R.V. Investments (Aust) Pty Ltd as Trustee for the RV Unit Trust And Commissioner of Taxation
[2014] AATA 158
•21 March 2014
[2014] AATA 158
Division TAXATION APPEALS DIVISION
File Numbers 2012/3282
Re R.V. Investments (Aust) Pty Ltd as Trustee for the RV Unit Trust
APPLICANT
And Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Deputy President S A Forgie
Date 21 March 2014
Place Melbourne
Decision: The Tribunal decides:
(1)to vary the respondent’s objection decision dated 17 July 2012:
(a)in relation to the tax period from 1 July 2009 to 30 September 2009, by increasing the net amount so that the refund payable to the applicant is reduced from $61,499.00 to $24,513;
(b)in relation to the tax period from 1 October 2009 to 31 December 2009, by decreasing the net amount so that:
(i)an amount of $8,386.00 is no longer payable by the applicant; and
(ii)a refund of $1,740.00 is payable to the applicant;
(c)in relation to the tax period from 1 January 2010 to 31 March 2010, by decreasing the net amount so that the amount payable by the applicant is reduced from $9,164.00 to $2,086.00;
(d)in relation to the tax period from 1 April 2010 to 30 June 2010, by decreasing the net amount so that:
(i)an amount of $13,938.00 is no longer payable by the applicant; and
(ii)a refund of $5,574.00 is payable to the applicant;
(e)in relation to the tax period from 1 July 2010 to 30 September 2010, by decreasing the net amount so that the amount payable by the applicant is decreased from $59,767.00 to $3,782.00;
(f)in relation to the tax period from 1 October 2010 to 31 December 2010, by decreasing the net amount so that the amount payable by the applicant is decreased from $13,361.00 to $12,578.00; and
(2)in relation to penalties:
(a)set aside that part of the objection decision affirming the decision to impose penalties for recklessness for the tax period 1 July 2010 to
30 September 2010 and for intentional disregard for the tax periods from 1 July 2009 to 31 December 2010; and
(b)substitute a decision that penalties be imposed at the rate of 50% of any shortfall amount in the tax periods from 1 July 2009 to
31 December 2010 on the basis that they have resulted from recklessness by the applicant.
[sgd] S. A. Forgie
Deputy President
CATCHWORDS – TAXATION – GOODS AND SERVICES TAX – creditable acquisitions – whether acquired for creditable purpose – whether supply a taxable supply – whether consideration provided or liability to provide consideration incurred – objection decision varied.
TAXATION – PENALTIES – recklessness – objection decision varied.
LEGISLATION
A New Tax System (Goods and Services Tax) Act 1999 section 7-1, 7-5, 7-10, 7-15, 9-5, 9-10, 9-15, 9-20, 9-30, 9-40, 9-69, 9-75, 11-5, 11-10, 11-15, 17-5, 19-10, 19-70, 19-75, 19-80, 19-85, 19-99, 21-15, 21-99, 27-5, 29-5, 29-10, 29-20, 29-70, 29-80, 32-5, 32-10, 32-25, 32-30, 33-3, 35-5, 48-57, 54-50, 69-5, 195-1,
A New Tax System (Goods and Services Tax Administration) Act 1999 sections 20(2) and 63
Administrative Appeals Tribunal Act 1975 sections 25(3), 34, 37, 42C
Corporations Act 2001 section 1274A and 601AB
Excise Act 1901 sections 3 and 4(1)
Fringe Benefits Tax Assessment Act 1986 sections 3, 54, 58, 58A, 58F, 58L, 58LA, 58M, 58N, 58P, 58S, 58T, 136(1)
Income Tax Assessments Act 1936 sections 8, 26(a), 161(1), 223, 226H, 226G, 226K, 190(b)
Income Tax Assessments Act 1997 sections 1-7, 8-1 26-5, 26-30, 26-40, 26-45, 26-50, 51AK, 51AEA, 51AEB, 51AEC, 995-1
Migration Act 1958 section 20(1)
Sales Tax Assessment Act (No 1) section 45(2)
Superannuation Guarantee (Administration) Act 1992 sections 3 and 43
Tax Agent Services Act 2009
Tax Laws Amendment (2010 Measures No. 1) Act 2010
Taxation Administration Act 1953 section 2(2), 14ZZK(b)(i), 105-55(2A)250-10, 255-1, 284-75(1), 284-80, 284-90, 284-220, 284-225, 298-20CASES
Alexandra Private GeriatricHospital Pty Ltd v Blewett (1984) 2 FCR 368; 56 ALR 265
Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2) [2011] FCA 1090; (2011) 196 FCR 457
Branir Pty Ltd v Owston Nominees (No. 2) Pty Ltd [2001] FCA 1833; (2001) 117 FCR 424
BRK (Bris) Pty Ltd v Commissioner of Taxation (2001) 46 ATR 347
Bucknell v Commercial Banking Company of Sydney (1937) 58 CLR 155
Byrne v Beadle (1863) 2 H&C 722
Chaproniere v Mason (1905) 21 TLR 633
Commissioner of Taxation v White (No 2) [2010] FCA 942; (2010) 117 ALD 335; [2010] ATC 20-205
Davis v Commissioner of Taxation [2000] FCA 44; (2000) 2000 ATC 4198
Defendant v Hasbauer [1967] HCA 14; (1967) 117 CLR 448
Dixon v Federal Commissioner of Taxation [2008] FCAFC 54; (2008) 167 FCR 287
Do v Minister for Immigration & Multicultural Affairs [2000] FCA 30
Ellor v Selfridge (1930) 46 TLR 236
FCT v Turner (1984) 15 ATR 379; 73 FLR 24; 84 ATC 4161
Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 64 ALJR 166; 90 ATC
Galea v Commissioner of Taxation [1990] FCA 456; (1990) 90 ATC 5060; 21 ATR 1108
Gauci v Federal Commissioner of Taxation (1975) 135 CLR 81
George v Eagle Air Services Ltd [2009] UKPC 21
Hart v Commissioner of Taxation(2003) 131 FCR 203
Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation (1991) 91 ATC 4546; 22 ATR 148
Kajewski v Federal Commissioner of Taxation [2003] FCA 258; [2003] ATC 4375
MacDonald v Australian Wool Innovation Ltd [2005] FCA 105
McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 79 ATC 4111
Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24; 66 ALR 299
Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225
Minister for Immigration v Dela Cruz [1992] FCA 71; (1992) 34 FCR 348; 110 ALR 367; 26 ALD 663
Ng Chun Pui v Lee Chuen Tat; Privy Council Appeal No. 1 of 1988
Pascoe v FCT (1956) 6 AITR 315; 11 ATD 108
Richard Walter Pty Ltd v Commissioner of Taxation (1996) 67 FCR 243; 96 ATC 4550; 33 ATR 97
Pascoe v Federal Commissioner of Taxation (1956) 11 ATD 198; (1956) 30 ALJR 402
Pearson v Deputy Commissioner of Taxation [2009] FCA 558; (2009) 74 ATR 437
Professional Admin Services Pty Ltd v Commissioner of Taxation [2013] FCA 1123
Reed (Albert E) and Co Ltd v London and Rochester Trading Co Ltd [1954] 2 Lloyds Rep 463
Reliance Finance Corporation Pty Ltd v FCT (1987) 18 ATR 224; 87 FLR 305; 87 ATC 4146
Revlon v Manufacturing Limited v Federal Commissioner of Taxation (1995) 63 FCR 535; 134 ALR 23; 32 ATR 48
Scott v The London and St Katherine Docks Company [1865] 3 H&C 596; 159 ER 665
Shawinigan Ltd v Vokins and Co Ltd [1961] 3 All ER 396 at 403
Spencer v Hemmerde [1922] 2 AC 507
Tuite v Administrative Appeals Tribunal [1993] FCA 71; (1993) 40 FCR 483; 17 AAR 165; 29 ALD 647
Vu v Commissioner of Taxation [2006] FCA 889; (2006) 63 ATR 341 at [9]
Ward v Tesco [1976] 1 WLR 810
Weyers & Anor v Federal Commissioner of Taxation [2006] ATC 4523; (2006) 63 ATR 268; [2006] FCA 818
York Air Conditioning and Refrigeration (A/asia) Pty Ltd v The Commonwealth [1949] HCA 23; (1949) 80 CLR 11SECONDARY MATERIALS
Phipson on Evidence, Seventeenth Edition, 2010, Thomson Reuters (Legal) Limited
Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers
REASONS FOR DECISION
R.V. Investments (Aust) Pty Ltd (RV Investments) is the trustee of the RV Unit Trust (Trust). It operates a business of repairing, maintaining and hiring motor vehicles. Officers of the Australian Taxation Office (ATO) conducted an audit of RV Investments’ Activity Statements. Following the audit a delegate of the Commissioner of Taxation (Commissioner) issued notices of assessment of net amounts under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in respect of the tax periods from 1 July 2009 to 31 December 2010 (relevant period). The difference between the net amounts reported by RV Investments and those determined by the Commissioner totalled $163,168.00. The Commissioner assessed penalties totalling $128,355.20 partly on the basis that RV Investments had intentionally disregarded the GST Act and partly on the basis that it had been reckless as to its operation.
There have been prolonged discussions between RV Investments and the Commissioner both with the aid of the Tribunal and without. As a result of those discussions, the taxable supplies have been agreed for the relevant period as amounting to $1,141,296.00. That represents an increase on the taxable supplies as reported by RV Investments i.e. $1,015,633.00. That meant that the focus of the hearing was on creditable acquisitions. In the course of the submissions, RV Investments has also conceded that a number of amounts it had claimed as creditable acquisitions were not properly claimed. The Commissioner has also conceded that a number are properly claimable. RV Investments has not queried the Commissioner’s correction of the total of its claims particularised in Annexure 1 to the statement of Mr Denysenko from $2,040,548.00 to $1,540,048.00. The correction was made in the submissions made on his behalf and not queried in the Reply lodged on behalf of RV Investments.
I have accepted the concessions made by the parties and have decided that RV Investments has not met its burden of proof in establishing that the assessments of net amounts are otherwise excessive. My decision varying the net amounts for each tax period reflects that as well as the concessions made by the parties. In relation to penalties, I am satisfied that shortfall amounts have resulted from false statements made by RV Investments in its Activity Statements but am not satisfied that any of them resulted from intentional disregard of the law. I am satisfied that they resulted from recklessness as to the operation of the GST Act. Therefore, I have made a decision that penalties should be assessed at the rate of 50% of any shortfall amount.
BACKGROUND
There is no disagreement between the parties regarding some of the matters leading to the matters in issue between the parties. With that in mind, I set out the findings of fact that I have made on such matters in this section of my reasons.
RV Investments
RV Investments was registered with the Australian Securities and Investments Commission (ASIC) on 30 October 2008. Its Director and Secretary is Ms Rosa Villella. She is its only shareholder and holds all 1,000 of the shares it has issued.[1] RV Investments carries on a business repairing, maintaining and hiring motor vehicles.
