Simon Harland as Trustee for the PCS Global Discretionary Trust and Commissioner of Taxation - [2013] AATA 930

[2013] AATA 930

Division TAXATION APPEALS DIVISION
File Number 2013/0417
ReSimon Harland as Trustee for the PCS Global Discretionary Trust
APPLICANT

And Commissioner of Taxation
RESPONDENT

DECISION
Tribunal  Deputy President S A Forgie
Date  20 December 2013
Place  Melbourne
The Tribunal decides:
1.to affirm the respondent’s objection decision of 26 November 2012 which:
(1)disallowed the applicant’s objection against the respondent’s assessment of net amount for the quarterly tax period ending 31 March 2012; and
(2)disallowed the applicant’s objection against the respondent’s assessment of administrative penalty assessment for the quarterly tax period ending 31 March 2012.

…[sgd]……..…
Deputy President

CATCHWORDS
TAXATION – GOODS AND SERVICES TAX – whether meets criteria for an input tax credit – whether acquisition and supply of rights under contract – entity claiming input tax credit not party to contract – whether consideration – assessment of penalty – objection decisions affirmed.
PRACTICE AND PROCEDURE – applications for review – whether an application to Tribunal for review of objection decision reviewing objections to separate assessments or decisions should be regarded as a separate application for review of separate objection decision relating to separate assessments or decisions.
LEGISLATION
A New Tax System (Australian Business Number) Act 1999

A New Tax System (Goods and Services Tax) 1999, ss 7-1, 7-5, 7-10, 7-15, 9-5, 9-10, 9-15, 9-20, 9-40, 9-69, 9-75, 11-5, 11-10, 11-15, 11-30, 23-5, 27-5, 29-10, 29-20, 29-70, 31-5, 35-5, 35-99, 165, 165-10, 182-1, 184-1, 195-1
Acts Interpretation Act 1901, ss 2, 23
Administrative Appeals Tribunal Act 1975, ss 25, 29, 30, 37
Competition and Consumer Act 2010, ss 4, 14, 47
Corporations Act 2001, ss 119, 129, 601AD
Crimes Act 1914, s 4AA
Income Tax Assessment Act 1936-1969, s 190
Income Tax Assessment Act 1936, ss 223, 226G, 226H
Income Tax Assessment Act 1997, s 995-1

Limitation Act 1980
Migration Act 1958, s 20
Sales Tax Assessment Act (No 1), s 45
Taxation Administration Act 1953, ss 3AA, 3A, 14ZL, 14ZY, 14ZZK, 14ZZ, 105-5, 105-40, 284-75, 284-80, 284-85, 284-90, 284-220, 284-225, 298-20, 298-30
Tax Agent Services Act 2009
A New Tax System (Goods and Services Tax) Regulations 1999, rr 40-5.09, 40-5.11
Administrative Appeals Tribunal Regulations 1976, r 19
Federal Court Rules, O 29 r 5
CASES

Alexandra Private Geriatric Hospital Pty Ltd v Blewett (1984) 2 FCR 368; 56 ALR 265
Ansett Transport Industries (Operations) Pty Ltd v Commonwealth [1977] HCA 71; (1977) 139 CLR 54; 17 ALR 513; (1978) 52 ALJR 254
AP Group Limited v Commissioner of Taxation [2013] FCAFC 105
Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2) [2011] FCA 1090; (2011) 196 FCR 457
Australian Woollen Mills Pty Ltd v The Commonwealth [1954] HCA 20; (1954) 92 CLR 424
Bakewell v Deputy Federal Commissioner of Taxation (SA) [1937] HCA 11; (1937) 58 CLR 743
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622
Beaton v McDivitt (1987) 13 NSWLR 162
Bolton v Stone [1951] AC 850; [1951] 1 All ER 1078
BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164; (2001) 46 ATR 347
Elmdene Estates v White [1960] AC 528
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
Federal Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142; (2011) 197 FCR 580; 284 ALR 279; 82 ATR 153; 125 ALD 8
Galea v Commissioner of Taxation [1990] FCA 456; (1990) 90 ATC 5060; 21 ATR 1108
Gauci and Federal Commissioner of Taxation (1975) 135 CLR 81
Hart v Commissioner of Taxation [2003] FCAFC 105; (2003) 131 FCR 203; 53 ATR 371
Harvey v Edwards, Dunlop & Co Ltd [1927] HCA 13; (1927) 39 CLR 302
Kajewski v Federal Commissioner of Taxation [2003] FCA 258; [2003] ATC 4375
Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124; (2008) 168 FCR 566; 249 ALR 87; 103 ALD 238; [2008] ATC 20-037; 73 ATR 276; 48 AAR 500
Krampel Newman Partners Pty Ltd v Federal Commissioner of Taxation [2001] FCA 976; [2001] ATC 4473
Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353
McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263; 30 ALJR 464
McCormack v Federal Commissioner of Taxation [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 53 ALJR 436; 79 ATC 4111
McDermott Industries (Aust) Pty Ltd v Federal Commissioner of Taxation [2003] FCA 139; (2003) 52 ATR 42
Minister for Aboriginal Affairs v Peko-Wallsend Ltd [1986] HCA 40; (1986) 162 CLR 24; 66 ALR 299
Minister for Immigration v Dela Cruz [1992] FCA 71; (1992) 34 FCR 348; 110 ALR 367; 26 ALD 663
Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225
Multiflex Pty Ltd v Federal Commissioner of Taxation [2011] FCA 789
Pampered Paws Connection Pty Ltd v Pets Paradise Franchising (Qld) Pty Ltd (No. 10) [2012] FCA 25
Pang v Bydand Holdings Pty Limited [2010] NSWCA 175
Pearson v Deputy Commissioner of Taxation [2009] FCA 558; (2009) 74 ATR 437
Peco Arts Inc v Hazlitt Gallery Ltd [1983] 2 All ER 193
Perry v Ellis [1946] SASR 282
Re Dixon ATF the Dixon Holdsworth Superannuation Fund and Federal Commissioner of Taxation [2006] AATA 130; (2006) 62 ATR 1001; 2006 ATC 2092
Re Ku-ring-gai Cooperative Building Society (No 12) Ltd [1978] FCA 50; (1978) 22 ALR 621; 36 FLR 134
Re Rod Mathieson Truck Hire Pty Ltd as trustee of the Mathieson Family Trust and Commissioner of Taxation [2013] AATA 496
Re The Trustee for the Confidential Trust and Commissioner of Taxation [2013] AATA 682
Revlon Manufacturing Limited v Federal Commissioner of Taxation (1995) 63 FCR 535
Riordan v Australian Sports Drug Agency [2002] FCA 858; (2002) 120 FCR 424; 35 AAR 262; 69 ALD 344
Sherritt Gordon Mines Ltd v Federal Commissioner of Taxation [1977] VR 342; (1976) 10 ALR 441
Sinclair Scott & Co Ltd v Naughton [1929] HCA 34; (1929) 43 CLR 310
Tasman Capital Pty Ltd v Sinclair [2008] NSWCA 248; (2008) 75 NSWLR 1
The Leasing Centre (Aust) Pty Ltd v Rollpress Proplate Group Pty Ltd [2010] NSWSC 282
Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd [1999] WASC 1046
Toohey v Gunther [1928] HCA 19; (1928) 41 CLR 181
Weyers & Anor v Federal Commissioner of Taxation [2006] ATC 4523; (2006) 63 ATR 268; [2006] FCA 818
White v Elmdene Estates Ltd [1960] 1 QB 1
Chambers 21^st Century Dictionary, 1999, reprinted 2004, Chambers
REASONS FOR DECISION

As trustee of the PCS Global Discretionary Trust (PCS Global Trust),[1] Mr Simon Harland claimed that he was entitled to $5,359,891.00[2] by way of input tax credits under the A New Tax System (Goods and Services Tax) 1999 (GST Act). He made his claim when he lodged a Business Activity Statement (BAS) with the Commissioner for Taxation for the period 1 January to 31 March 2012 claiming that the Commissioner owed him an amount of $5,364,931.00 he had paid for Goods and Services Tax (GST) on purchases under an agreement or agreements he had entered with Two Tribes Wine Company (Australia & New Zealand) Pty Ltd (Two Tribes ANZ).[3] In essence, he purchased the right to provide what might, in summary, be called IT and support services for businesses each operating an enoteca, or wine shop and restaurant, under a franchise agreement with Two Tribes ANZ.
[1] Attachment A to these reasons contains tables of the names of the entities in this case, their relationships and the abbreviations I have used.
[2] This was calculated by taking 10% of his capital ($53,646,962) and non-capital ($2,350) purchases to come to the figure of $5,364,931. From that figure, he deducted GST on sales ($3,000) and PAYG tax withheld ($2,040) leaving $5,359,891 as his refund amount: Exhibit 4.
[3] The difference of $5,040.00 between the amount of input credits claimed and the net amount of refund sought is made up of $3,000.00 for GST on sales and $2,040.00 PAYG withholding tax owed by Mr Harland, as trustee of the PCS Global Trust, to the Commissioner.

