QFP Professional Tomato Project 98 and Ors and Commissioner of Taxation
[2010] AATA 864
•4 November 2010
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2010] AATA 864
ADMINISTRATIVE APPEALS TRIBUNAL )
) No: 2008/1565; 2008/1566;
TAXATION APPEALS DIVISION ) 2008/1567
ReQFP Professional Tomato Project 98; and
QFP2 Tomato Project 99; and
The All Farm Windsor Mushroom Project
Applicants
And Commissioner of Taxation
Respondent
DECISION
TribunalThe Hon B Tamberlin QC, Deputy President
Date4 November 2010
PlaceSydney
DecisionThe decision under review is affirmed.
.............[sgd].................................
The Hon B Tamberlin QC
Deputy President
CATCHWORDS
TAXATION – Goods and Services Tax – creditable acquisition – management and other services provided for an agricultural scheme – input tax credit claimed – no evidence of consideration being paid within 12 months of the invoice – increasing adjustment required to be made – no increasing adjustment made by applicant – amended notices of assessment increasing the amount of GST owing issued by Commissioner – applicant failed to prove the debts had been discharged – GST owed - decision affirmed
TAXATION - penalties – recklessness - misleading statement – no reasonable explanation - 50% rate applied – decision affirmed
RELEVANT ACT/S
A New Tax System (Goods and Services Tax) Act 1999 (Cth)
Taxation Administration Act 1953 (Cth)
CITATIONS
Hua – Aus Pty Ltd v Federal Commissioner of Taxation (2010) 184 FCR 430
Vale Press Pty Ltd v Commissioner of Taxation (1994) 53 FCR 92
REASONS FOR DECISION
| 4 November 2010 | The Hon B Tamberlin QC, Deputy President |
These three matters concern applications for review of objection decisions of the Commissioner disallowing the Applicants’ objections to Notices of Assessment of GST in respect of various periods together with Notices of Assessment of penalties for tax shortfall amounts.
The Notices of Assessment in each case concern “increasing adjustments” made by the Commissioner pursuant to s 21.15 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act) for claims for input tax credits made by the Applicants in earlier tax periods.
issues
A primary issue in each application is whether the amounts claimed as the basis for the input tax credit, have been paid in the prescribed period. The second issue concerns penalties.
There are strong similarities between the facts which fall for consideration in each of the applications. I will deal firstly with QFP Professional Tomato Project 98 (2008/1565) as showing the nature of the factual context.
QFP Professional Tomato Project 98 (Project 98)
The present application is now limited to the Notices of Assessment issued for tax periods ended 31 December 2003 and 31 December 2004, and associated penalties imposed in respect of shortfall amounts for these periods. The amount of revised net GST payable in each case is $118,600 and $50,380 respectively.
The Commissioner also issued a GST shortfall penalty assessment in each of the periods at 50 percent of the relevant shortfall amount. The Applicants' objections in relation to the shortfall penalty were disallowed.
background
Project 98 is a registered partnership for GST purposes comprising participants in the QFP Professional Tomato Project established on 30 June 1998. The partnership is a legal entity and an acquisition made by a partner in that capacity is treated as an acquisition made by the partnership for GST purposes. The Applicant has elected to account for GST on a quarterly non-cash basis.
The Applicant has claimed “input tax credits” and these have been the subject of increasing adjustments in later tax periods by the Commissioner. The tax credits related to tax invoices issued to the Applicant by Quality Food Production Pty Ltd in respect of occupation fees, cultivation fees and marketing fees in respect of the growing and sale of tomatoes.
The “tax invoices” produced by the Applicant are Numbered 29 dated 30 June 2001, which relate to the above matters, in respect of the year ended 30 June 2001, and invoice number 31 dated 1 July 2003, relating to the period ended 30 June 2002. Although there was some dispute about the addressee of invoice number 29, it is clear that a claim for an input tax credit of $168,980 was made in the business activity statement (BAS) for the Applicant in the period ended 31 December 2002. There is no evidence that the invoice was incorrect but such an assertion was made by way of submission only.