[1] Documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (T documents); T15 at 56-59
On 3 November 2008, a Deed was executed between RV Investments, as Trustee, and Ms Villella, as Unit Holder, whereby she agreed that she would subscribe one dollar for a single Unit. At that stage, the single dollar comprised the Trust Fund, which was known as the RV Unit Trust. It would also comprise other sums paid or transferred to RV Investments and accepted by it as additions to the Trust Fund.[2] In return, RV Investments consented to hold the Trust Fund upon trust and subject to the terms and conditions set out in the Deed.
Ms Villella remains the sole Unit Holder.
[2] T documents; T16 at 60-81
RV Investments registered under the GST Act with effect from 1 July 2009. It lodges its activity statements on a quarterly basis and accounts for GST on an accrual basis. For the period from 1 July 2009 to 31 December 2010, it lodged activity statements claiming a net GST credit of $120,051.00.[3] The following amounts were declared in those statements:
[3] T documents; T3-T8 at 44-49
Tax Period
Label G1 Sales ($)
Label 1A GST on Sales ($)
Label G11 Purchases ($)
Label 1B GST on purchases ($)
GST Net Amount ($)
Jul-Sep 09
0
0
0
67,500
67,500
Oct-Dec 09
0
0
0
0
0
Jan-Mar 10
199,560
18,150
357,691
31,624
-13,474
Apr-Jun 10
259,804
23,619
417,166
35,775
-12,156
Jul-Sep 10
279,866
25,442
452,987
38,355
-12,913
Oct-Dec 10
276,403
25,127
477,338
39,135
-14,008
Total
1,015,633
92,338
2,447,682
212,389
-120,051
In a letter dated 25 August 2010, the ATO wrote to RV Investments as trustee of the RV Unit Trust to advise that it would be auditing the activity statements. Initially, the audit concerned those lodged for the quarters from 1 July 2009 to 31 March 2010.[4] The ATO advised RV Investments that it needed to:
“… verify the amounts reported on the activity statements with the relevant supporting documentation. This may include documents such as tax invoices, accounting records, bank records and other records needed to substantiate the amounts reported.”[5]
[4] T documents; T17 at 82
[5] T documents; T17 at 82
Various correspondence was exchanged between RV Investments and its accountants on the one hand and the ATO on the other. On 1 March 2011, the ATO extended the period it was auditing to 31 December 2010.[6] In a letter dated 31 August 2011, the ATO advised RV Investments of the interim findings of its audit. Among its preliminary findings, the ATO noted:
(1)RV Investments had omitted sales from its activity statements for the period from 1 July 2009 to 31 December 2010. The ATO had reached that conclusion after being provided with only two invoices relating to acquisitions in the September 2009 quarter. No sales had been recorded for either of the September or December 2009 quarters. That conflicted with information of sales given by RV Investments’ tax agent for the same period in relation to the repair and maintenance part of the business. There was no information relating to income from the lease of motor vehicles. The ATO analysed an ANZ bank account and estimated the sales made by RV Investments in the period.[7]
(2)RV Investments had not claimed the correct amount of GST credits on its purchases during the period in that it had claimed them on purchases for which it did not hold a valid tax invoice and for which it had not provided consideration. The ATO supported its preliminary finding by reference to documents disclosed by RV Investments’ tax agent and an analysis of bank accounts as well as by estimates arrived at by reference to Industry Tables.[8]
(3)administrative penalties would be imposed.[9]
[6] T documents; T27 at 254-255
[7] T documents; T38 at 547-550
[8] T documents; T 38 at 551-556
[9] T documents; T38 at 558-563
On 28 November 2011, the Commissioner issued Notices of Assessment to RV Investments. One set out the net amount, which is a figure arrived at by deducting Input Tax Credits from GST.[10] When the result of that calculation is more than zero, it is an amount owed by the entity to the Commonwealth.[11] When the net amount is a negative number, it is due as a refund to the entity.[12] The Commissioner’s assessment produced a number above zero being $163,168.00 owed to the Commonwealth.[13] The assessment showed the adjustments made to the activity statements lodged in the period from 1 July 2009 to 31 December 2010:
[10] GST Act; s 17-5
[11] GST Act; s 33-3 The GST Act is expressed in terms of “you” which means that it applies to entities generally, including individuals, unless its application is expressly limited: GST Act; s 195-1.
[12] GST Act; s 35-5
[13] T documents; T42 at 658
Column A
Column B
Column C
Column D
Tax period
Original net amount
Assessed net amount
Difference
(Col C – Col B)Jul-Sep 09
-67,500
-61,499
6,001
Oct-Dec 09
-
8,386
8,386
Jan-Mar 10
-13,474
9,164
22,638
Apr-Jun 10
-12,156
13,938
26,094
Jul-Sep 10
-12,913
59,767
72,680
Oct-Dec 10
-14,008
13,361
27,369
Totals
163,168
The total amount applied to your running balance account is:
163,168
Also on 28 November 2011, the Commissioner issued an assessment of RV Investments’ liability to pay penalty. That assessment was in the amount of $128,355.20.[14] That figure was made up of the following amounts imposed as an administrative penalty in respect of
[14] T documents; T43 at 660
each of the quarters for the relevant period:
Behaviour type
Rate
Base Penalty Amount (BPA)
Increase/Decrease in BPA
Remission
Penalty
1 July 2009 to 30 September 2009
Intentional Disregard
75%
$4,500.75
20%
$900.15
$5,400.90
Total
$5,400.90
1 October 2009 to 31 December 2009
Intentional Disregard
75%
$6,289.50
20%
$1,257.90
$7,547.40
Total
$7,547.40
1 January 2010 to 31 March 2010
Intentional Disregard
75%
$16,978.50
20%
$3,395.70
$20,374.20
Total
$20,374.20
1 April 2010 to 30 June 2010
Intentional Disregard
75%
$19,570.50
20%
$3,914.10
$23,484.60
Total
$23,484.60
1 July 2010 to 30 September 2010
Intentional Disregard
75%
$19,830.00
20%
$3,966.00
$23,796.00
Total
$23,796.00
1 July 2010 to 30 September 2010
Recklessness
50%
$23,120.00
20%
$23,120.00
Total
$23,120.00
1 October 2010 to 31 December 2010
Intentional Disregard
75%
$20,526.75
20%
$4,105.35
$24,632.10
Total
$24,632.10
On 21 February 2012, RV Investments lodged an objection to the assessments as to net amounts and to penalties.[15] In summary, it did so on the basis that the assessments were based on sales that were not sales, had failed to allow credit for creditable acquisitions and had incorrectly calculated the increasing adjustment for acquisitions not paid for within
12 months. Its solicitors lodged further information and the Commissioner asked for additional information in a letter dated 17 May 2012.[16] The Commissioner disallowed the objection on 17 July 2012.[17]
[15] T documents; T44 at 664-671
[16] T documents; T47 and 48 at 700-738
[17] T documents; T49 at 739-740
During the course of proceedings in this Tribunal, RV Investments and the Commissioner have reached an agreement as to the amount of taxable supplies made during the relevant period. They total $1,141,296.00 and have been made in each of the quarters in the relevant period. When compared with the sum of $1,015,633.00 reported in the activity statements, RV Investments had understated its taxable supplies by $125,633.00. The following table shows the amount attributable to each quarter and the amount of taxable supplies disclosed by RV Investments in its activity statements:
Tax period
Reported taxable supplies[18]
Agreed taxable supplies
Jul-Sep 09
0
$48,032
Oct-Dec 09
0
$142,813
Jan-Mar 10
199,560
$143,372
Apr-Jun 10
259,804
$215,215
Jul-Sep 10
279,866
$293,796
Oct-Dec 10
276,403
$298,069
Total
1,015,633
$1,141,296
[18] See “Label G1 Sales ($)” heading in table at [7] above.
Paul & Paul Pty Ltd
On the basis of the extract from the database maintained by the ASIC under s 1274A of the Corporations Act 2001[19] (Corporations Act), I make the following findings of fact. Paul & Paul Pty Ltd (Paul & Paul) was registered under that name with effect from 9 March 1989.[20] It is an Australian Proprietary Company limited by shares. Since 23 October 2012, Ms Villella has been its sole director but, during the relevant period, she was not. In the relevant period, there have been two with their periods of tenure overlapping for all but the last six months of the relevant period. They were:
(1)Mr Paul Frederick Cowling: 9 March 1989 to 27 May 2013; and
(2)Mr Mykola Anton Denysenko: 27 November 2007 to 1 July 2010.
[19] Exhibit 1 at 1
[20] Since 18 December 2012, it has been known as Foton Dandenong Pty Ltd
Between 13 November 2009 and 28 September 2011, its registered office was located at 10 Plunkett Road, Dandenong. Its principal place of business continues to be located at that address. Its previous principal place of business had been located at 8 Plunkett Road, Dandenong and it had been located at that address since 1 December 2008. On the basis of the evidence of Mr Mykola Denysenko’s father, Mr Danny Denysenko (Mr Denysenko), I find that Paul & Paul bought and sold cars on both a wholesale and retail basis.[21]
[21] Transcript at 5; lines 15-16
On the basis of the evidence of Mr Denysenko, I find that Paul & Paul traded as Carsmart.[22] It too operated from 10-12 Plunkett Road, Dandenong.
[22] Transcript at 5; lines 11-13
G & D Performance Tuning Pty Ltd
On the basis of the extract from the database maintained by ASIC, I find that G & D Performance Tuning Pty Ltd was registered under that name from 9 April 1991 until 29 September 2009. For the remainder of the relevant period, it was known as ACN 006 164 316 Pty Ltd[23] but, for ease of reference, I will refer to it as “G & D Performance Tuning”. On 30 September 2009, it was placed in external administration and/or a controller was appointed. That continued until it was deregistered under s 601AB of the Corporations Act on 13 May 2012.[24] That occurred on 8 December 2011 after the Federal Court had ordered that the company be wound up in insolvency under the Corporations Act and had appointed Mr Ian Carson as liquidator.[25] Throughout the relevant period, its registered office was located at 10 Plunkett Road, Dandenong as was its principal place of business.[26]
[23] Exhibit 2 at 2
[24] Exhibit 2 at 1
[25] Federal Court proceedings VID1150/2011: Exhibit 2
[26] Exhibit 2 at 2-3
Throughout the relevant period, there were two directors of G & D Performance Tuning. Both were appointed for the period 20 December 2006 to 13 May 2012. They were Mr Mykola Anton Denysenko and Mr Matthew Steven Denysenko.[27]
[27] Exhibit 2 at 3
Rent & Buy Pty Ltd
Again on the basis of the extract from ASIC’s database, I find that, between 1 September 2004 to 29 September 2009, Rent & Buy Pty Ltd was registered as an Australian Proprietary Company limited by shares.[28] On 30 September 2010, its name changed to ACN 110 769 929 Pty Ltd after the Federal Court had earlier made an order that the company be wound up in insolvency under the Corporations Act. That order was made on 1 April 2010 when the Federal Court also appointed Mr Glenn Crisp as Rent & Buy’s.[29] I will refer to the company as “Rent & Buy” in these reasons.