The Commissioner did not accept that Mr Harland, as trustee of the PCS Global Trust, was entitled to that input tax credit. He issued an assessment related to the net amount payable by Mr Harland, as trustee of the PCS Global Trust, for the tax period ending 31 March 2012 under s 105-5(1) of the Taxation Administration Act 1953 (TAA) and another relating to the imposition of penalties imposed as a consequence of the resulting shortfall amount. The assessment led to an amount of $5,364,696.00 being added to the Running Balance Account (RBA) kept by the Commissioner in relation to Mr Harland as trustee of the PCS Global Trust. That amount is a “shortfall amount” for the purpose of the imposition of penalties. Penalties were assessed in the amount of $2,682,348.00 on the basis that the shortfall amount resulted from the recklessness of Mr Harland as trustee of the PCS Global Trust, or that of his agent, as to the operation of a taxation law.[4] The Commissioner refused to remit any part of the penalties.
[4] T documents; T23 at 143 and 149

The Commissioner disallowed the objections made by Mr Harland, as trustee of the PCS Global Trust, to his assessments and to his decision to refuse to remit all or part of the penalties. At the hearing of his application lodged on 25 January 2013,[5] Mr Harland stated that he was no longer seeking the input tax credits but was seeking to have the penalty set aside. I have decided that I agree with the Commissioner’s reviewable objection decision dated 26 November 2012. Therefore, I affirm the Commissioner’s reviewable objection decision dated 26 November 2012 disallowing the objections made by Mr Harland as trustee of the PCS Global Trust on 8 June 2012 against the assessment of net amount for the tax period ended 31 March 2012 dated 16 April 2012, against the assessment of the administrative penalty assessment dated 17 April 2012 and against the Commissioner’s decision refusing to remit any part of the penalties. That means that I have neither set aside nor remitted any part of the penalty of $2,682,348.00 imposed by the Commissioner. I will now set out my reasons for reaching that decision.
[5] In written submissions dated 29 November 2012, Mr Gray and Ms Baker submitted, on behalf of the Commissioner, that a taxpayer may lodge one application in the Tribunal for review of multiple appealable objection decisions. While I agree that this is so, I do not agree that the reasoning in the case of McDermott Industries (Aust) Pty Ltd v Federal Commissioner of Taxation [2003] FCA 139; (2003) 52 ATR 42, which they cited in support, applies to an application to the Tribunal. I have set out my reasons for that conclusion in Attachment B to these reasons.

THE ISSUES

At one level, the assessment of the net amount is resolved by the identification of the entity entering the agreement or agreements with Two Tribes and the entity claiming the tax input credit for they are not the same. As Mr Harland, as trustee of the PCS Global Trust, was not a party to the agreement or agreements, he was not entitled to claim any input tax credit arising from any transaction to which they related. Resolution of that issue does not, however, resolve the issues arising from the Commissioner’s assessment of penalties and his subsequent objection decision affirming his assessment. Those issues require a more detailed examination of the issues surrounding and arising from the agreement or agreements before a decision can be reached as to whether Mr Harland, as trustee of the PCS Global Trust, had a shortfall amount because they are relevant in deciding the base penalty amount that should be imposed in determining the appropriate penalties.

BURDEN OF PROOF

The Administrative Appeals Tribunal Act 1975 (AAT Act) applies in relation to the review of reviewable objection decisions such as those made by the Commissioner. Section 25(3)(c) of the 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 of the Taxation Administration Act 1953 (TAA) provides, in so far as it is relevant in this case:
“On an application for review of a reviewable objection decision:
(a)the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and
(b)the applicant has the burden of proving that:
(i)if the taxation decision concerned is an assessment (other than a franking assessment) – the assessment is excessive; or
(ii)-(iii)…”

What the burden means

Referring to a similar burden formerly imposed on the taxpayer by s 190(b) of the Income Tax Assessment Act 1936 (ITAA36), Mason J said in Gauci v Federal Commissioner of Taxation[6] (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.”[7]
[6] (1975) 135 CLR 81; Barwick CJ and Jacobs JJ; Mason J dissenting
[7] (1975) 135 CLR 81 at 89 and approved by Brennan J 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

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.”[8]
[8] (1975) 135 CLR 81 at 89
Standard of proof unaltered: balance of probabilities

Section 14ZZK does not alter 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.

How a taxpayer may satisfy the burden

The case of McCormack v Federal Commissioner of Taxation[9] illustrates the nature of a taxpayer’s task in satisfying the burden. It does so in a case in which the Commissioner had treated the net profit from the sale of a property as assessable income on the basis that it 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 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.”[10]
[9] [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 53 ALJR 436; 79 ATC 4111
[10] [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 53 ALJR 436; 79 ATC 4111 at [11]; 303; 597; 443; 622; 4,121

If all of the material facts were known and the amount of a taxpayer’s taxation liability turned on the application of the law to those facts, the taxpayer could discharge the burden of proof by establishing that the Commissioner had erroneously included in the assessed taxable income an amount that should not have been included.[11]
[11] 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 625; 347; 1375-6; 170; 4094 per Brennan J

It is open to the taxpayer to attack the Commissioner’s power to make an assessment[12] or the calculation of the amount of an assessment. If the taxpayer chooses to attack the calculation of the amount of the assessment:
“… mere error in the formation of that judgment by the Commissioner does not warrant the setting aside of the amount assessed. Given the validity of the exercise of the power to make an assessment …, the ultimate question is whether the amount of the assessment is excessive. The amount of the assessment might not be excessive in fact, though the reasons which led to the assessment were erroneous. …”[13]
[12] McAndrew v Federal Commissioner of Taxation (1956) 98 CLR 263; 30 ALJR 464 at 270-271; 465-466 per Dixon CJ, McTiernan and Webb JJ
[13] Federal Commissioner of Taxation v Dalco [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; (1990) 20 ATR 1370; (1990) 64 ALJR 166; 90 ATC 4088 at 623; 345; 1374; 169; 4092 per Brennan J

Therefore, merely establishing on the balance of probabilities that the Commissioner has made an error cannot satisfy the taxpayer’s burden of proof under s 14ZZK(b)(i) in relation to an assessment for the burden is to prove that “the assessment is excessive”. The point was made in Dalco:
“… A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer’s taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed. …”[14]

No burden of proof on Commissioner and no obligation to put forward material establishing a particular view

[14] [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; (1990) 20 ATR 1370; (1990) 64 ALJR 166; 90 ATC 4088 at 625; 347; 1375-6; 170; 4094 per Brennan J with whom Mason CJ, Dawson, Gaudron and McHugh JJ agreed

Referring to a similar burden formerly imposed on the taxpayer by s 190(b) of ITAA36, Mason J said in 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.”[15]
[15] (1975) 135 CLR 81 at 89 and approved by Brennan J in 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