Despite numerous requests by the Commissioner during a GST audit and in these proceedings, the Applicant has not produced any evidence that any part of the amounts owing in respect of project fees have been discharged.
The Applicant has provided a lengthy printout by a company named Australian Technology Finance Pty Ltd, which purports to show amounts paid by members having farms in Project 98 and maintains that the funds were then paid to Quality Food Production, although there is no satisfactory proof of this or the legal basis on which such alleged payments were made.
The Applicant states that Australian Technology Finance Pty Ltd was the financier of the project, but it is unclear as to why and how this company was paying money to Quality Food Production or how such payments to it could be relevant.
As an accruals-based taxpayer, there is no dispute that the Applicant was entitled to claim an input tax credit for a creditable acquisition in advance of paying the consideration for the creditable acquisition under the GST Act. However, where the debt in respect of a creditable acquisition is not paid within 12 months of being overdue, then the entity is required to reverse the claim by making an increasing adjustment in the later BAS. This was not done. Such an omission, it is said for the Commissioner, constitutes amounts to misleading conduct.
Commissioner’s case
The Commissioner says that the Applicant claimed a creditable acquisition from Quality Food Production for marketing and cultivation services and occupation rights. That is to say, for the amounts owing on the tax invoices. The Commissioner does not challenge that a creditable acquisition was made for consideration, but the real issue is whether there is proof that the consideration was paid.
The evidence establishes that the fees in question, the subject of the Invoices, were to be paid within 14 days after the invoice was received and that they remained unpaid - for more than two years and five months in the case of invoice number 29. In the case of invoice number 31, the amount was overdue by 14.5 months.
The failure to discharge the liability in respect of the above fees was in breach of the Applicant's obligation to discharge those fees and no satisfactory evidence has been adduced to prove that they were actually discharged or were ever paid to Quality Food Production. The tax invoices have been overdue for more than 12 months. No adjustment was made and therefore there should be an increasing adjustment and this was not made. The failure to make any disclosure of the obligation to make an increasing adjustment was misleading.
The Commissioner relies on s 14ZZK of the Taxation Administration Act 1953 (Cth) (the TAA), which imposes on the Applicant the burden of proving the notices of assessment of net GST is excessive.
In this case, no satisfactory evidence has been adduced by the Applicant and on the material before me, there is no reasonable explanation of why the assessment is in fact excessive. Therefore, the onus has not been discharged.
There is a great paucity of evidence in this case. Mr Cook, a director, was called and he gave no satisfactory proof as to the discharge of the tax invoices in question. The tax agent who appeared, Mr O’Halloran, was available as a witness but did not give any evidence. The Applicant’s case was largely put in the form of a submission and assertions by Mr Cook and Mr O’Halloran without any relevant connecting evidence. For example, the Applicant submitted that monies were paid by members, collected by the financier and paid to Quality Food Production. There is no documentary evidence to establish this and no testimony was adduced orally to clarify the position. Documents placed before the Tribunal were unauthenticated and the relevant provisions were not indicated in submissions, which did not show any coherent pattern.
In particular, the material did not explain or establish any relationship between the payments of tax invoices on account of fees.
It is clear that the authorities applying to the discharge of the burden of proof in income tax appeals apply equally in the context of GST: see Hua – Aus Pty Ltd v Commissioner of Taxation (2010) 184 FCR 430; [2010] FCA 341 at [17]-[23] per Edmonds J.
In this case, the burden of proof has clearly not been discharged in the absence of any sufficient documentary or oral evidence.
Accordingly, in the first matter, the decision in relation to the increasing adjustment must be affirmed.
penalties
The position is that by failure to include any increasing adjustment as required by s 21-15 of the GST Act, a misleading statement was made to the Commissioner. It does not matter that the input tax credit was not actually refunded to the Applicant as contended by the Applicant and there is no evidence that the claim or underlying invoice was incorrect.
The tax agent has repeatedly, on numerous occasions, failed to provide satisfactory evidence. A reasonable person in the position of the Applicant or its tax agent acting for a client operating on an accruals basis claiming input tax credits would clearly recognise the obligation to make an increasing adjustment if the debt was not paid within 12 months. In this case the failure has continued over a very substantial period.