[28] Exhibit 3
[29] Federal Court proceedings VID110/2010: Exhibit 3 at 3
Throughout the relevant period until 30 September 2010, Mr Mykola Anton Denysenko and Mr Matthew Steven Denysenko were directors of Rent & Buy. Each was appointed on 3 August 2005. Since 1 September 2004, the principal place of business of Rent & Buy had been 8 Plunkett Road, Dandenong. Its registered office had been 10-12 Plunkett Road, Dandenong since 6 July 2006.[30]
[30] Exhibit 3 at 2
Concessions made on behalf of RV Investments
In his written submissions on behalf of RV Investments, Mr Korman of counsel noted that Mr Linden of counsel had cross-examined Mr Denysenko in respect of claims for creditable acquisitions totalling $656,958.00. He later stated:
“14. As a result of facts which came to light during the proceeding, the Applicant has downwardly adjusted its claim by some 4.3%, or $103,275.16. These changes are presented and cross-referenced in Table 2 below.
15.The downward adjustment in claimed acquisitions is made for the following reasons:
a.claims totalling $7,195.54 were conceded by Mr Denysenko at the hearing, arising from human error
b.claims totalling $92,893.02 were not properly substantiated by the tender of tax invoices, either because compliant tax invoices were not provided or because they were provided, but had been made out to other entities. It is noted here that Mr Denysenko was questioned as to the amount of $10,000 listed in Appendix 2, in respect of which the Commissioner alleged there was no tax invoice. The witness stated that he could not recall the relevant invoice but he was sure that there was one tendered. In actual fact there was a document tendered substantiating an expenditure of $10,000, and this document was (in a different context) put to Mr Denysenko. Given that the document was not a tax invoice, this amount is in any event conceded, but it is important to note this duplication to prevent a double-deduction of $10,000 from the Applicant’s creditable acquisitions.
c.an acquisition of $142.90 was claimed in respect of non-deductible clothing expenses.
d.claims totalling $3,043.70 were claimed in respect of fringe benefits provided to staff, in circumstances where the Applicant has [sic] not entitled to claim a deduction in relation to such benefits.”[31]
[31] Applicant’s submissions dated 14 February 2014 at 3-4
In the submissions made on behalf of RV Investments at the conclusion of the case, there is a table – Table 1 – setting out the creditable acquisitions it no longer claims. It reads:
“Date
Description
Amount
Transcript
Reason
3/12/2009
VicRoads
$612.30
35/22-35/40
Conceded
2/10/2010
Cigarettes
$31.00
58/34-60/10
Conceded
5/10/2010
Cigarettes
$35.49
58/34-60/10
Conceded
1/2/2010
Horse fees
$750.00
42/19-43/3
Conceded
10/12/2009
Diamond ring
$3,550.00
45/45-46/21
Conceded
17/9/2009
Powerball
$88.35
43/25-43/43
Conceded
26/12/2009
Good Guys
$32.00
48/1-48-10
Conceded
17/06/2010
Dr Welsh
$65.00
50/36-50/39
Conceded
10/5/2010
Beaconhills Uniform
$217.00
50/40-50/45
Conceded
6/6/2010
Linen Lovers
$65.40
50/47-51/5
Conceded
20/06/2010
TAB wager
$150.00
51/33-52/9
Conceded
TOTAL CONCEDED $5,596.54
29/1/2010
Pakenham Yamaha
$1,599.00
43/43-44/23
other party
Not specified
$10,950.00
40/34-40/46
no invoice
18/12/2009
Goldsmiths
$10,000.00
36/40-37/23
no invoice
Reference to lack of evidence for $10,000 claim
41/9-41/13
no invoice
Not specified
$19,500.00
40/16-32
no invoice
Not specified
$43,500.00
41/1-41/7
no invoice
10/10/2009
Kodiak 400 Quad YFM
$4,000.00
52/11-52/24
no invoice
29/10/2010
PGD Lawyers
$2,000.00
39/42-40/27
other party
07/04/2010
Bunnings
$934.02
46/47-47/5
other party
22/04/2010
Jim’s Cleaning
$198.00
47/6-47/32
other party
26/12/2010
Good Guys
$111.00
48/1-48/10
other party
3/6/2010
Windows Covering Assoc
$400.00
48/11-48/43
other party
8/10/2009
Advanced Timber Floors
$1,300.00
50/1-50/7
other party
TOTAL NO VALID TAX INVOICE $94,492.02
15/8/2010
Footlocker
$142.90
44/3-44/21
non-deductible
TOTAL NON-DEDUCTIBLE $142.90
2/06/2010
Georgio’s Restaurant
$384.70
56/5-56/14
Fringe Ben
3/07/2010
Paringa estate
$732.00
56/25-56/34
Fringe Ben
7/08/2010
Suede bar
$800.00
56/16-56/24
Fringe Ben
28/11/2010
Il Solito Posto Restaurant
$1,127.00
56/45-56/4
Fringe Ben
TOTAL FRINGE BENEFIT $3,043.70
TOTAL CLAIMS NOT PRESSED 103,275.16”
Mr Korman also noted that, of the amounts conceded, a total of $73,950.00 was undated. He apportioned it equally among the five quarters from 1 September 2009 to 31 December 2010 when setting out an adjusted table of amounts claimed to be attributable to creditable acquisitions. Table 2 in Mr Korman’s written submissions reads:
Per Applicant’s SFIC dated 20/1/2014
Quarter
Creditable acquisitions Petty Cash
Creditable acquisitions invoices
Total cred acquisitions claimed
Conceded undated amounts
Conceded dated amounts
Creditable acquisitions now claimed
Sep 09
$806,326
$806,326
$806,326
Dec 09
$69,376
$155,897
$225,273
-$14,790
-$19,462
$191,021
Mar 10
$69.376
$111,699
$181,075
-$14,790
-$2,349
$163,936
Jun 10
$69,377
$343,813
$413,190
-$14,790
-$2,414
$395,986
Sep 10
$69,377
$340,109
$409,486
-$14,790
-$1,763
$392,933
Dec 10
$69,377
$282,704
$352,081
-$14,790
-$3,336
$333,955
TOTAL
$346,883
$2,040,548
$2,387,431
-$73,950
-$29,325
$2,284,156
In its Reply to the Commissioner’s submissions at the conclusion of the hearing, RV Investments made further concessions regarding invoices totalling a further $21,233.84. Together with the reason for the concession, the invoices are:
Date
Description
Amount
Reasons
03/02/2010
TV Guy
$1,385.00
Non-deductible
06/10/2009
Geoff Taylor Motorcycles
$2623.80
Other entity
20/11/2009
Geoff Taylor Motorcycles
$1,468.80
Other entity
04/01/2010
LS1 Owners Club of Australia
$1,860.00
No GST on invoice
09/12/2009
Chadwicks
$3,960.00
Other entity
11/11/2010
PGD Lawyers
$2,000.00
No Tax Invoice
20/11/2010
Sires Fountain Gate
$149.00
Non-deductible
07/04/2010
Bunnings
$500.00
Other entity
Harvey Norman
$2,649.00
Not clear whether deductible
Swiss Watch Service
$495.00
Not clear whether deductible
SpringCrest Curtains
$328.00
25% $1,312.00 for Paul & Paul
Jim’s Skip Bins
$200.00
Other entity
Klapp
$250.00
Not clear whether deductible
Billy Kidz (sic)
$556.45
Non-deductible
Sanity
$64.99
Non-deductible
Further restaurant claims:
14/11/2009
i. Cafe
$48.60
23/07/2010
ii. Campari
$226.50
19/12/2009
iii. Castellos
$1,316.15
10/03/2010
iv. Castellos
$145.50
14/08/2010
v. Finz
$874.70
vi. McDonalds (total)
$79.60
vii. Souvlaki (total)
$53.15
27/12/2010
viii.West
$153.60
LEGISLATIVE FRAMEWORK
The general scheme
The GST Act provides for the imposition of GST and its payment and for the time at which, and the way in which, input tax credits arise. The fundamental proposition is that GST is payable on what are called “taxable supplies” and “taxable importations”.[32] The general rule is that an entity that makes a taxable supply must pay the GST on that supply.[33] Special rules qualify that general rule but they are not relevant in this context.[34] An entitlement to an “input tax credit” arises on “creditable acquisitions” and “creditable importations”.[35] Only “creditable acquisitions” are relevant in this case for an agreement has been reached between the parties regarding taxable supplies. Amounts of GST and amounts of input tax credits are set off against each other in each tax period. Those amounts may be altered to take account of adjustments.[36] Generally, a tax period is a three month period ending on
31 March, 30 June, 30 September and 31 December in each year.[37] Each entity that is registered or is required to be registered, has tax periods applying to it.[38]
[32] GST Act; s 7-1(1)
[33] GST Act; s 9-40
[34] GST Act; s 9-69. The amount of GST payable on a taxable supply is 10% of the value of the taxable supply. The value of a taxable supply is worked out according to the formula Price x (10÷11). The Price in that formula:[35] GST Act; s 7-1
[36][37] GST Act; s 27-5
[38] GST Act; ss 7-10 and 27-5
The amount that remains after the amounts of GST and input tax credits are set off against each other is known as the “net amount for a tax period”.[39] That amount, which may be adjusted, is either the amount that the relevant entity must pay to the Commonwealth or that the Commonwealth must refund to the entity.[40] Section 35-5 applies in the situation in which the Commonwealth must refund an entity.[41] Section 35-10 provides:
[39] GST Act; s 7-5
[40] GST Act; s 7-15
[41] Before 24 March 2010, s 35-5 read “If the *net amount for a tax period is less than zero, the Commissioner must, on behalf of the Commonwealth, pay that amount (expressed as a positive amount) to you. …”. After its amendment with effect from 24 March 2010 by the Tax Laws Amendment (2010 GST Administration Measures No. 1) Act 2010, Act No. 20 of 2010; s 3 and Schedule 5; item 2, s 35-5(1) read: “If the *net amount for a tax period is less than zero, the Commissioner must, on behalf of the Commonwealth, pay that amount (expressed as a positive amount) to you.” Section 35-5(2) read: “However, if the amount paid, or applied under the Taxation Administration Act 1953, exceeds the amount to which you are properly entitled under subsection (1), the excess is to be treated as if it were GST that became payable, and due for payment, by you at the time when the amount was paid or applied. …”: GST Act; s 35-5(2) following its amendment
“Your entitlement to be paid an amount under section 35-5 arises when you give the Commissioner a *GST return.”
What is a “taxable supply”?
Section 9-5 of the GST Act provides that:
“You make a taxable supply if:
(a)you make the supply for *consideration; and
(b)the supply is made in the course or furtherance of an *enterprise that you *carry on; and
(c)the supply is *connected with Australia;
(d)you are *registered, or *required to be registered.
However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.”
A.What is “supply”?