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 the 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.”[16]
[16] (1975) 135 CLR 81 at 89

In Galea v Commissioner of Taxation,[17] Hill J said:
“ 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.”[18]
[17] [1990] FCA 456; (1990) 90 ATC 5060; 21 ATR 1108
[18] [1990] FCA 456; (1990) 90 ATC 5060; 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

BACKGROUND
The taxpayer

Mr Harland, as the trustee of the PCS Global Trust, has been registered for GST with an Australian Business Number (ABN) 14 245 782 981 since 1 July 2003.[19] There was no disagreement between Mr Harland and the Commissioner that he, as trustee of the PCS Global Trust, had chosen to account for GST on a cash basis. From 24 June 2003, Mr Harland, as trustee of the PCS Global Trust, traded under the name of a company, PCS Global Pty Ltd (PCS). That company had been incorporated on 5 June 2003 with Mr Harland as its sole Director and Secretary but had been deregistered on 28 October 2007.[20] From 19 March 2012 and as trustee of the PCS Global Trust, he traded under the name of another company, PCS Global Discretionary Trust Pty Ltd (PCS Global Trust PL). On 2 February 2012, a discretionary trust was settled by deed. That is known as the “PCS Global Disscretionary [sic] Trust Pty Ltd” (PCS Global Trust).[21] Mr Harland was named as the PCS Global Trust’s trustee.[22] There is no deed in relation to the PCS Global Trust but the parties treated that trust and the PCS Global Trust PL as one and the same. I have done the same and will, unless it is necessary to distinguish between the two names, will refer to the trust as the PCS Global Trust.

[19] Documents lodged under s 37 of the Administrative Appeals Tribunal Act 1975 (AAT Act) (T documents); T38 at 197. The ABN is maintained on the Australian Business Register and is publicly available on ABN Lookup at See also A New Tax System (Australian Business Number) Act 1999; s 26(3). The “Trustee for PCS Global Discretionary Trust” is shown as trading under the name of PCS Global Pty Ltd from 24 June 2003 and under the name of PCS Global Discretionary Trust Pty Ltd from 19 March 2012: T documents; T38 at 197. The ABN had last been updated on 19 March 2012 and the record extracted on 11 September 2012. PCS Global Pty Ltd had been deregistered on 28 October 2007. I have no material to suggest that PCS Global Discretionary Trust Pty Ltd was registered as a corporation. Rather, it was the name given to the PCS Global Trust in the Trust Deed: see .

[20] T documents; T28 at 176-177

[21] T documents; T3 at 87

[22] T documents; T3 at 63-88

Relevant third parties

Two Tribes ANZ was previously known as the Two Tribes Wine Company (Two Tribes). It was known by that name from the date of its registration on 9 January 2009 as an Australian Proprietary Company Limited by Shares until 18 January 2011.[23] On 19 January 2011, it changed its name to Two Tribes ANZ until 3 April 2012. Since 4 April 2012, it has been known as Oenoviva (Australia & New Zealand) Pty Ltd (Oenoviva ANZ Pty Ltd).[24] Mr Andrew Garrett has been one of its directors. Two Tribes ANZ, and now Oenoviva (ANZ) Pty Ltd, is the trustee of the Two Tribes Wine Company (Australia & New Zealand) Hybrid Trust (Two Tribes Hybrid Trust).
[23] T documents; T43 at 215-217
[24] T documents; T43 at 215

Events dated 15 February 2012
A.The Heads of Agreement

On 15 February 2012, Mr Harland, as Director and Secretary of PCS,[25] and Mr Garrett as sole Director and Secretary of Two Tribes ANZ, which was itself acting as trustee of the Two Tribes Hybrid Trust, signed a document entitled “Heads of Agreement”.[26] The document began with the heading “Background”. There are other headings in the document but they are in smaller font and seem to be subordinate to the heading of “Background”. The smaller headings are “Term”, “Intention of the Parties to be bound”, “What PCS will do”, “What TTW(ANZ) will do”, “Purchase Price”, “Payment of the purchase price”, “Cash flow of the Businesses Managed under the Rights Agreement”, “Option to Issue shares in PCS”, “General provisions”, “No partnership”, “No sharing of revenues” and “Disagreement as to the calculation of EBIT”. I have set these out for Mr Gray SC with Ms Baker of counsel submitted in relation to the Vendor Finance Agreement that Recitals are not operative parts of agreements although he acknowledged that they may have some role in construing the agreement. I will deal with it here lest it be thought that the Background is the equivalent of a recital and, if there is an agreement to be found in the Heads of Agreement, the passages in the Background cannot be regarded as an operative part of that agreement. If that is the position, it would be equally true that the Background material could not be taken into account in determining whether there is an agreement.
[25] PCS had been deregistered on 28 October 2007. It would seem that the reference should have been to the PCS Global Trust or to the PCS Global Trust PL. For GST purposes, Mr Harland as “The Trustee for PCS Global Disscretionary [sic] Trust” traded under the name of that company from 19 March 2012 using the same ABN as he had when he traded under the name of PCS.
[26] T documents; T4 at 90-96

Mr Gray relied on three passages from Ansett Transport Industries (Operations) Pty Ltd v Commonwealth[27] to support his submission. Having looked at those passages, it seems to me that the principle is not quite so straightforward for there are instances in which matters referred to in a recital may be read as part of an agreement. Certainly, Gibbs J said in that case in which recitals had been included in an agreement:
“… The fifth recital in the 1961 Agreement in my opinion indicates the general object of the parties, in the light of which the Agreements must be construed, but does not reveal an intention that the Commonwealth shall be bound to do or not do any particular act and does not constitute a covenant. The obligations of the Commonwealth are to be found in the operative provisions of the Agreements. …”.[28]
[27] [1977] HCA 71; (1977) 139 CLR 54; 17 ALR 513; (1978) 52 ALJR 254; Barwick CJ, Gibbs, Mason, Muphy and Aickin JJ
[28] [1977] HCA 71; (1977) 139 CLR 54; 17 ALR 513; (1978) 52 ALJR 254 at 63; 520; 257-258 per Gibbs J

His Honour made this statement in considering a submission that a particular term should be implied in the Agreements. He was not turning his mind to the broader question whether a recital could be regarded as an operative term. This was a matter to which Mason J did turn in considering whether matters referred to in a recital will be read into an agreement:
“No doubt it is correct to say that, where in the recitals to a deed or an agreement it is acknowledged that the parties have agreed to do, or will do, certain acts, a promise to do those acts will be read into the agreement in the absence of an express promise to that effect. Then, there being no indication of a contrary intention, it may be safely inferred that the absence of a contractual provision was due to oversight or inadvertence. This is brought out in the judgment of Lord Denman CJ in Aspdin v Austin … [(1844) 5 QB 671 at p 683], where he speaks of the courts in these circumstances having ‘inferred’ a covenant to do the acts.”[29]
[29] [1977] HCA 71; (1977) 139 CLR 54; 17 ALR 513; (1978) 52 ALJR 254 at 72; 528; 261 per Mason J

The passage to which I was referred in the judgment of Aickin J is to the same effect when his Honour referred to cases which:
“… establish that a recital in a deed may imply a covenant but show that in every case it must be plain on the whole deed that it was so intended …”.[30]
[30] [1977] HCA 71; (1977) 139 CLR 54; 17 ALR 513; (1978) 52 ALJR 254 at 103; 554; 274 See also Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd [1999] WASC 1046 under the heading “The True Construction of cl (a) 6.5.1” per Templeman J and The Leasing Centre (Aust) Pty Ltd v Rollpress Proplate Group Pty Ltd [2010] NSWSC 282 at [79]-[83] per Barrett J