It is of no consequence that the false statement was detected before the Commissioner paid or allowed an input tax credit.
The Applicant sought to rely on a statement made in a letter dated 9 November 2009. However, nothing in that letter is relevant to whether a false or misleading statement was made in earlier tax periods.
Accordingly, for the above reasons, I am not satisfied that the Applicant has discharged its onus of proof in relation to the penalties in this matter.
Therefore, the Commissioner’s decision is affirmed.
QFP2 Tomato Project 99 (matter number 2008/1566)
In this matter, the tax periods and penalties remaining in dispute relate to the three-month period ending on 31 December 2004 and concern the shortfall amount for this period. The revised net GST payable is $147,960 in respect of this period. The penalties were imposed at the rate of 50 percent.
The Applicant, QFP2, was registered as a partnership for GST purposes on 19 December 2000. The Applicant is a partnership of participants in the Quality Food Production No. 2 Pty Ltd project (QFP2) established by deed dated 30 June 1999. It is an entity for the purposes of the GST provisions. Again, the Applicant elected to account for GST on a quarterly non-cash accruals basis.
Under the relevant Deed, QFP2 was the designated manager and operational manager of the business of the cultivation of hydroponic crops, which the participant owns and has a right to occupy an area and conduct the business on the farm. A management agreement was entered into between the manager and a participant and the fees were payable by participants to QFP2 in respect of the project in the form of management fees, occupation fees and seedling fees.
The input tax credits claimed by the Applicant related to tax invoices issued to the Applicant by QFP2 and also Quality Food Production.
The Applicant referred to a printout by Australian Technology Finance No 2 Pty Ltd, which purported to show amounts paid by members on the basis on which the Applicant contended that the funds were then paid to Quality Food Production or to the order of that company. The Applicant contended that Australian Technology Finance had a deposit agreement with QFP2 whereby the latter company deposited funds with it and referred to a deposit agreement that created a deposit account for QFP2 with Australian Technology Finance containing provisions governing withdrawal and interest. There is no explanation as to why Australian Technology Finance was paying money to Quality Food Production and how this related to evidence of the discharge of debts between the Applicant and QFP2 in respect of the relevant fees.
submissions for respondent
Essentially, the Commissioner claimed that there is no evidence that the obligation to pay for the creditable acquisition has been discharged in fact. The Applicant claimed it made a creditable acquisition for consideration being the project fees stated as owing on tax invoice number 33. The creditable acquisition was claimed and the Commissioner does not challenge that a creditable acquisition was made for consideration but rather the contention is that the consideration was not paid.
The evidence indicates that the consideration, being payment of the project fees stated as owing in the tax invoice, was overdue for a period in excess of 12 months. The invoice was dated 1 July 2003 and the invoice was payable within 14 days. Because the Applicant failed to discharge the project fees, there was a breach of its obligation and the Applicant was required to make an adjustment in its BAS after the amount was overdue for 12 months. This was not done.
Again, as in the previous case, the Commissioner relies on s 14ZZK of the TAA.
In this matter, relevant documents have not been explained or authenticated. No witness has given evidence as to the discharge of the tax invoice and circumstances surrounding such discharge are peculiarly within the knowledge of the Applicant and its agents. No participant has been called to explain the basis on which payment was made or whether such payment was made or to whom it was made. The tax agent did not give evidence to explain the nature and significance of the numerous printouts and accounting records filed. No attempt was made to properly authenticate or explain them. The Applicant’s case is in the form of a series of allegations that are unproven.
The gist of the Applicant's case is that monies were paid by members and collected by a company that may have been a financier and then paid to Quality Food Production. There is no evidence to support this but it does appear, on the face of the unauthenticated documents, that some monies may have been paid to Australian Technology Finance. These payments are not shown to be linked in any legal or practical way to the payment of the tax invoice in question.
The principles relating to burden of proof in income tax appeals, referred to earlier, apply equally in this matter: see the Hua – Aus case cited above.