A “supply” is “… any form of supply whatsoever”.[42] It includes such things as the supply of goods or services as well as such things as the provision of advice or information, a financial supply and entry into, or release from, an obligation.[43]
[42] GST Act; s 9-10(1)
[43] GST Act; s 9-10(2)
B. What is “consideration”?
In general terms:
“(1) Consideration includes:
(a)any payment, or any act or forbearance, in connection with a supply of anything; and
(b)any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.
(2)It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply.
(2A)-(3)…”[44]
[44] GST Act; ss 9-15(1) and (2)
C. What is an “enterprise”?
In the context of this case, it is relevant to note that s 9-20(1)(a) provides that, among others, “An enterprise is an activity, or series of activities, done (a) in the form of a *business …”.
D. When is a supply input taxed?
The expression “input taxed” is given its meaning by s 9-30(2):[45]
“A supply is input taxed if:
(a)it is input taxed under Division 40 or under a provision of another Act; or
(b)it is a supply of a right to receive a supply that would be input taxed under paragraph (a).
Note:If a supply is input taxed, there is no entitlement to an input tax credit for the things that are acquired or imported to make the supply (see sections 11-15 and 15-10.”[46]
[45] GST Act; s 195-1
[46] See [34] below for s 11-15 setting out the meaning of a “creditable purpose”. Section 15-5 applies that meaning in giving the meaning of a “creditable importation”.
What is a “creditable acquisition”?
Section 11-5 sets out the circumstances in which an entity makes a creditable acquisition:
“You make a creditable acquisition if:
(a)you acquire anything solely or partly for a *creditable purpose; and
(b)the supply of the thing to you is a *taxable supply; and
(c)you provide, or are liable to provide, *consideration for the supply; and
(d)you are *registered, or *required to be registered.”
A. What is an “acquisition”?
The meaning of that expression is set out in s 11-10 of the GST Act. It provides:
“(1) An acquisition is any form of acquisition whatsoever.
(2)Without limiting subsection (1), acquisition includes any of these:
(a)an acquisition of goods;
(b)an acquisition of services;
(c)a receipt of advice or information;
(d)an acceptance of a grant, assignment or surrender of *real property;
(e)an acceptance of a grant, transfer, assignment or surrender of any right;
(f)an acquisition of something the supply of which is a *financial supply;
(g) an acquisition of a right to require another person:
(i)to do anything; or
(ii)to refrain from an act; or
(iii)to tolerate an act or situation;
(h)any combination of two or more of the matters referred to in paragraphs (a) to (g).
(3)However, an acquisition does not include an acquisition of *money unless the money is provided as *consideration for a supply that is a supply of money.”
B. What is a “creditable purpose”?
What is meant by a “creditable purpose” is the subject of s 11-15. In so far as it is relevant, it provides:
“(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.
(3)-(4)…
(5)An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to the making of supplies that would be *input taxed to the extent that the supply is made through an *enterprise, or a part of an enterprise, that you *carry on outside Australia.”
When is an acquisition not a creditable acquisition: non-deductible expenses under ITAA97
There are several qualifications to the meaning of a “creditable acquisition” but I will refer to only one.[47] It relates to expenses that are non-deductible expenses under ITAA97. To the extent that an acquisition is a “non-deductible expense”, it is not a creditable acquisition.[48] An acquisition is a non-deductible expense if it is not deductible under Division 8 of ITAA97 because of one of the following:
[47] GST Act; s 69-5(5)
[48] GST Act; s 69-5
“(a) section 26-5 of the *ITAA 1997 (Penalties);
(b)section 26-30 of the *ITAA 1997 (Relatives’ travel expenses);
(c)section 26-40 of the *ITAA 1997 (Maintaining your family);
(d)section 26-45 of the *ITAA 1997 (Recreational club expenses);
(e)section 26-50 of the *ITAA 1997 (Expenses for a leisure facility);
(f)Division 32 of the *ITAA 1997 (Entertainment expenses);
(g)Division 34 of the *ITAA 1997 (Non-compulsory uniforms);
(h)section 51AK of the *ITAA 1997 (Agreements for the provision of non-deductible non-cash business benefits).”[49]
[49] GST Act; s 69-5(3)
An acquisition is also a non–deductible expense if it is not deductible under Division 8 of ITAA97 because of one of the following:
“(a) section 51AEA of the *ITAA 1936 (Meal entertainment – election to use the 50/50 split method);
(b)section 51AEB of the *ITAA 1936 (Meal entertainment – election to use the 12 week register method);
(c)section 51AEC of the *ITAA 1936 (Entertainment facility – election to use the 50/50 split method).”[50]
[50] GST Act; s 69-5(3A)
37. Turning to Division 32 of ITAA97, s 32-5 provides:
“… To the extent that you incur a loss or outgoing in respect of providing *entertainment, you cannot deduct it under section 8-1. However, there are exceptions, which are set out in Subdivision 32-B.”
The word “entertainment” is defined in s 32-10:
“(1) Entertainment means:
(a)entertainment by way of food, drink, or *recreation; or
(b)accommodation or travel to do with providing entertainment by way of food, drink or *recreation.
(2)You are taken to provide entertainment even if business discussions or transactions occur.
Note: These are some examples of what is entertainment:
· business lunches
· social functions
These are some examples of what is not entertainment:
· meals on business travel overnight
· theatre attendance by a critic
· a restaurant meal of a food writer”
The exception to the general rule that is relevant in this case is found in s 32-30 of Subdivision 32-B of ITAA97. That section, which is headed “Employer expenses” sets out a table and must be read with s 32-25:
“Section 32-5 does not stop you deducting a loss or outgoing to the extent that you incur it in respect of providing *entertainment as described in column 2 of an item of a table in this Subdivision.
However, if column 3 of that item applies, the exception in column 2 does not.”
I will set out only three of the items in the table at s 32-30 to give a flavour of those losses or outgoings that are deductible and those that are not as well as particular items relating to fringe benefits tax (FBT) under the Fringe Benefits Tax Assessment Act 1986 (FBTA Act). They are:
Item
Section 32-5 does not stop you deducting a loss or outgoing for …
But the exception does not apply if …
1.1
providing food or drink to your employees in an *in-house dining facility.[[51]]
the food or drink is provided at a party, reception or other social function.
1.2-1.5
…
…
1.6
providing food or drink which would be a *fringe benefit apart from sections 54, 58, 58N, 58S and 58T of the Fringe Benefits Tax Assessment Act 1986 (disregarding section 58P of that Act).
1.7
providing a meal which would be a *fringe benefit apart from sections 58A, 58F, 58L, 58LA and 58M of the Fringe Benefits Tax Assessment Act 1986 (disregarding section 58P of that Act).
1.8
…
[51] “An in-house dining facility is a canteen, dining room or similar facility that: (a) is on property you occupy; and (b) is operated mainly for providing food and drink to your employees; and (c) is not open to the public. …”: ITAA97; s 32-55.
A “fringe benefit”, to which reference is made in Items 1.6 and 1.7, is defined in s 136(1) of the FBTA Act. I will set out only the first eight paragraphs to give the flavour of the definition:
“fringe benefit, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:
(a)provided at any time during the year of tax; or
(b)provided in respect of the year of tax;
being a benefit provided to the employee or to an associate of the employee by:
(c)the employer; or
(d)an associate of the employer; or
(e)a person (in this paragraph referred to as an arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:
(i)the employer or an associate of the employer; and
(ii)the arranger or another person; or
(ea)a person other than the employer or an associate of the employer, if the employer or an associate of the employer:
(i)participates in or facilitates the provision or receipt of the benefit; or
(ii)participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;
and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;
in respect of the employment of the employee, but does not include:
(f)a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the Income Tax Assessment Act 1936; or
(g)a benefit that is an exempt benefit in relation to a year of tax; or
(h)-(s) …”
Accounting for taxable supplies and creditable acquisitions
A.Taxable supplies
An entity not accounting on a cash basis is governed by s 29-5(1) of the GST Act:
“The GST payable by you on a *taxable supply is attributable to:
(a)the tax period in which any of the *consideration is received for the supply; or
(b)if, before any of the consideration is received, an *invoice is issued relating to the supply – the tax period in which the invoice is issued.”
An “invoice” is “… a document notifying an obligation to make a payment.”[52]
[52] GST Act; s 195-1
B.Creditable acquisitions
The Attribution Rules found in Division 29 of Part 2-6 of Chapter 2 of the GST Act determine the tax period in which a person reports, or accounts for, taxable supplies and creditable acquisitions. In so far as an entity does not account on a cash basis, any input tax credit to which it might be entitled for a creditable acquisition is attributable to a tax period worked out according to s 29-10(1):
“(a) The input tax credit to which you are entitled for a *creditable acquisition is attributable to:
(a)the tax period in which you provide any of the *consideration for the acquisition; or
(b)if, before you provide any of the consideration, an *invoice is issued relating to the acquisition – the tax period in which the invoice is issued.”
A “tax invoice” is defined in s 29-70:
“(1) A tax invoice is a document that complies with the following requirements:
(a)it is issued by the supplier of the supply or supplies to which the document relates, unless it is a *recipient created tax invoice (in which case it is issued by the *recipient);
(b)it is in the *approved form;
(c)it contains enough information to enable the following to be clearly ascertained:
(i)the supplier’s identity and the supplier’s *ABN;
(ii)if the total *price of the supply or supplies is at least $1,000 or such higher amount as the regulations specify, or if the document was issued by the recipient – the recipient’s identity or the recipient’s ABN;
(iii)what is supplied, including the quantity (if applicable) and the price of what is supplied;
(iv) the extent to which each supply to which the document relates is a *taxable supply;
(v)the date the document is issued;
(vi)the amount of GST (if any) payable in relation to each supply to which the document relates;
(vii)if the document was issued by the recipient and GST is payable in relation to any supply – that the GST is payable by the supplier.
(viii)such other matters as the regulations specify;
(d)it can clearly be ascertained from the document that the document was intended to be a tax invoice or, if it was issued by the recipient, a recipient created tax invoice.
Note: …
(1A)A document issued by an entity to another entity may be treated by the other entity as a *tax invoice for the purposes of this Act if:
(a)it would comply with the requirements for a tax invoice but for the fact that it does not contain certain information; and
(b)all of that information can be clearly ascertained from other documents given by the entity to the other entity.
Note:The requirements for tax invoices are primarily contained in subsection (1), but can be affected by sections 48-57 and 54-50.
(1B)However, the Commissioner may treat as a *tax invoice a particular document that would not, apart from this subsection, be a tax invoice.
Note:A request to the Commissioner, to which the Commissioner agrees, to treat a document as a tax invoice is taken to be a notification of your entitlement to to the relevant input tax credit: see subsection 105-55(2A) in Schedule 1 to the Taxation Administration Act 1953.
(2)The supplier of a *taxable supply must, within 28 days after the *recipient of the supply requests it, give to the recipient a *tax invoice for the supply, unless it is a *recipient created tax invoice.
(3)A recipient created tax invoice is a *tax invoice belonging to a class of tax invoices that the Commonwealth has determined in writing may be issued by the *recipient of a *taxable supply.”