With these principles in mind, I summarise what was in the whole of the Heads of Agreement for the parties to it have not observed the subtleties of the law of contract. It seems to me that they have intended that the document be read as a whole with no distinction to be made on the basis of headings. I will return to its terms later in these reasons but, in the meantime, note that it set out the following events and plans:
(1)The Andrew Garrett Family Trusts and Seraphim IP Pty Ltd had developed what was described as an “Urban Winery hospitality concept combining the roles of winemaking; wine sourcing; wine wholesale and wine retail including online applications incorporating associated bar and restaurant operation, as well as function/event operation”[31] (Concept). The Concept was “… based upon an innovative wine production process incorporating blast freezing and selling wine ‘en primeur’ …”.[32] Either he, or the entities associated with him, had applied for certain patents to protect their intellectual property in the Concept.
[31] T documents; T4 at 91
[32] T documents; T4 at 91
(2)The Andrew Garrett Family Trusts and Seraphim IP Pty Ltd had exclusively licensed Oenoviva in relation to the Concept “in the territory of the World”.[33]
[33] T documents; T4 at 91
(3)Oenoviva, as Franchisor, had sold an exclusive ten year Regional Franchise to Two Tribes ANZ in its capacity as trustee for the Two Tribes Hybrid Trust (Regional Franchise).
(a)Under that Regional Franchise, Two Tribes ANZ would sell up to 13 franchises (Master Area Franchises).
(4)Each Master Area Franchisee could sell up to 50 franchises (Distributor Franchises).
(a)Under each Distributor Franchise, the franchisee would distribute the product supplied to it by the Master Area Franchisee who had sold the franchise.
(5)Two Tribes ANZ and its related entities were negotiating to purchase, lease or develop a number of commercial premises with the intention of establishing hospitality businesses that were aligned with the manufacture and means of distribution envisaged in the Concept (Hospitality Venues).
(a)Each of the Hospitality Venues would be franchised with the Concept as either:
(i)a Master Urban Winery Evaluation-Implementation support and development scoping consulting infrastructure and point of sale integration and financial system evaluation; or
(ii)an Urban Winery Evaluation -Implementation support and development scoping consulting infrastructure and point of sale integration and financial system evaluation – implementation support and development and scoping consulting.
(b)Twin Tribes ANZ was then negotiating to purchase, lease or develop a number of existing businesses with the intention of aligning them with the Concept (Hospitality Enterprises).
(6)Among others, PCS carries on the business of implementation support and development scoping consulting infrastructure and point of sale integration and financial system development.
(7)Twin Tribes ANZ and PCS agreed that:
(a)“… PCS and … [Twin Tribes ANZ] have reached agreement for PCS to purchase from … [Twin Tribes ANZ] the rights to exclusively provide the services of PCS to franchises associated with the Concept and the Patent Pending that will be supplied to the Hospitality Enterprises and the Hospitality Venues, with the intention that such agreement be documented in detail with effect from 15^th February, 2012.”;[34]
[34] T documents; T4 at 92
(i)“The parties have agreed that pending documenting detailed agreement, ANZ will commence the development of the EVALUATION – IMPLEMENTATION SUPPORT AND DEVELOPMENT AND SCOPING CONSULTING INFRASTRUCTURE AND POINT OF SALE INTEGRATION AND FINANCIAL SYSTEM to the Hospitality Venues and other clients from Friday 15^th February, 2012 under the terms of this Agreement.”[35]
[35] T documents; T4 at 92
(b)PCS would
(i)“Provide services and EVALUATION – IMPLEMENTATION SUPPORT AND DEVELOPMENT AND SCOPING CONSULTING INFRASTRUCTURE AND POINT OF SALE INTEGRATION AND FINANCIAL SYSTEM supply implement support and document train personnel associated with the concept to the Integrated Point of Sales System in the territory of the Regional Master Licensor at the direction of … [Twin Tribes ANZ];[36]
[36] T documents; T4 at 93. The expression “Regional Master Licensor” is not defined in the Heads of Agreement.
(ii)provide expertise to the franchisees and to Twin Tribes ANZ in the operation of the franchises in the territory of the Regional Master Licensor at the direction of Twin Tribes ANZ;
(iii)“Develop the businesses to maximise EBIT in the territory of the Regional Master Licensor taking a whole-of-term approach”;[37]
[37] T documents; T4 at 93
(iv)“Monitor & maintain the Franchises sold in the territory of the Regional Master Licensor at the direction of … [Twin Tribes ANZ]”;[38]
[38] T documents; T4 at 93
(v)“Build a cost effective and efficient human and office infrastructure to sell and maintain the franchises”;[39]
[39] T documents; T4 at 93
(vi)“Provide the personal services of Simon Haarland [sic] or a reasonably agreed alternative consultant during the term and subsequent option period.”;
(vii)“Negotiate and agree the purchase price and terms for the “EVALUATION- IMPLEMENTATION SUPPORT AND DEVELOPMENT SCOPING CONSULTING INFRASTRUCTURE AND POINT OF SALE INTEGRATION AND FINANCIAL SYSTEM, of the point of Sales and financial system and fees for services including training auditing, and security for payment, with franchisees”;[40]
[40] T documents; T4 at 93
(viii)“Execute a preferred supplier agreement with OenoViva Limited and … [Twin Tribes ANZ] as required by them in their capacities as the global master franchisor and regional master franchisor respectively.”[41]
[41] T documents; T4 at 93
(c)Twin Tribes ANZ would:
(i)approve sites in the territory of the Regional Master Licensor for the operation of Master Urban Winery Franchises and Urban Winery Distribution Franchises;
(ii)Twin Tribes ANZ would provide reasonable working capital for the acquisition and development of sites;
(iii)give PCS the option of providing payroll and Human Resources services at cost plus 2.5% of gross wages; and
(iv)“Grant PCS a right of refusal of, at cost, the international rights to the EVALUATION- IMPLEMENTATION SUPPORT AND DEVELOPMENT SCOPING CONSULTING INFRASTRUCTURE AND POINT OF SALE INTEGRATION AND FINANCIAL SYSTEM to all Regional Franchisees in the global territory that is the property of OenoViva Limited.”[42]
[42] T documents; T4 at 93
(8)The term of the agreement would be a period of ten years from 15 February 2012 to 15 February 2022;
(a)provided PCS were not in breach of the agreement, it had an option to renew for a further ten years on the same terms; and
(b)PCS might elect to terminate the agreement with effect from 30 December 2019 by giving Twin Tribes ANZ at least one month’s written notice.
(9)The agreement between Twin Tribes ANZ and PCS would be prepared and have effect from 15 February 2012.
(10)The purchase price was stated to be “One Hundred Seven million two hundred and ninety four thousand [sic] ($107,293,924) payable as below”:[43]
“The Purchase Price will be paid by PCS to TTWC (ANZ) [Twin Tribes ANZ] under a vendor financing arrangement. The Purchase Price is only payable by PCS to … [Twin Tribes ANZ] from EBIT, as below, and PCS has no liability to … [Twin Tribes ANZ] for payment of the Purchase Price other than from distributable EBIT.
∙The Purchase Price will be paid in the amount of 90% of the distributable EBIT under PCS control derived from provision of services, training franchise development and franchise sales associated with the concept as to the franchisees in the … Venues acquired or established by … [Twin Tribes ANZ] and related entities and other clients, paid monthly, 7 days from end of each month.
∙A portion of the Purchase Price, being 50% or $53,646,962.00 (for which an invoice has been rendered by … [Twin Tribes ANZ] to PCS) will be paid by PCS to … [Twin Tribes ANZ]) from distributable EBIT as above.
∙The balance of the Purchase Price, being 50% or $53,646,962.00 will be paid by PCS to … [Twin Tribes ANZ] from distributable EBIT as above upon the execution of the Final Purchase Price Deed and the Vendor finance agreement, unless PCS has terminated this agreement with effect from 30^th December 2019.
∙Interest will be paid by PCS to … [Twin Tribes ANZ] on the outstanding balance of the Purchase Price commencing on 15^th Day of February 2012 at the 90 day bill rate most recently published in the Australian Financial Review at the payment date plus + 1.5% per annum, provided always that interest is only payable by PCS to … [Twin Tribes ANZ] from distributable EBIT, if available, as above.”[44]
(11)The amounts in the Heads of Agreement were “… stated exclusive of GST. GST, where applicable, will be added to amounts identified in this agreement.’[45]
[43] T documents; T4 at 93
[44] T documents; T4 at 94
[45] T documents; T4 at 94

