a) states:
“You make a creditable acquisition if:
you acquire anything solely or partly for a *creditable purpose; and
…”
Section 11-15 provides:
“Meaning of creditable purpose
(1)You acquire a thing for a creditable purpose to the extent that you acquire it in * carrying on your * enterprise.
(2)However, you do not acquire the thing for a creditable purpose to the extent that:
(a) the acquisition relates to making supplies that would be * input taxed; or
(b) the acquisition is of a private or domestic nature.”
Section 9-20 of the GST Act provides:
“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;
…
2) However, enterprise does not include an activity, or series of activities, done:
…
b) as a private recreational pursuit or hobby; or
c) by an individual ..., without a reasonable expectation of a profit or gain; or
…”
Reporting GST on taxable supplies
Section 142-5 of the GST Act[2] states:
[2] Inserted by No 34 of 2014, applicable in relation to working out your net amount for a tax period starting on or after 31 May 2014.
“When this Subdivision applies
(1) This Subdivision applies if, after disregarding any amounts covered by subsection (2), your * assessed net amount for a tax period takes into account an amount of GST exceeding that which is payable.
Note: This Subdivision applies whether or not you have paid, or been refunded, the assessed net amount.
Example: Sunny Co mistakenly reports a negative net amount of $4,000 made up of GST of $10,000 less input tax credits of $14,000. In fact, Sunny Co's GST should have been $8,000 making its negative net amount $6,000. Sunny Co has excess GST of $2,000.
(2) Disregard the following amounts:
(a) an amount of GST that was correctly payable and attributable to the tax period, but which later becomes the subject of a * decreasing adjustment;
(b) an amount of GST that is payable, but is correctly attributable to a different tax period;
(c) an amount of GST to which section 142-16 (about low value goods) applies.”
Section 142-10 of the GST Act states:
“Refunding the excess GST
For the purposes of each * taxation law, so much of the excess from subsection 142- 5(1) (the excess GST) as you have * passed on to another entity is taken to have always been:
(a) payable; and
(b) on a * taxable supply;
until you reimburse the other entity for the passed-on GST.”
Time limit to claim input tax credits
Section 93-5 of the GST Act as it applied for the tax periods ended 30 September 2011 and 31 December 2011:
“93-5 Time limit on entitlements to input tax credits
(1) You cease to be entitled to an input tax credit for a *creditable acquisition to the extent that you have not taken it into account in working out your *net amount for:
(a) the tax period to which the input tax credit would be attributable under subsection 29-10(1) or (2); or
(b) any other tax period for which you give to the Commissioner a *GST return during the period of 4 years after the day on which you were required to give to the Commissioner a GST return for the tax period referred to in paragraph (a).”[3]
[3] This version of section 93-5 was substituted by No 39 of 2012, applicable in relation to payments and refunds that relate to tax periods, and fuel tax return periods, starting on or after 1 July 2012.
Exceptions to the time limit prescribed in section 93-5 are contained in section 93-10 of the GST Act which states:
“93-10 Exceptions to time limit on entitlements to input tax credits
Commissioner has notified you of excess or refund etc.
(1) You do not cease under section 93-5 to be entitled to an input tax credit to the extent that:
a) the input tax credit arises out of circumstances that also gave rise to the whole or a part of:
i) an amount, or an amount of an excess, in relation to which paragraph 105- 50(3)(a) in Schedule 1 to the Taxation Administration Act 1953 applies; or
ii) a refund, other payment or credit in relation to which paragraph 105-55(1)(b) in Schedule 1 to the Act applies; and
b) the Commissioner gave to you the notice referred to in that paragraph not later than 4 years after the end of the tax period to which the credit would be attributable under subsection 29-10(1) or (2) of this Act.
…
You have notified the Commissioner of refund etc.
(3) You do not cease under section 93-5 to be entitled to an input tax credit to the extent that:
a) the input tax credit arises out of circumstances that also gave rise to the whole or a part of the refund, other payment or credit in relation to which paragraph 105-55(1)(a) in Schedule 1 to Taxation Administration Act 1953 applies; and
b) you gave to the Commissioner the notice referred to in that paragraph not later than 4 years after the end of the tax period to which the credit would be attributable under subsection 29-10(1) or (2) of this Act.”
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