Section 29-10(3) qualifies the rules in s 29-10(1):
“If you do not hold a *tax invoice for a *creditable acquisition when you give the Commissioner a *GST return for the tax period to which the input tax credit (or any part of the input tax credit) on the acquisition would otherwise be attributable:
(a)the input tax credit (including any part of the input tax credit) is not attributable to that tax period; and
(b)the input tax credit (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that tax invoice.
However, this subsection does not apply in circumstances of a kind determined in writing by the Commissioner to be circumstances in which the requirement for a tax invoice does not apply.”
In general terms, s 29-70(2) requires a supplier of a taxable supply to provide a tax invoice for the supply. Neither that provision nor s 29-10(3) applies to a creditable acquisition relating to a taxable supply that, in turn, relates to a taxable supply the value of which does not exceed $50.00 or such higher amount as the regulations specify.[53] Sections 29-20(3) and 29-75(2) do not apply to a decreasing adjustment of an amount that does not exceed $50.00 or such higher amount as is specified in the regulations.[54]
[53] GST Act; s 29-80(1)
[54] GST Act; s 29-80(2)
Section 29-10(4) provides:
“If the *GST return for a tax period states a *net amount that does not take into account an input tax credit attributable to that tax period:
(a)the input tax credit is not attributable to that tax period; and
(b)the input tax credit is attributable to the first tax period for which you give the Commissioner a GST return that does not take it into account.
Note:Section 93-5 may provide a time limit on your entitlement to an input tax credit.”
The attribution rules relating to the payment of GST on a taxable supply are to the same effect;[55] so too are those relating to adjustments.[56] In so far as they relate to entities other than those accounting on a cash basis, GST payable by an entity on a taxable supply is attributable to the tax period in which any consideration was received for the supply or, if before the consideration is received an invoice is issued relating to it, the tax period in which the invoice is issued.[57] The contents of a “tax invoice” are specified in s 29-70. It must include information to enable matters such as what is supplied and its price and the extent to which each supply to which the document relates is a taxable supply.[58]
[55] GST Act; s 29-5
[56] GST Act; s 29-20
[57] GST Act; s 29-5(1)
[58] GST Act; s 29-70(1)(c)(iii) and (iv)
C. Adjustment events
C.1 General principles
If an adjustment event occurs for a supply or acquisition, it may lead to a decrease, increase or no change in an entity’s net amount. In general terms in the case of a creditable acquisition, the relevant question becomes: has the adjustment event led to an increase,[59] decrease[60] or no change in the input tax credit for the acquisition and, as a consequence, has there been a decreasing or increasing adjustment or no change and so a decrease, increase or no change in an entity’s net amount.
[59] GST Act; s 19-85
[60] GST Act; s 19-80
C.2What is an “adjustment event”?
The question brings into play what are described as “adjustment events”. In so far as
s 19-10(1) applies to creditable acquisitions, it provides:
“An adjustment event is any event which has the effect of:
(a)cancelling a[n] … acquisition; or
(b)changing the *consideration for a[n] … acquisition; or
(c)causing a … acquisition to become, or to stop being, a[n] … *creditable acquisition.
Example:…”
An adjustment event can arise in relation to an acquisition even if it is not a creditable acquisition.[61]
[61] GST Act; s 19-10(3)(b)
Examples are given in s 19-10(2) but they do not limit the operation of s 19-10(1). In so far as they relate to creditable acquisitions, they are:
“(a) the return to the supplier of a thing, or part of a thing, supplied (whether or not the return involves a change of ownership of the thing);[[62]]
(b)a change to the previously agreed *consideration for a[n] … acquisition, whether due to the offer of a discount or otherwise;
(c)a change in the extent to which an entity that makes an acquisition provides, or is liable to provide, consideration for the acquisition (unless the entity *accounts on a cash basis).”
[62]
C.3When does an adjustment for an acquisition arise?
Putting aside special rules applying to adjustment events in particular cases,[63] the general rule is found in s 19-70(1). It provides:
[63] GST Act; s 19-99
“You have an adjustment for an acquisition for which you are entitled to an input tax credit (or would be entitled to an input tax credit if the acquisition were a
*creditable acquisition) if:
(a)in relation to the acquisition, one or more *adjustment events occur during the tax period; and
(b)an input tax credit on the acquisition was attributable to an earlier tax period (or, if the acquisition was not a creditable acquisition, would have been attributable to an earlier tax period had the acquisition been a creditable acquisition); and
(c)as a result of those adjustment events, the *previously attributed input tax credit amount for the acquisition (if any) no longer correctly reflects the amount of the input tax credit (if any) on the acquisition (the corrected input tax credit amount).”
In working out the “corrected input tax credit amount for the acquisition”, regard must be had to any change of circumstances that has given rise to an adjustment for an acquisition including, among others, Division 21 of the GST Act.[64] A “previously attributed input tax credit amount” for an acquisition is:
“(a) the amount of any input tax credit that was attributable to a tax period in respect of the acquisition; minus
(b)the sum of any *increasing adjustments, under this Subdivision or Division 21 …, that were previously attributable to a tax period in respect of the acquisition; plus
(c)the sum of any *decreasing adjustments, under this Subdivision or Division 21 …, that were previously attributable to a tax period in respect of the acquisition.”[65]
[64] GST Act; s 19-70(2)(a)
[65] GST Act; s 19-75
C.4 Division 21: bad debts and increasing and decreasing adjustments
Section 21-15 is concerned with bad debts and creditable acquisitions and the circumstances in which they lead to an increasing adjustment and, as a consequence, an increase in an entity’s net amount. An entity that does not account on a cash basis[66] has:
“… an increasing adjustment if:
(a)you made a *creditable acquisition for *consideration; and
(b)the whole or part of the consideration is *overdue, but you have not provided the consideration overdue; and
(c)the supplier of the thing you acquired writes off as bad the whole or part of the debt, or the whole or part of the debt has been overdue for 12 months or more.
The amount of the increasing adjustment is 1/11 of the amount written off, or 1/11 of the amount that has been overdue for 12 months or more, as the case requires.”[67]
[66] An entity accounting on a cash basis cannot have an adjustment under s 21-15(2): GST Act; s 21-15(2)
[67] GST Act; s 21-15(1)
Section 21-20 is concerned with the recovery of amounts previously written off. It provides:
“You have a decreasing adjustment if:
(a)you have made a *creditable acquisition in relation to which you had an *increasing adjustment under section 21-15 for a debt; and
(b)you pay to the supplier of the thing you acquired the whole or a part of the amount written off, or the whole or a part of the amount that has been *overdue for 12 months or more, as the case requires.
The amount of the decrease adjustment is 1/11 of the amount recovered.”
Special rules relating to adjustments for bad debts are found elsewhere but are not relevant.[68]
BURDEN OF PROOF
[68] GST Act; s 21-99
The submissions
On behalf of RV Investments, Mr Korman accepted that it had the burden of proving that the assessments under review are excessive. He then submitted:
“… In the current context, the Applicant must provide evidence establishing, on the balance of probabilities that it has made alleged creditable acquisitions. It is submitted that the Tax Invoices tendered through Exhibit A speak for themselves: in the absence of evidence to the contrary, they are sufficient to allow the Tribunal to find that the[y] establish that the supply indicated on the face of each tax invoice was made, the supply was a taxable supply, the taxpayer provided or was liable to provide consideration, and the taxpayer holds the tax invoice.
Further, annexures 1 and 3 of the Witness Statement establish that (barring matters conceded below) the tax invoices were issued in relation to supplies acquired by the Applicant in carrying on its exercise.
Having satisfied, prima facie, the onus of establishing its case, the onus shifts to the Commissioner to show which invoices fail to satisfy the relevant criteria. These invoices must be put to the Applicant to ensure procedural fairness or natural justice: the Applicant must be given a chance to put its side of the story in relation to each allegation.
The Commissioner cross examined Mr Denysenko, the Applicant’s witness, in respect of claims for creditable acquisitions totalling $656,958. Counsel for the Commissioner put to the witness that the acquisitions were either not made, not made by the Applicant, not made by the Applicant in carrying on its enterprise, or not deductible. This figure represents the high-water mark of the Commissioner’s claims.”[69]
[69] Applicant’s submissions dated 14 February 2014 at [10]-[13]
In his reply to the Commissioner’s submissions, Mr Korman submitted:
“Where a taxpayer’s case rests on nothing more than the taxpayer’s uncorroborated testimony, there are situations where that testimony must be ‘received with the greatest caution’[70]. These include situations where a taxpayer swears he or she must have incurred deductible outgoings but has retained no record of those outgoings (such as tax invoices)[71], or where a taxpayer’s own evidence as to his or her state of mind is proffered as the sole evidence of the taxpayer’s purpose.
But the circumstances of Davis and Imperial Bottleshops are far removed from the current case. This is a case founded, first and foremost, on documentary evidence which speaks for itself. Mr Denysenko’s testimony is corroborated by thousands of statutorily compliant tax invoices adduced in evidence. There is no reason that his testimony should be ‘approached critically’ or be ‘the subject of careful scrutiny’[72].”[73]
[70] Pascoe v Federal Commissioner of Taxation (1956) 11 ATD 198 at 111
[71] Imperial Bottleshops Pty Ltd v Commissioner of Taxation (1991) 22 ATR 145 at 155
[72] Respondent’Outline of Submissions at [27]
[73] Applicant’s Reply at [4]-[5]
Later in his reply, Mr Korman responded to Mr Linden’s submission that the invoices listed in Annexure 2 by reference to their amounts only and without any reference to the supplier, the date or the item acquired, should be rejected in their entirety as having no probative value. Mr Korman submitted that Mr Linden’s rejection was misconceived. Annexure 2 simply listed the invoices described as “petty cash invoices”. I note that they are the invoices found loose in the archives box. Mr Korman continued by saying that the list was not primary evidence but only an aid to make the task of analysing the petty cash invoices more manageable. As for the Commissioner:
“46. The Commissioner has had ample access to these invoices. If he had no confidence in the Applicant’s listing, he was at liberty to prepare his own. If there were discrepancies, he could have tendered his own listing to the Tribunal. He would have been free to collate any details appearing on the face of the invoices into that listing.
47.The Commissioner did not challenge the tally provided by Mr Denysenko. He testifies that he supervised the preparation of that tally.
48.The Tribunal must reject the proposition that creditable acquisitions totalling $346,882.96 can be disallowed, despite the taxpayer’s production of corroborating invoices, merely because the Commissioner would have preferred more than a simple tallying of the value of these invoices.”[74]
[74] Applicant’s Reply
In response, Mr Linden referred me to authorities to which I will return. Relying on those authorities, he submitted that the burden lies on the entity seeking review to establish affirmatively, on the balance of probabilities, that the amount of the assessment is excessive. There is no onus on the Commissioner to show that the assessments were correctly made and, at no stage, does an onus shift to the Commissioner as Mr Korman submitted. Relying on McCormack v Federal Commissioner of Taxation,[75] Mr Linden submitted that, in the absence of evidence, the Tribunal is not able to infer facts in favour of an entity. It must also take care to scrutinise carefully and critically evidence given by a person who has an interest in the outcome of the proceeding in which the evidence is given.