B.The First Tax Invoice

On 15 February 2012, Twin Tribes ANZ as trustee for the Twin Tribes Hybrid Trust issued an invoice numbered 023 to PCS in the sum of $53,646,962 plus GST of $5,364,696.20 being for:
“Rights associated with development of IT and POS Solutions in respect to OenoViva Business Systems and OenoViva Wine Crafting Process set out in the Heads of Agreement dated 15th February 2012.”[46]

The financial records relating to Mr Harland in his capacity as trustee for the PCS Global Trust do not show any entries that suggest that he has paid any part of the invoiced amount to Twin Tribes ANZ.[47]

[46] T documents T5 at 98

[47] T documents; T53-T54 at 268-279

C. Receipt for payment of a deposit

On 15 February 2012, Twin Tribes ANZ as trustee for the Twin Tribes Hybrid Trust issued a receipt numbered “023” to PCS for a deposit of $10,000 described as a:
“Deposit regarding:
Rights associated with development of IT and POS Solutions in respect to OenoViva Business Systems and OenoViva Wine Crafting Process set out in the Heads of Agreement dated 15th February 2012.”[48]

A handwritten note on the receipt reads:
“OFFSET AGAINST INV WORK completed 16^TH FEB 2012.”[49]

[48] T documents; T6 at 99

[49] T Documents; T6 at 99

The information in the receipt is replicated in a further document produced by Twin Tribes ANZ, dated 1 March 2012 and addressed to PCS. Against the “Reference Number” is written “Rights agreement deposit”. There then appears the following:

“Description

Quantity

Unit Price

GST

Amount AUD

credit against in 023R

1.00

10,000.00

No GST

10,000.00

Subtotal

10,000.00

TOTAL AUD

10,000.00

OFFSET AGAINST WORK DONE … [illegible initials or signature] 16/2/2013

This is not a legal credit note”[50]

[50] T documents; T7 at 101

Events dated 31 March 2012

A. Vendor Finance Agreement

Twin Tribes ANZ, as trustee for the Twin Tribes Hybrid Trust and related entities,[51] and PCS, as trustee of the PCS GlobalTrust, signed a Vendor Finance Agreement. The document is dated 31 March 2012. In the section headed “Background”, the document referred to the:
“… Heads of Agreement pursuant to which the Lender [Twin Tribes ANZ as trustee of the Twin Tribes Hybrid Trust] sold to the Borrower [PCS as trustee of the PCS Global Trust] the exclusive rights for the provision of Evaluation and IT implementation services and systems to the Lender and all associated entities.”[52]

The term “Heads of Agreement” was defined in cl 1 of the Vendor Finance Agreement to mean “… the agreement entered into between the Lender and the Borrower on 22 December 2011 …”[53] rather than 15 February 2012 which appears on the Heads of Agreement document.

[51] The entities were described as set out in Schedule 1 of the Heads of Agreement dated 15 February 2012 but I do not have a copy of that Schedule.

[52] T documents; T10 at 105 at [A]

[53] T documents; T10 at 107

The Vendor Finance Agreement quantified the amount of GST payable on the purchase price of $107,293,924.00 as the sum of $10,729,392.40 and then summarised terms of the Vendor Finance Agreement said to have been included in the Heads of Agreement. That amount was known as the “Loan Amount”. That term covered the amount advance by way of loan by Twin Tribes ANZ to PCS or so much as remained outstanding from time to time.[54] Clause 5 of the Vendor Finance Agreement provided:
“At the Commencement Date the Lender will loan the Loan Amount to the Borrower under this agreement to pay the Purchase Price which shall be treated as paid in full and all obligations of the Borrower in respect thereof shall be taken as discharged.”[55]

The “Commencement Date” was defined in cl 1 to mean “… the date of this Vendor Finance Agreement being 22 December 2011.”[56]

[54] Definition of “Loan Amount” in cl 1: T documents; T10 at 107

[55] T documents; T10 at 110

[56] T documents; T10 at 107

Clause 8 of the Vendor Finance Agreement provided:
“a. The Borrower will repay the Lender the Loan Amount in a Payment Period.
b.The amount of each payment shall not exceed sixty per cent (60%) of the Distributable EBIT received by the Borrower in any Payment Period.”[57]
[57] T documents; T10 at 110-111

The “Payment Period” is the:
“… period of one month ending 7 days from the end of each month commencing Monday, 2 April 2012 and ending on 21 December 2021 or the date on which the Heads of Agreement is terminated, whichever is earlier.”[58]

The “Distributable EBIT” is the:
“… total amount of legal [sic] fees received by the Borrower from the Lender during a Payment Period for the provision of legal [sic] services under the Heads of Agreement calculated under the Costs Agreement and Disclosure Statement entered into between the parties and which formed schedule 4 to the Heads of Agreement. For the avoidance of doubt, Distributable EBIT excludes all disbursements and refers to fees received by the Borrower in any Payment Period.”[59]

[58] Vendor Finance Agreement; cl 1; T documents; T10 at 107. Schedule 4 is not attached to the Heads of Agreement in the T documents.

[59] T documents; T10 at 107

Clause 7 provided that PCS would pay interest on the Loan Amount. Interest would commence to accrue from the first Payment Period in which the Distributable EBIT exceeded $50,000.00. It was repayable at the same time and in the same manner as the Loan Amount and was payable at the rate set out in cl E(v) of the Vendor Finance Agreement. Clause E(v) provided:
“Interest will be paid by the Borrower to the Lender on the outstanding balance of the Purchase Price commencing on 15^th Day of February 2012 at the 90 day bill rate most recently published in the Australian Financial Review at the payment date plus + 1.5% per annum, provided always that interest is only payable by the borrower to the Lender from the distributable EBIT.”

Clause 10 of the Vendor Finance Agreement is headed “Non-Recourse” and provides:
“a. if this agreement is terminated or ends on the End Date, the lender has no recourse against the Borrower for any outstanding Loan Amount and any accrued interest at that date.
b.The lender’s rights of recourse against the Borrower are limited to Ninety per cent (90%) of the Distributable EBIT in any Payment Period.
c.The liability of the Borrower to pay the Loan Amount and interest under this agreement is limited to ninety per cent (90%) of the Distributable EBIT in any Payment Period.
d.The Performance Security is limited to ninety per cent (90%) of the Distributable EBIT and any capitalised interest in any Payment Period.”[60]
[60] T documents; T10 at 111

B. The Second Tax Invoice

On 31 March 2012, Twin Tribes ANZ, as trustee for the Twin Tribes Hybrid Trust, issued a Tax Invoice numbered 0054 to the trustee of the PCS Global Trust, Mr Harland, for “IT & POINT OF SALES RIGHTS”. Those rights were further described as:
“Management Rights associated with IT implementation/software development in respect to Contract dated 15th February 2012.”[61]

The Tax Invoice was issued for the amount of $53,500,000.00 plus GST at the rate of 10% being $5,350,000.00.