Having regard to the foregoing considerations, I am not satisfied that the burden of proof has been discharged by the Applicant in this matter in relation to the alleged payments and therefore the application in respect of this is dismissed and the decision of the Commissioner is affirmed.
penalties
Nothing has been put forward to support the proposition that a reasonable person in the position of the Applicant or the tax agent, accounting on an accruals basis, would fail to appreciate the application of the requirements for an increasing adjustment. Having regard to the state of the documentation placed before me and the paucity of evidence and the lack of any explanation despites requests from the Respondent to provide supporting evidence, I am satisfied that conduct of the Applicant and its agents in this matter can be described as “reckless” and that there is no reasonably arguable case to support the applicant’s assertion and that such conduct properly attracts the penalty rate of 50 percent.
Accordingly, having regard to the lack of evidence and the failure to explain the reasons why there was no attempt to make any increasing adjustment, I am satisfied that the decision of the Commissioner in respect of penalty in this matter aught be affirmed and the application before the Tribunal dismissed.
the allfarm mushroom project (matter number 2008/1567)
This proceeding is limited to the notice of assessment issued for the tax period ended 31 December 2004 and associated penalties imposed in relation to the shortfall amount for this period. The revised net GST payable is $20,562. Again, the penalty was imposed at a 50 percent rate based on recklessness.
The factual background and legal structure of the scheme, so far as it appears from the material, is substantially similar to those relating to the Tomato Projects, except that this project relates to mushrooms.
The Applicant was registered as a partnership for GST purposes on 19 December 2002. It was a partnership of participants in the mushroom project but no project deed or copy of any such deed has been produced in this matter. Again, the Applicant elected to account on an accruals basis.
As indicated in an undated “Information Memorandum”, it appears that there was a management agreement in respect of a mushroom farm located at Windsor. The manager was to be the Applicant and conduct operations on the project on a daily basis. There was provision for a series of fees involving cultivation, occupation, spawning and matting. The Information Memorandum envisaged that a Project Deed would be entered into. Attached to the Information Memorandum was a copy of an unexecuted management agreement in consideration of the management of the All Farm Windsor Pty Ltd performing cultivation and marketing services, the participant was liable to pay the manager a cultivation fee, which was to be paid on an invoice issued by the manager to the accountant within 14 after the accountant received an invoice. The purported relevant invoice was invoice number 34 dated 1 July 2003 relating to occupation, cultivation and marketing fees for the year ended 30 June 2003. The GST in question is $20,562.75.
The submissions on behalf of the Commissioner are substantially similar to those in those in the other proceedings and in substance are to the effect that there is no credible evidence that any consideration has in fact been paid under the invoice in respect of which the creditable acquisition was made.
Accordingly, the Applicant has failed to meet the burden of proof requirements under s 14ZZK of the TAA and therefore, the application is dismissed and the decision of the Commissioner affirmed in relation to the failure to make an increasing adjustment in respect of the creditable acquisition.
penalty
Nothing has been advanced to warrant any reduction of the penalty from the 50 percent rate based on recklessness. There was a misleading statement. The tax agent has repeatedly failed to provide evidence that the Applicant provided consideration for the input tax credits. It did not respond to letters from the ATO. A reasonable person in the position of the Applicant and the tax agent would have been aware from the position of the Applicant that the relevant invoices had not been discharged. There has been advanced no reasonable evidence or argument to support the application of a penalty less then that imposed in this matter.
Accordingly, the decision of the Commissioner on penalty is affirmed and the application is dismissed.
overall conclusion
In each of the matters (2008/1565; 2008/1566; and 2008/1567), for the above reasons, all the decisions of the Commissioner, the subject of the applications, are affirmed and the applications are dismissed.
I certify that the 52 preceding paragraphs are a true copy of the reasons for the decision herein of the Hon B Tamberlin QC, Deputy President
Signed: .............[sgd]...........................................................
Alison Connor, Associate
Date/s of Hearing: 7, 9 June 2010
Date of Decision: 4 November 2010Applicant representative: Barton Steele Management Services Pty Ltd with Mr Brian Cook
Respondent representative: Australian Taxation Office Legal Services Branch
Respondent counsel: Ms Michelle Hirschhorn
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