[75] [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; Barwick CJ, Gibbs, Stephen, Jacobs and Murphy JJ
Consideration
I agree with both parties that s 14ZZK(b)(i) of the Taxation Administration Act 1953 (TAA) modifies what would otherwise be the case in the Tribunal by providing that, “On an application for review of a reviewable objection decision … the applicant has the burden of proving that … if the taxation decision concerned is an assessment … – the assessment is excessive; …”.[76]
[76] Section 25(3)(c) of the Administrative Appeals Tribunal Act 1975 (AAT Act) permits an enactment providing for applications to be made to the Tribunal to “… specify conditions subject to which applications may be made.”
Section 14ZZK(b)(i) does not modify the standard of proof that generally applies in the Tribunal. That means that a person who bears a burden of proof may meet it by producing to the Tribunal evidence and other material that is relevant and probative and that satisfies it of the existence or non-existence of relevant factual issues on the balance of probabilities rather than simply on the basis of possibilities.
Mr Korman’s submission goes to the way in which RV Investments goes about satisfying the burden that is imposed upon it. In the case of McCormack v Federal Commissioner of Taxation,[77] Gibbs J explained the task and when the burden will be satisfied and when it will not in the context of whether the Commissioner had properly treated the net profit from the sale of a property as assessable income. The Commissioner had done so on the basis that the net profit arose from the sale of a property Mrs McCormack had acquired for the purpose of profit-making by sale within the meaning of s 26(a) of the Income Tax Assessment Act 1936 (ITAA36) as it was then in force. Gibbs J explained Mrs McCormack’s task:
“… The taxpayer bears the burden of proving that the assessment was excessive. To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale. The burden may be discharged by drawing inferences from the evidence. In some cases in which all the relevant facts are known, and there is no material upon which it might properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose. But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in s. 26(a). If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner. That in my respectful opinion would be to invert the onus of proof. The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property the appeal must fail.”[78]
[77] [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 79 ATC 4111
[78] [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 79 ATC 4111 at 303; 597; 622; 4,121
While the taxpayer carries a burden of proof, the Commissioner carries none. Referring to a similar burden formerly imposed on the taxpayer by s 190(b) of ITAA36, Mason J said in Gauci v Federal Commissioner of Taxation[79] (Gauci):
“ The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190 (b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail.”[80]
[79] (1975) 135 CLR 81; Barwick CJ and Jacobs JJ; Mason J dissenting
[80] (1975) 135 CLR 81 at 89 by Mason J in dissent but approved in McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 79 ATC 4,111 at 303-304; 597-598; 622; 4,121-4,122 per Gibbs and at 306; 600; 624; 4,123 per Stephen J as well as in Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 64 ALJR 166; 90 ATC 4088 at 624; 160; 1375; 170; 4,093 per Brennan J
His Honour also explained the rationale for imposing a burden upon the taxpayer when he said:
“… There is nothing inherently unfair in the provision which places the onus on a taxpayer to prove his case when the purpose for which an asset was acquired depends so much on his intentions and on circumstances of which he, rather than the Commissioner, has comprehensive knowledge.”[81]
[81] (1975) 135 CLR 81 at 89
That does not mean that the Commissioner may not lead evidence on all or any of the matters in issue. What it means is that, should the Commissioner choose to do so, the burden remains on the taxpayer. Any evidence that is led by the Commission becomes part of the evidentiary material upon which the taxpayer may, or may not, choose to draw in submitting that he or she has satisfied the burden that remains firmly on his or her shoulders. It remains part of the whole of the evidentiary material to which the decision-maker will have regard in coming to a decision. This is inherent in the passage from the judgment of Hill J in Galea v Commissioner of Taxation[82] (Galea) when he explained:
“ To the extent that the applicant seeks to rely upon the description of what the Commissioner did here as being an attempt to mount a positive case, it is not clear to me at all why this has any relevance. As is clear from Dalco, supra, and as the tribunal itself said, it was not necessary for the Commissioner to seek to establish affirmatively that the applicant’s assessable income was at least a particular figure. The fact that the Commissioner sought so to do and failed has no bearing, at the end of the day, on the question whether the applicant has discharged the onus of showing, as he is required by s 190(b) of the Act to show, that the assessment is excessive. The Commissioner’s failure to establish a positive case, if that is what he sought to do, leaves the tribunal in no different position than it would have been in if the Commissioner had not sought at all to advance a positive case.”[83]
[82] [1990] FCA 456; (1990) 90 ATC 5,060; 21 ATR 1108
[83] [1990] FCA 456; (1990) 90 ATC 5,060; 21 ATR 1108 at [34]; 5,067; 1116 See also Vu v Commissioner of Taxation [2006] FCA 889; (2006) 63 ATR 341 at [9]; 344 per Finn J
That brings me back to Mr Korman’s submission. While he has framed it in terms of the burden’s shifting to the Commissioner once RV Investments has produced invoices, I think that it would be more accurate to frame his submission in terms of the maxim of res ipsa loquitur. That is to say, Mr Korman is putting forward the case that the invoices speak for themselves. In the absence of any evidence suggesting otherwise, I should accept what they say on their face and find that RV Investments has satisfied its burden of proof. If there is to be any evidence to the contrary, it is up to the Commissioner to present it. If he wishes to do that, considerations of procedural fairness require that RV Investments have an opportunity to respond to it. These are the concepts that underlie his rejection of the Commissioner’s submission that Annexure 2 is of no probative value.
It seems to me that the approach that Mr Korman would have me take is contrary to that mapped out by authorities such as Gauci and Galea let alone s 14ZZK(b)(i) of the TAA. For that reason alone, I cannot take it but I will also explain why the principles on which he relies can have no place in the review of a taxation objection decision.
In English authorities, and less so in Australian, the maxim of res ipsa loquitur has arisen in civil cases in which negligence is alleged. There have been accidents that have been said to speak for themselves. Examples are given in Phipson on Evidence:
“Thus, it has been said that in the ordinary course of things bags of flour do not fall from warehouse windows (Byrne v Beadle (1863) 2 H&C 722), stones are not found in buns (Chaproniere v Mason (1905) 21 TLR 633), cars do not mount the pavement (Ellor v Selfridge (1930) 46 TLR 236), slippery substances are not left on shop floors (Ward v Tesco [1976] 1 WLR 810), and aircraft usually do not crash without negligence George v Eagle Air Services Ltd [2009] UKPC 21; The Times, May 15 2009 PC”[84]
[84] Phipson on Evidence, Seventeenth Edition, 2010, Thomson Reuters (Legal) Limited at [6-30], Footnote 111
Why they speak for themselves was explained by Erle CJ in Scott v The London and St Katherine Docks Company[85] when considering an accident in which bags of sugar being lowered by the defendant’s servants by means of a crane from a warehouse had fallen and struck Mr Scott. Erle CJ said:
“There must be reasonable evidence of negligence.
But where the thing is shown to be under the management of the defendant or his servants, and the accident is such as in the ordinary course of things does not happen if those who have the management use proper care, it affords reasonable evidence, in the absence of explanation by the defendants, that the accident arose from want of care.”[86]
[85] [1865] 3 H&C 596; 159 ER 665
[86] [1865] 3 H&C 596; 159 ER 665 at 601; 667
If no evidence is led to displace what can be inferred from the very way in which the accident occurred, the plaintiff alleging negligence is entitled to succeed. While there have been discussions in the authorities as to whether this means that the burden of proof shifts from the plaintiff alleging negligence to the defendant, the Privy Council has said that:
“… Resort to the burden of proof is a poor way to decide a case; it is the duty of the judge to examine all the evidence at the end of the case and decide whether on the facts he finds to have been proved and on the inferences he is prepared to draw he is satisfied that negligence has been established. In so far as resort is had to the burden of proof the burden remains at the end of the case as it was at the beginning upon the plaintiff to prove that his injury was caused by the negligence of the defendants.”[87]
[87] Ng Chun Pui v Lee Chuen Tat; Privy Council Appeal No. 1 of 1988 at 3-4
This is consistent with the approach taken in Australia. In the earlier case of Nominal Defendant v Hasbauer,[88] Barwick CJ explained the courses open to a defendant faced with evidence of an occurrence that “… itself may be said to bespeak the lack of care”:[89]
“… If at the end of his case in chief the occurrence as then evidenced does itself warrant an inference of negligence on the part of the defendant, whether or not the evidence, if there be any, of the specific acts or omissions does so, the defendant is faced with a choice. He may choose not to call any evidence, and take the chance that, although at liberty so to do, the jury will refuse to draw the inference of want of care on his part from the fact that the incident occurred. Or he may call evidence. In the sense that a defendant so placed must at that point in the course of the trial choose his course, it may be said in what to my mind is a loose and inexact sense that the burden of the case for the moment passes to the defendant. But in precise terms, the situation imports no onus upon him. Nor, on the other hand, does the fact that the plaintiff has made a prima facie case of negligence on the part of the defendant, whether by no more than the evidence of the occurrence itself or by that and other evidence, place the plaintiff in an entrenched position. Although hallowed by much distinguished usage, I myself incline against the use of the expression ‘presumption of negligence’ describing what arises from the circumstance that, as the plaintiff evidences it in his case in chief, the occurrence will of itself support an inference of want of care on the part of the defendant. Nothing to my mind is presumed. No more, in my opinion, has occurred than this, that if the evidence remains in the same state as the plaintiff has left it at the close of his case in chief, the tribunal of fact will be justified in inferring negligence in the defendant causing the event. Whether or not that inference will be drawn remains an open question for that tribunal.”[90]
[88] [1967] HCA 14; (1967) 117 CLR 448; Barwick CJ, Kitto, Taylor, Menzies and Owen JJ
[89] [1967] HCA 14; (1967) 117 CLR 448 at 452
[90] [1967] HCA 14; (1967) 117 CLR 448 at 452-453
Putting aside the fact that they arise in the context of the law of tort, merely to state examples of the circumstances in which it has been said that they “speak for themselves” so that, in the absence of contradictory evidence, an inference of a finding of fact can be drawn from them is to understand why invoices cannot speak for themselves in the same way. The circumstances must be viewed against the background of what it is that the plaintiff or the applicant must establish. Therefore, the undisputed circumstances in which a bag of sugar fell from a crane or one motor vehicle running into the back of another that was stationary at a pedestrian crossing must be viewed against a background of the plaintiff’s establishing negligence. Given that it is human experience that, in normal circumstances when all participants in the circumstances are acting with reasonable care, these things do not happen unless someone acts without that reasonable care, the maxim has room to work. An inference of negligence can be drawn if no evidence is produced to the contrary. That evidence will presumably be produced by the defendant if it is produced at all but the burden of proof remains on the plaintiff throughout.