[61] T documents; T11 at 117

Exclusive Master Regional Licence Purchase Deed: not executed

A document entitled “ Exclusive Master Regional Licence Purchase Deed” appears in the T documents but is marked “Draft” and is not signed.[62] It is expressed to be between Twin Tribes ANZ, as trustee for the Twin Tribes Hybrid Trust, and PCS, as trustee of the PCS Global Trust.[63] Reference is made to the Heads of Agreement and to the Vendor Finance Agreement and to the parties’ intention to be bound by the terms of the Heads of Agreement but to have them “… restated in a formal deed in a fuller, more comprehensive and precise form but not different in effect.”[64] Despite that statement, the draft Exclusive Master Regional Licence Purchase Deed relates to the sale by Twin Tribes ANZ of the Master Sub-Regional License to PCS in the Asia Pacific Region for the period commencing on 15 February 2011 and ending on 30 December 2021 or the date on which the Heads of Agreement ended or were otherwise terminated, whichever was earlier.[65] Clause 6b states that, with effect from 15 February 2011, Twin Tribes ANZ would grant to PCS the exclusive rights to sell and develop franchises and licences related to the Concept in the Asia Pacific Region for that period. Furthermore:
“The parties agree that the consideration paid by PCS to … [Twin Tribes ANZ] in relation to the matters referred to in clauses 6 a. and 6 b. of this Agreement was the Purchase Price [i.e. the amount of $107,293,924.00 in the Heads of Agreement].”[66]
[62] T documents; T47 at 227-241
[63] As I understand matters, PCS is not the trustee of the PCS GlobalTrust. Mr Harland is its trustee.
[64] T documents; T47 at 228, cl D
[65] Exclusive Master Regional Licence Purchase Deed at cll 6(a) and 1; T documents; T47 at 233 and 228
[66] Exclusive Master Regional Licence Purchase Deed at cll 6(c) and 1; T documents; T47 at 233 and 229

Clause 6d of the Exclusive Master Regional Licence Purchase Deed noted that:
“as at the date of this agreement TTWC [Twin Tribes] has paid a deposit equivalent to 10% of the Purchase Price due under the Heads of Agreement and the Vendor Finance Loan Amount will be reduced by that amount.”[67]
[67] T documents; T47 at 233

Tax Invoices and Statements issued by PCS

The following tax invoices and statements have been issued by PCS:

Description	Number	Services	Amount	Date	Addressee
Tax Invoice[68] ABN: 1452458463094	INV-0001	Consulting Services	$1,500.00 + GST = $1,650.00	20 March 2012	Soulmama
Tax Invoice[69] ABN: 1452458463094	INV-0003	POS-Solutions System software and licences x 1 Point of Sale Hardware terminals x 8 Point of Sale Training x 1 Point of Sale – Implementation x 1 Wireless System – Secure and implementation x 1 POS – support and upgrades x 3 Screen brackets for terminals x 10 Subtotal Total GST TOTAL	$22,500.00 $7,160.00 $5,500.00 $12,500.00 $12,500.00 $16,800.00 $1,570.00 $78,530.00 $7,853.00 $86,383.00	28 March 2012 Note: Due date shown as 22 March 2012	Soulmama
Statement[70] ABN: 1452458463094	Invoices INV-0001 and INV-0003	$88,033.00	31 March 2012	Soulmama
Tax Invoice[71] ABN: 1452458463094	INV-0003	POS Solutions System software and licences for Restaurant A licence per devices as per hardware requirements module x 10 Point of Sale receipt printers hardware terminals x 8 Point of Sale training – train the trainer and franchisee training x 1 Point of Sale – Implementation – remove and replace systems, install software and hardware x 4 Wireless system – secure hardware repeaters x 3 POS – Support and upgrades for 12 months x 1 Screen brackets for terminals x 10 i pod units and cases x 8 Point of Sale hardware i pad devices with waterproof covers etc x 10	$13,750.00 $5,940.00 $4,950.00 $11,000 $4,785.00 $8,250.00 $5,225.00 $3,071.20 $9,889.00 Includes GST $6,078.20 TOTAL $66,860.20	2 April 2012	Oenoviva as trustee of the Oenoviva (Australia & New Zealand) Plant and Equipment Trust (Oenoviva as trustee for OenoViva PE Trust) Reference: Soulmama
Tax Invoice[72] ABN: 1452458463094	INV-0001	IT-set up services – for set up of emails on site and MAC computers – remote configuration of hosting addresses includes upgrade antivirus software implementation, setting up imap and network email configuration x 1	$4,125.00	2 April 2012	Holy Grail Hospitality (St Kilda) Pty Ltd as trustee for the Andrew Garrett Family Trust trading as Soulmama
Tax Invoice[73] ABN: 1452458463094	INV-002	IT-Set up services on email and hosting networks for Oenoviva-Artisans. On site visits and offsite supports x 1 Hardware purchases – projector x 1 Printer for head office x 1	$4,125.00 $748.00 $7,194.00 Includes GST $1,097.00 TOTAL $12,067.00	2 April 2012	Oenoviva-Artisans
Statement[74] ABN14…94	Opening Balance	Balance Due: $12,067.00	30 June 2012	Oenoviva-Artisans
Statement[75] ABN: 1452458463094	Opening Balance	Balance Due: $385,770.00	30 June 2012	Oenoviva as trustee for OenoViva PE Trust
Statement[76] ABN: 1452458463094	Opening Balance	Balance Due: $114,119.50	1 October 2012	Oenoviva as trustee for OenoViva PE Trust

[68] T documents; T8 at 102

[69] T documents; T9 at 103

[70] T documents; T12 at 118

[71] T documents; T13 at 120-121 and see also T55 at 292-293

[72] T documents; T14 at 122

[73] T documents; T55 at 295

[74] T documents; T55 at 297

[75] T documents; T55 at 299

[76] T documents; T55 at 298 There is a suggestion in an email exchange with an officer of the ATO on 13 April 2012 that Mr Harland had posted the BAS to the ATO on or about 3 April 2013 but nothing turns on this: T documents; T19 at 131.

Business Activity Statement, Audit, Assessments and Objection
A. Lodgement of the BAS

On 13 April 2012, Mr Harland, as trustee of the PCS Global Trust and under ABN 14 245 782 891, lodged a BAS for the quarterly tax period ended 31 March 2012.[77] He declared capital purchases of $53,646,962.00 00 in respect of the acquisition of the exclusive right to provide IT services and, after making other adjustments set out in , claimed an input tax credit of $5,359,891.[78]
[77] Exhibit 4 I note that the BAS had been sent to PCS Global Pty Ltd, which is recorded on the ABN Lookup site as one of the trading names for the Trustee for PCS Global Discretionary Trust. At the same time, it carries the ABN for the Trustee for PCS Global Discretionary Trust.
[78] T documents; T16 at 125 and Exhibit 4

B. Processing the BAS

On receiving the BAS, the Australian Taxation Office (ATO) wrote to Mr Harland on the same day, 13 April 2012, to tell him there would be an audit of the transactions used to prepare his BAS for the period 1 January 2012 to 31 March 2012. The records of income and expenditure for the PCS Global Trust and associated individuals would be examined. The ATO asked Mr Harland to provide certain information including evidence of all payments made to the supplier of the rights. That evidence might include bank statements and receipts. It asked him to provide that information by 4:00pm on 13 April 2012.[79] An officer of the ATO also telephoned Mr Harland on 13 April 2013 to convey the same information.[80]
[79] T documents; T17 at 126-127
[80] T documents; T18 at 128

Mr Harland replied to the ATO by email on 13 April 2012. He noted that the time he had been given to provide the material had been unrealistic and that he would provide it on Monday, 16 April 2012. He then wrote:
“Therefore I seek and request that there is no allowable control by you to disallow processing and that any Audit and or documentation that would be provided outside these mandated processes are not in conjunction but merely additional to comply with an Audit.
Please acknowledge that this is correct and that it will be processed accordingly within the 14 days from lodgement which should have been the 3rd of April.”[81]
[81] T documents; T19 at 131

On the morning of 16 April 2012, an officer of the ATO wrote to Mr Harland accepting that he could not lodge the material on the previous Friday and extending the time until 2:00pm on that day. In the meantime:
“Your activity statement lodged for the period ending 31 March 2012 will continue to be processed within the reasonable time allowed under section 35-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). We are endeavouring to complete the audit as quickly as possible and in order to do this we confirm our request that the following documents and information be provided by 2:00pm today …”.[82]
[82] T documents; T19 at 130