When the matter is one of whether the Commissioner’s assessment is excessive, an invoice, or even a set of invoices, does not necessarily establish a set of circumstances from which it can be said that, in normal circumstances and without contrary evidence, they afford reasonable evidence that an assessment is excessive. Even if I look at the matter in terms of the individual facts that are in issue, they do not establish a set of circumstances from which it can be concluded that, in the absence of a contrary explanation, they afford reasonable evidence that, for example, an acquisition has been made for a creditable purpose, that the supply of the item referred to in the invoice is a taxable supply or that the person claiming the creditable acquisition provided, or was liable to provide, the consideration or was registered or required to be registered. An invoice is not itself a creditable acquisition but only part of the evidentiary material of a creditable acquisition. It is not conclusive evidence of the acquisition because, for example, the invoice might have been prepared in error or there may other evidence showing that events changed and there was ultimately no acquisition. An invoice may have some indication of purpose on it but it may well not have. All that can be said of an invoice is that it is evidentiary material but its relevance and probity will be considered and weighed like all other evidentiary material and an assessment made of the whole.
There is a second line of reasoning that leads to the conclusion that the maxim of res ipsa loquitur can have no place in the review of a reviewable objection decision in the Tribunal. It can be seen from the authorities that, if there is contrary evidence that would set aside the application of the maxim, it is the defendant which is in a position to lead that evidence. It is the defendant whose servants were operating the crane from which the sugar bags fell or the defendant who was driving the car that crashed into the stationary car at the pedestrian crossing. The Commissioner’s position is quite unlike that of the employer or the driver. He does not know the intricacies of the way in which a taxpayer conducted a business or recorded transactions. It would be quite unrealistic to suggest that he is in a position to produce evidence. He may choose to do so but it will not be in order to displace a presumption drawn from an invoice for there is none.
The Australian courts, as well as the Privy Council, have put aside any suggestion that any application of the maxim res ipsa loquitur leads to a shift in the burden of proof. It is, instead, a maxim that is concerned with inferences that may be drawn from the evidence in certain circumstances.
Before I leave the idea of a shifting burden of proof, I note that it is entirely inconsistent with the statement made by Parliament that the taxpayer carries the burden of proving that the assessment is excessive. That statement is clearly made in s 14ZZK(b)(i) of the TAA. It cannot be ignored and it binds the taxpayer, the Commissioner and this Tribunal. To suggest, as Mr Korman does in his submissions in reply, that the Commissioner is taking the position that Annexure 2 to Mr Denysenko’s statement is not of probative value is to misunderstand the law as it is stated in s 14ZZK(b)(i). It is also, I respectfully suggest, to overlook the fact that a creditable acquisition is something more than an expenditure of money.
Finally, I will refer to the cases of Imperial Bottleshops Pty Ltd v Federal Commissioner of Taxation[91] (Imperial Bottleshops) and Davis v Commissioner of Taxation[92] (Davis). Both were judgments of Hill J. In the first, Imperial Bottleshops, his Honour said:
“ A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If he goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be ‘tested most closely, and received with the greatest caution’: Pascoe v FCT (1956) 6 AITR 315; 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as ‘prima facie unacceptable’, cf McCormack v FCT (1979) 143 CLR 284 at 302 per Gibbs J;
9 ATR 610; 23 ALR 583.”[93][91] (1991) 91 ATC 4,546; 22 ATR 148; Hill J
[92] [2000] FCA 44; (2000) 2000 ATC 4,201; 44 ATR 140; Hill J
[93] (1991) 91 ATC 4,546; 22 ATR 14 at 4,552; 155
In Davis, Hill J applied these principles in evaluating evidence relating to whether an exemption for sales tax applied. It would apply if the goods – a yacht in that case – were mainly for long term leasing to another person in circumstances in which that other person would use it mainly in providing regular and scheduled sight-seeing trips. Hill J said:
“ The words ‘for use’ require an investigation into the use to which the yatch is to be put by the exemption user. While, no doubt, that requires an investigation of purpose, and direct evidence of purpose may be given, the best evidence of purpose will, ordinarily, be found in the use to which the yacht is in fact put. As Fullagar J said in Pascoe v FC of T (1956) 11 ATD 108; (1956) 30 ALJR 402;, in considering evidence of ‘purpose’ in the context of section 26(a) of the Income Tax Assessment Act 1936 evidence of the object to be pursued, that is to say the state of mind of the person claiming the exemption, will necessarily be the subject of careful scrutiny.”[94]
The Commissioner’s assessment of penalty is no less a taxation decision than his assessment of the net amount. That means that s 14ZZK(b)(i) of the TAA again applies to impose the burden of proof on RV Investments to prove that assessment is excessive.
Consideration
A.Did a shortfall amount result from a statement that is false or misleading in a material particular?
It is clear from the findings I have made that I consider that there has been a shortfall amount. This amount has resulted from statements made to the Commissioner by RV Investments in the various Activity Statements that it lodged with the Commissioner in the relevant period. They are statements made to the Commissioner in his role exercising functions and performing functions under the GST Act, which is a taxation law. The statements are false or misleading in that they claim amounts, or some amounts, as creditable acquisitions when they are not and in that they under report taxable supplies made by RV Investments. They are false or misleading in a material particular because the amounts that are declared as creditable acquisitions and as taxable supplies are fundamental in calculating the net amount and so RV Investments’ entitlement to be paid a refund or liability to pay an amount to the Commonwealth under the GST Act.
B.Did a shortfall amount result from intentional disregard, recklessness or failure to take reasonable care?
The next question is to decide whether the shortfall amount that resulted from the false or misleading statements resulted from intentional disregard of the GST law by RV Investments or its tax agent or from recklessness or a failure to take reasonable care, by either one of them. On the clear wording of Items 1, 2 and 3, I cannot accept the proposition inherent in Mr Korman’s submission. That is that RV Investments is, in some way, absolved from responsibility if any errors made in the Activity Statements are attributable to its tax agent or agents. The law is clear that the taxpayer is subject to a penalty if that taxpayer’s circumstances meet those described in them (as well as others). It is clear that it matters not whether it is the behaviour of the taxpayer or of the taxpayer’s agent that led to the taxpayer’s being in those circumstances. The taxpayer is no less responsible if it is the behaviour of its agent than its own.
I do not accept a further proposition in Mr Korman’s submissions. That is that some form of recognition should be given to the fact that RV Investments has suffered, as it were, from incorrect reporting in that it has led to its not, on occasion, receiving the refunds that it should have been paid. That is relevant only in working out whether there has been a shortfall amount as a result of a statement that is false or misleading in a material particular and, if so, how much it is.
Even if it were relevant to apportion responsibility in some way between the tax agent and RV Investments, I would find that responsibility lies with RV Investments. Its Chief Executive, Mr Denysenko, has said that he dealt with the tax agent and that he was aware that it was acting on behalf of RV Investments.[229] On the basis of his own evidence, I find that he gave the tax agent the invoice from G & D Performance Tuning for $500,500.00 for the purpose of lodging the Activity Statement for the quarter ended 30 September 2009. He did not tell the tax agent that the invoice had not been paid at that stage.[230] In the same quarter, Mr Denysenko instructed the tax agent to lodge the Activity Statement without disclosing taxable supplies.[231] RV Investments has now conceded that they amounted to $48,032.00. Mr Denysenko’s explanation of another’s tax agent’s failing to disclose taxable supplies was that the tax agent had not had the information he should have and that is why RV Investments had sacked him. RV Investments had given him all of the books, cheque books, notes and purchases and, Mr Denysenko said and he had not been aware of the omission until the ATO pointed it out.[232] Since then, it has conceded that it made taxable supplies in the quarter ending 31 December 2009 of $142,813.00.
[229] Transcript at 13-14
[230] Transcript at 25; lines 29
[231] Transcript at 15; lines 41-47 and 16; lines 1-7
[232] Transcript at 16; lines 11-30
In deciding how the behaviour of RV Investments should be characterised and whether that characterisation meets that described in Items 1, 2 or 3, I have considered the way in which RV Investments has maintained its business records for that is relevant in ascertaining the foundation on which it compiled the information it reported in the Activity Statements. I begin with my not being shown any business records maintained by or on behalf of RV Investments. All that I have been given are invoices. I have already stated that, without more, they do not necessarily support a finding that a creditable acquisition has been made. I have been given nothing in relation to taxable supplies although that is understandable given that they were no longer in contention between the parties.
It has been conceded by RV Investments that its ANZ bank account was used by Paul & Paul as well as by Ms Rosa Villella and other family members. In the absence of any business records enabling separate identification of the funds, there is no sure way of separating the moneys. In the absence of business records, it is not possible to trace whether payments have been made and, if so, to determine whether they come from one source or another. There is no way of tracing the credits and the returns.
Mr Denysenko conceded during the hearing that he had not sought any advice as to whether items such as presents for the staff members’ children, entertainment and alcohol could be regarded as creditable acquisitions. At the same time, he has agreed that he is the person who instructed the staff as to the items that should be included in each of the Annexures to his statement. I have not been given a copy of the instructions that he gave so that I can determine its accuracy. All that I have to go on is the evidence that he has given at the hearing in relation to the invoices on which he was cross-examined and the subsequent concessions that have been made in relation to them.
He seemed to think that claims that were not substantiated were of little consequence. They were mistakes that had been made by the staff and were of little consequence. He seemed somewhat incredulous that the Commissioner would be worrying about the claim for an expense incurred with VicRoads for $600.00 when only $30.00 should have been claimed. The claim incorrectly made for expenditure at the Foot Locker led to disbelief that the Commissioner would be concerned about a couple of mistakes. These are only two examples of Mr Denysenko’s attitude throughout his evidence. His evidence also showed that he had not familiarised himself with details of the operation. He was not familiar with its assets and was content to say that goods would have, or could have, been acquired for it. In relation to the agreement to purchase goods from Paul & Paul, Mr Denysenko gave the invoice to the tax agent but it is clear on the evidence that he did not give him any instructions in relation to it. He did not, for example, tell the tax agent that there was no agreement that the purchase price would be paid at a particular time and only when it could afford it.
The intermixing of the businesses and of business and private expenditure, the lack of any system to separate the two and the apparent unconcern of RV Investments’ Chief Executive about a few “mistakes” made by others, but never by him, combined with statements that are false in a material particular in the Activity Statements leads me to conclude that this is not simply a case of failure to take reasonable care in making those statements. They were mistakes that, on the Commissioner’s calculations reflecting concessions that the parties have made and consistent with findings I have made, totalled $106,669.00 in the relevant period. They are:
Tax period
Reported net amount
Commissioner’s net amount
Difference
Jul-Sep 09
-$67,500
-$24,513
$42,987
Oct-Dec 09
NIL
-$1,740
-$1,740
Jan-Mar 10
-$13,474
$2,086
$15,560
Apr-Jun 10
-$12,156
-$5,574
$6,582
Jul-Sep 10
-$12,913
$3,782
$16,695
Oct-Dec 10
-$14,008
$12,578
$26,586
Total
-$120,151
-$13,382
$106,669
It is a situation in which I find that claims were made on the basis that, in Mr Denysenko’s view, they should be claimable. As he said in relation to the presents he bought for the staff and their children for Christmas “But I would assume that if you buy staff members and their children Christmas presents or whatever, on behalf of the company, I would assume that you would be able to claim it. …”.[233] This is not the view that would be taken by a reasonable person in business. A reasonable person would seek advice on all manner of expenditure in relation to the information that must be reported in an Activity Statement and not simply rely on his own assumption.