Mr Harland replied stating, among other things, that he was sending the information shortly and that “Having provided that information I request you release the refund immediately without delay.”[83] He concluded by asking why it had taken the ATO ten days to process his BAS. The ATO responded that Mr Harland’s BAS was being processed and would be released unless the Commissioner determined that he was not entitled to GST credits for the period and issued an assessment accordingly. The response was sent at 2:08pm and the ATO had not yet received any documents from Mr Harland.[84]
[83] T documents; T19 at 130
[84] T documents; T19 at 129

At 3:03pm on 16 April 2012, Mr Harland wrote a further email to the ATO. It reads, in part:
“My understanding is that by law the ATO is instructed to process irrespective of documentation. It is not relevant in the processing of the BAS statement but relevant to an audit after the fact. The processing of the refund is mandatory and it is stated and clarified on your website. As discussed I request you release the refund. Irrespective of the documents the fact is as follows and there is no allowable connection to the processing of my BAS and documentation. I would expect you to reply and agree to this statement by return email.
…
In Multiflex Pty Ltd v The Commissioner of Taxation (2011) FCA 789 the taxpayer challenged the Commissioner’s ability to withhold goods and services tax (GST) refunds pending the completion of verification or audit activity.
…”[85]
A few minutes later, Mr Harland sent a number of documents to the ATO.

[85] T documents; T19 at 129

C. The assessments

On 16 April 2012, an officer of the ATO told Mr Harland that his claim for an input tax credit of $5,364,696.00 would be disallowed by the Commissioner.[86] In addition, the officer told Mr Harland that the Commissioner had assessed his behaviour as reckless as the transaction was the largest that the PCS Global Trust had undertaken in the previous two years. Therefore, Mr Harland should have taken more care in lodging the BAS. Penalty was imposed at the rate of 50% of the shortfall amount.[87] Also on 16 April 2012, the Commissioner issued a Notice of Assessment for the period 1 January 2012 to 31 March 2012. It was an assessment of his net amount under s 105-5(1) of Schedule 1 to the TAA for that tax period.[88] On the following day, 17 April 2012, the Commissioner issued a Notice of Assessment to pay penalty in the sum of $2,682,348.00.[89]
[86] T documents; T22 at 138-139
[87] T documents; T22 at 138-139 and see also Completion of Audit; T23 at 140-150
[88] T documents; T24 at 151-154
[89] T documents; T26 at 156-158

D. The objection

On 8 June 2012, Mr Harland, as trustee of the PCS Global Trust, lodged an objection to both the assessment of net amount and assessment of penalty.[90] In addition to specific heads of objection, Mr Harland made the general claim that he was:
“… entitled to, in addition to the input tax credits claimed in the period 31 March 2012, a further input tax credit in the amount of $5,350,000 referable to the tax invoice issued on 31 March 2012. That amount was not claimed in the business activity statement filed by the Taxpayer for the period ended 31 March 2012.”[91]
[90] T documents; T27 at 140-174
[91] T documents; T27 at 166

THE SUBMISSIONS: the assessment of net amount

I have set out the parties’ submissions in some detail throughout these reasons and will only summarise them in the broadest terms at this point. Mr Harland is not contesting the Commissioner’s decision that he, as trustee of the PCS Global Trust, is not entitled to the input tax credit he claimed. In essence, he submitted that, when his claim for input tax credit is viewed from his standpoint at the time he made it, his act in making that claim should not be viewed as a reckless act. Not until after he made the claim and after it was disallowed did he realise the reasons why it would be disallowed. Neither he nor the PCS Global Trust has received a cent for any of the work that he has done under the Heads of Agreement. He believed that he had done the right thing and had not been looking for a golden rainbow. Noting that his claim was refused within 24 hours without an audit, Mr Harland asked whether he had been reckless or whether he was being fined because of someone else’s actions. That someone else was Mr Garrett and the actions were his business dealings. Mr Harland said that he should not be sitting in this position because of the actions of Mr Garrett. Mr Harland submitted that regard should be had to the fact that he had assisted the ATO in its investigation of Mr Garrett’s activities. He had flown to Queensland at his own expense to do that on 15 February 2013.

Mr Harland submitted that he had entered two contracts to provide point of sale and IT resources on vendor finance terms. His written submissions refer to his having done so rather than his having done so as the trustee of the PCS Global Trust. Therefore, in summarising his submissions, I will refer to Mr Harland without reference to his being the trustee of the PCS Global Trust but on the understanding that the documents refer to his having done so as the trustee.

In his written submissions, Mr Harland made a submission to the effect that the assessments made by the Commissioner are unlawful, void and of no force or effect. Consequently, they should be cancelled or withdrawn or, alternatively, the amounts assessed should be reduced to a lesser amount and any penalties remitted in full or in part. Mr Harland submitted that he was entitled to claim a further $5,350,000.00 referable to the Tax Invoice issued on 31 March 2012. He had not claimed that amount in the Business Activity Statement he had lodged for the tax period ending on 31 March 2012.

At the hearing, Mr Harland did not develop his contention that the Commissioner’s assessments are unlawful, void or of no force or effect and I will not consider that matter further. He pointed to the Heads of Agreement as establishing that he had made a creditable acquisition. Mr Harland said that he had discharged his obligation to pay the purchase price under the Heads of Agreement when Twin Tribes ANZ loaned him an amount equal to the full purchase price and he used that loan to pay that purchase price. That was 31 March 2012 and both Tax Invoices were issued in that period with one issued on 15 February 2012 and the other on 31 March 2012. Therefore, any input tax credits to which he was entitled were attributed to the tax period ending 31 March 2012. His consequent acquisition of the IT and support rights under the Heads of Agreement was done so in the course of his carrying on an enterprise.

On behalf of the Commissioner, Mr Gray of counsel submitted that Mr Harland, as trustee of the PCS Global Trust, has not made any creditable acquisitions because he has not made an acquisition from Twin Tribes ANZ as trustee of the Twin Tribes Hybrid Trust for five reasons. First, he had not acquired the exclusive IT rights or anything else for a creditable purpose. Second, if he had acquired it, the supply was not a taxable supply. Third, if it was a taxable supply, he had not provided any consideration for the supply and was not liable to pay any. Even if Mr Harland, as trustee of the PCS Global Trust, has made a creditable acquisition and is entitled to an input tax credit, it is not attributable to the tax period ended 31 March 2012, for which he has claimed it. It is not attributable because he did not provide any of the consideration for its acquisition in that tax period.

In view of Mr Harland’s decision not to pursue the review of the assessment of the net amount and to focus on the assessment of penalty, Mr Gray did not pursue the submission made in the written submissions that a declaration should be made under s 165 of the GST Act on the basis that the Heads of Agreement, the Vendor Finance Agreement and Invoices were part of a scheme within the meaning of s 165-10(2).

LEGISLATIVE FRAMEWORK: the assessment of net amount

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”.[92] The general rule is that an entity that makes a taxable supply must pay the GST on that supply.[93] Special rules qualify that general rule but they are not relevant in this context.[94] An entitlement to an “input tax credit” arises on “taxable acquisitions” and “taxable importations”.[95] Only “taxable acquisitions” are relevant. Amounts of GST and amounts of input tax credits are set off against each other in each tax period.[96] Generally, a tax period is a three month period ending on 31 March, 30 June, 30 September and 31 December in each year.[97] Each entity that is registered or is required to be registered, has tax periods applying to it.[98]
[92] GST Act; s 7-1(1)
[93] GST Act; s 9-40
[94] 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:
[95] GST Act; s 7-1
[96] GST Act; s 7-5
[97] GST Act; s 7-5
[98] GST Act; ss 7-10 and 27-5

The amount that remains after the amounts of GST and of input tax credits are set off against each other is known as the “net amount for a tax period”.[99] 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.[100] Section 35-5 applies in the situation in which the Commonwealth must refund an entity. Section 35-10 provides:
“Your entitlement to be paid an amount under section 35-5 arises when you give the Commissioner a *GST return.”
[99] GST Act; s 7-5
[100] GST Act; s 7-15 “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.”: GST Act; s 35-5(1). “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).