[233] See [148] above
Having regard to all of the matters, I am satisfied that the shortfall amounts resulting from the statements that were false in a material regard have resulted from recklessness as to the operation of the GST Act. His evidence shows that his knowledge of the GST Act is quite limited. His actions show that he did not take the trouble to increase his knowledge and operated on what he thought was a fair thing to do in business. In light of that, I am satisfied that no part of the shortfall amounts resulted from intentional disregard of the GST Act. That means that penalty is imposed at the rate of 50% of the shortfall amounts and not at the rate of 75% as it would have been for intentional disregard.
C. Should the penalty be remitted?
While the issue of remission is not the subject of an assessment, RV Investments continues to carry the burden of proof. That follows from the application of s 14ZZK(b)(iii) and it is a “… burden of proving that … the taxation decision concerned should not have been made or should have been made differently.”
Section 298-20(1) of the TAA does not set out any matters to which the Commissioner must have regard in deciding whether to exercise power under that provision. That does not mean that the Commissioner’s powers are without boundaries for they are to be identified by reference to the subject matter of the enactment under which the decision is made as well as from its object and underlying policy.[234] When, as in this case, the discretion relates to the imposition of a penalty that is determined by reference to conduct that occurs in the context of an enactment other than the TAA, the subject matter and the object and underlying policy of that other enactment must also be relevant.
[234]
Identification of the boundaries of the discretion by reference to these matters does not mean that they are so inflexible that they cannot accommodate the infinite number of circumstances in which people find themselves. What identification does, though, is to ensure that there is a consistency and certainty of approach and outcome in that decisions are not made on arbitrary grounds and are not perceived to have been made on such grounds. As Kirby J recognised in Minister for Immigration and Multicultural Affairs
v Yusuf,[235] proceedings between parties in administrative merits review proceedings of this sort:“… not only dispose of the rights of particular parties. They lay down the standard for thousands of others which may never get to the Tribunal or a court.”[236]
[235] [2001] HCA 30; (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225
[236] [2001] HCA 30; (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225 at [157]; 373; 39; 263
The GST Act imposes a burden in the form of the imposition of GST and that burden is intended to fall according to the terms of that enactment. It requires an entity making a taxable supply to acquit the GST to the Commissioner while the entity making the creditable acquisition can alleviate the burden of having paid the GST by claiming an input tax credit of the same amount. That is to say, an input tax credit is an alleviation of the burden that the entity has borne in acquiring the rights and paying their price together with the appropriate amount of GST. That is so only if it is a creditable acquisition for the GST Act intends that the burden of paying the GST falls on an entity which does not acquire those rights for a creditable purpose and so does not acquire it in carrying on its enterprise.[237] It is a scheme that depends in large measure on accurate reporting by those entities making the taxable supplies and the creditable acquisitions. It depends upon their keeping accurate records so that they can substantiate the information they have included in their Activity Statements when called upon to do so.
[237] GST Act; ss 11-5(a) and 11-15
The penalty scheme set out in Schedule 1 to the TAA is intended to ensure that the revenue is protected. Its protection requires that taxpayers and those liable to pay tax are open and honest in their dealings with the Commissioner. The system of penalties is a graduated system recognising that errors and omissions may occur for a variety of reasons. They range from deliberate attempts to escape liability that should properly borne to errors and omissions that arise even though reasonable care is taken and matters on which minds might differ as to how the law would apply to the particular facts. Those gradations are given recognition to some extent in the imposition of the amount of penalty that is imposed and by the fact that no penalty is imposed unless, as a minimum, a shortfall resulted from a failure to take reasonable care.
Attempts to comply with the law should be given appropriate recognition in any system of remission of penalties. Recognition is given in s 284-225(1) when it provides for a reduction of 20% in the base penalty amount if, after the Commissioner has told the taxpayer that an examination is to be made of his or her affairs, he or she voluntarily discloses the shortfall and disclosure can reasonably be expected to have saved the Commissioner a significant amount of time or significant resources in the examination. If disclosure is made before the Commissioner tells the taxpayer about an examination, the base penalty amount may be reduced by 80% if the shortfall amount is greater than $1,000.00 or reduced to nil if less than $1,000.[238] There may be circumstances in which the Commissioner may treat a taxpayer as having made a disclosure of a shortfall amount before being told of an examination even though the taxpayer has made the disclosure after being told of an examination.[239]
[238] TAA; Schedule 1, s 284-225(3)
[239] TAA; Schedule 1, s 284-225(5)
At the same time, s 284-220 provides for an increase in the base penalty amount. It does so in circumstances in which a taxpayer took steps to prevent or obstruct the Commissioner from finding out about a shortfall amount or about the false or misleading nature of a statement in relation to which the base penalty amount was calculated.[240] It also provides for an increase when a taxpayer becomes aware of a shortfall amount after a statement has been made to the Commissioner about a relevant tax-related liability or becomes aware of a false or misleading statement made to the Commissioner or another entity and did not tell either the Commissioner or other entity within a reasonable time.[241] Sections 284-220(1)(c) to (e) also provide for an increase in the base penalty amount where a taxpayer has previously been subject to a base penalty amount.
[240] TAA; Schedule 1; s 284-220(1)(a)
[241] TAA; Schedule 1; s 284-220(1)(b)
This brief outline of the penalty scheme established by the TAA shows that the imposition of the penalty is determined by reference to the reasons for a taxpayer’s having a shortfall amount and by reference to the taxpayer’s actions in telling the Commissioner about that shortfall amount, the timing of those actions and, in some instances, any impact that the taxpayer’s actions have in reducing the Commissioner’s workload. What is not relevant is the fact that no, or minimal, harm has been done by the false or misleading statement. That is so for two reasons, the Full Court of the Federal Court said in Dixon v Federal Commissioner of Taxation.[242] First, it is clear from the fact that Parliament has provided for a reduction in the base penalty for voluntary disclosure but none for his finding a false statement before any harm is done. Second, the provisions relating to the general interest charge (GIC) compensate the Commissioner for having paid an amount he should not have or having not received an amount he should have.[243]
[242] [2008] FCAFC 54; (2008) 167 FCR 287; Spender, Ryan and Emmett JJ
[243] [2008] FCAFC 54; (2008) 167 FCR 287 at [22]-[26]; 292
In this case, I am not satisfied that there is anything in the course of events that would warrant a remission of the penalty. The scheme of the GST Act works on the basis of reporting periods and has a system allowing for adjustments to be made in certain circumstances. If I were to accede to Mr Korman’s submission that “… the Commissioner ought to exercise his remission discretion to adjust GST shortfalls in one period by overstatement of GST during the preceding period or periods”,[244] I would be subverting the scheme of the GST Act. I acknowledge that RV Investments has made a number of concessions during the hearing but they do not warrant a remission. Parliament has specifically focused on remission for concessions and its scheme does not allow for concessions made at the hearing. Furthermore, there is nothing about the circumstances in which the concessions were made that justifies any different conclusion. Details relating to the invoices have always been known to RV Investments and it has been in a position to take advice on them at all stages before the concessions were made.
[244] Applicant’s Submissions at [38]
DECISION
For the reasons I have given, I have decided, consistently with the figures at [117] of the Commissioner’s submissions:
(1)to vary the Commissioner’s objection decision dated 17 July 2012:
(a)in relation to the tax period from 1 July 2009 to 30 September 2009, by increasing the net amount so that the refund payable to RV Investments is reduced from $61,499.00 to $24,513;
(b)in relation to the tax period from 1 October 2009 to 31 December 2009, by decreasing the net amount so that:
(i)an amount of $8,386.00 is no longer payable by RV Investments; and
(ii)a refund of $1,740.00 is payable to RV Investments;
(c)in relation to the tax period from 1 January 2010 to 31 March 2010, by decreasing the net amount so that the amount payable by RV Investments is reduced from $9,164.00 to $2,086.00;
(d)in relation to the tax period from 1 April 2010 to 30 June 2010, by decreasing the net amount so that:
(a)an amount of $13,938.00 is no longer payable by RV Investments; and
(b)a refund of $5,574.00 is payable to RV Investments;
(e)in relation to the tax period from 1 July 2010 to 30 September 2010, by decreasing the net amount so that the amount payable by RV Investments is decreased from $59,767.00 to $3,782.00;
(f)in relation to the tax period from 1 October 2010 to 31 December 2010, by decreasing the net amount so that the amount payable by RV Investments is decreased from $13,361.00 to $12,578.00; and
(2)in relation to penalties:
(a)set aside that part of the objection decision affirming the decision to impose penalties for recklessness for the tax period 1 July 2010 to
30 September 2010 and for intentional disregard for the tax periods from 1 July 2009 to 31 December 2010; and
(b)substitute a decision that penalties be imposed at the rate of 50% of any shortfall amount in the tax periods from 1 July 2009 to 31 December 2010 on the basis that they have resulted from recklessness by RV Investments.
I certify that the two hundred and ninety eight preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,
Signed: .................[sgd]..................................
Shivanthi Herath Associate
Date of Hearing 20, 21 and 31 January 2014
Date of Last Submission 26 February 2014
Date of Decision 21 March 2014
Counsel for the Applicant Mr J Korman
Counsel for the Respondent Mr S Linden
Solicitor for the Respondent Mr R Gillott
Review and Dispute Resolution
Australian Taxation Office
Last Submission: 28 February 2014
“… is the sum of:
(a)so far as the *consideration for the supply is consideration expressed as an amount of *money – the amount (without any discount for the amount of GST (if any) payable on the supply); and
(b)so far as the consideration is not consideration expressed as an amount of money – the *GST inclusive market value of that consideration.
…”: GST Act; s 9-75.
GST Act; s 7-5 An “adjustment” is an “increasing adjustment” or a “decreasing adjustment”: GST Act;
s 195-1.
The return is not an adjustment event if the return is for the purpose of repair or maintenance: GST Act;
s 19-10(4).
“121. A taxpayer makes a false or misleading statement in a return within s 223(1)(a)(i) if a return which the taxpayer furnishes to the Commissioner in obedience to s 161(1) contains a statement that is erroneous or incorrect: no element of deceitful or dishonest conduct on the part of the taxpayer or anyone else needs to be established. This is the position where the return containing the false statement is prepared by the taxpayer's agent and the taxpayer is not aware of the falsity. …”: [2003] FCA 258; [2003] ATC 4375 at [121]; 4,402
Alexandra Private GeriatricHospital Pty Ltd v Blewett (1984) 2 FCR 368; 56 ALR 265 at 375; 272 per Woodward J and see also Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986)
162 CLR 24; 66 ALR 299; Gibbs CJ, Mason, Brennan, Deane and Dawson JJ at 39-40; 308-309 per Mason J with whom Gibbs CJ and Dawson J agreed
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