Chapter 4 contains special rules relating to refunds. Division 165 deals with ant-avoidance, Division 54 with GST branches, Division 51 with GST joint ventures and Division 168 with the tourist refund scheme. Section 105-65 of the TAA may also be relevant in certain circumstances in restricting a GST refund. These provisions are referred to in s 35-99 of the GST Act but other provisions of the TAA may also be relevant in withholding a refund. The Full Court of the Federal Court referred to them in Federal Commissioner of Taxation v Multiflex Pty Ltd[101] (Multiflex appeal) in considering the scope of the obligation imposed by s 35-5 of the GST Act. In dismissing an appeal from Multiflex Pty Ltd v Federal Commissioner of Taxation[102] (Multiflex), the Court analysed the relevant interlocking provisions of the GST Act and of the TAA and concluded:
“ It may readily be accepted that the imperative language of s 35-5 of the GST Act as to the making of a refund is at least attended with the implication that the refund must be made within a time which is reasonable in the circumstances. However, these circumstances must attend what is necessary to discharge the duty concerned, which is to make the refund, not to undertake an investigation which may or may not result in the raising of a GST assessment by the Commissioner. … The system of taxation for which the GST Act, read with the TAA, provides envisages that, depending on the calculation of the net amount which the entity makes it will either pay that net amount to the Commissioner within the time fixed by the GST Act or, as the case may be, receive a refund from the Commissioner within a time fixed by what is reasonably necessary to make that refund. The only other qualifications upon the Commissioner’s obligation are those expressed in the GST Act itself or in the TAA, as already mentioned.
Such potential as there may be for abuse by an entity of an obligation to make a refund promptly … did not lead out Parliament to subject that obligation to the express qualification found in the New Zealand legislation. In the face of the express terms of the scheme of taxation as found in the GST Act and the TAA it is not, for the reasons given, open to find any qualification of that kind by implication.”[103]
[101] [2011] FCAFC 142; (2011) 197 FCR 580; 284 ALR 279; 82 ATR 153; 125 ALD 8 at [24]-[27]; 588-589; 287-288; 162-163; 16-17 per Stone, Edmonds and Logan JJ
[102] [2011] FCA 789; Jessup J
[103] [2011] FCAFC 142; (2011) 197 FCR 580; 284 ALR 279; 82 ATR 153; 125 ALD 8 at [40]-[41]; 592-593; 291; 165-166; 20

When is an entity registered or required to be registered?

An entity is required to be registered under the GST Act if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold.[104] A person may be registered if carrying on an enterprise if carrying on an enterprise or intending to do so at a particular date.[105] In the latter case, it does not matter whether the GST turnover meets the registration turnover threshold. An “enterprise” has the meaning given in s 9-20.[106] That means that it “… is an activity, or series of activities, done …” among other ways “in the form of a *business …”.[107] A “business includes any profession, trade, employment, vocation or calling but does not include an occupation as an employee.”[108]
[104] GST Act; s 23-5 As with the rest of the GST Act, s 23-5 is framed in terms of “you” and “your”. The reference to “you” must be a reference to an “entity” as defined in s 184-1 for, as the Note s 23-5explains: “It is the entity that carries on the enterprise that is required to be registered (and not the enterprise).” See also Acts Interpretation Act 1901, s 13(1)(b) providing that, where there are Schedules as in the case of the GST Act, all material from and including the first section of an Act to the last Schedule of the Act is part of that Act. See also definition of “you” in s 195-1 of the GST Act.
[105] GST Act; s 23-10
[106] GST Act; s 195-1
[107] GST Act; s 9-20(1)(d)
[108] GST Act; s 195-1

What is a “creditable acquisition”?

I will begin with those provisions of the GST Act relating to creditable acquisitions for Mr Harland claims to have made creditable acquisitions leading to his having, as trustee of the PCS Global Trust, input tax credits. 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.”

C. When is a supply a “taxable supply”?

What is meant by the expression “taxable supply” is the subject of s 9-5:
“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; and
(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.”

Section 9-10 explains what is meant by “supply”. In so far as it is relevant, it provides:
“(1) A supply is any form of supply whatsoever.
(2)Without limiting subsection (1), supply includes any of these:
(a)a supply of goods;
(b)a supply of services;
(c)a provision of advice or information;
(d)a grant, assignment or surrender of *real property;
(e) a creation, grant, transfer, assignment or surrender of any right;
(f)a *financial supply;
(g)an entry into, or release from, an obligation:
(i)to do anything; or
(ii)to refrain from an act; or
(iii)to tolerate an act or situation;
(h)any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).
(3)It does not matter whether it is lawful to do, to refrain from doing or to tolerate the act or situation constituting the supply.
(3A)…
(4)…”
C.1 When is a supply made “in the course or furtherance of an enterprise”?
Section 9-20 is concerned with the meaning of an “enterprise”. Only s 9-20(1) is relevant:
“(1) An enterprise is an activity, or a series of activities, done:
(a)in the form of a *business; or
(b)in the form of an adventure or concern in the nature of trade;
(c)on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or
(d)by the trustee of a fund that it covered by, or by an authority or institution that is covered by, Subdivision 30-B of the Income Tax Assessment Act 1997 and to which deductible gifts can be made; or
(da)-(g)…
(h)by a trustee of a fund covered by item 2 of the table in section 30-15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN.”
What is “consideration”?

A person making a taxable supply must make it for consideration and the person claiming the creditable acquisition must provide, or be liable to provide, consideration for the supply. The word “consideration” is defined in inclusionary terms when s 9-15 provides:
“(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)It does not matter:
(a)whether the payment, act or forbearance was in compliance with an order of a court, or of a tribunal or other body that has the power to make orders; or
(b)whether the payment, act or forbearance was in compliance with a settlement relating to proceedings before a court, or before a tribunal or other body that has power to make orders.
(2B)For the avoidance of doubt, the fact that the supplier is an entity of which the *recipient of the supply is a member, or that the supplier is an entity that only makes supplies to its members, does not prevent the payment, act or forbearance from being consideration.
(3)However:
(a)if a right or option to acquire a thing is granted, then:
(i)the consideration for the supply of the thing on the exercise of the right or option is limited to any additional consideration provided either for the supply or in connection with the exercise of the right or option; or
(ii)if there is no such consideration – there is no consideration for the supply; and
(b)making a gift to a non-profit body is not the provision of consideration; and
(c) a payment made by a *government-related entity to another government entity is not the provision of consideration if the payment is specifically covered by an appropriation under an *Australian law.”

You are registered, or required to be registered

An entity is required to be registered under the GST if carrying on an enterprise and that entity’s GST turnover meets the registration turnover threshold.[109] For an entity that is not a non-profit body, the registration turnover threshold is $50,000.00 or such higher amount as is specified in the regulations.[110] An entity may choose to be registered under the GST Act if carrying on an enterprise or intending to do so from a particular date.[111]
[109] GST Act; s 23-5
[110] GST Act; s 23-15(1)
[111] GST Act; s 23-10

Accounting for taxable supplies and creditable acquisitions
A.Taxable supplies

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 they relate to an entity which accounts on a cash basis, as does Mr Harland as trustee of the PCS Global Trust, any input tax credit to which he might be entitled for a creditable acquisition is attributable to a tax period worked out as follows:
“(a) if, in a tax period, you provide all of the *consideration for a *creditable acquisition – the input tax credit for the acquisition is attributable to that tax period; or
(b)if, in a tax period, you provide part of the consideration – the input tax credit for the acquisition is attributable to that tax period, but only to the extent you provided the consideration in that tax period; or
(c)if, in a tax period, none of the consideration is provided – none of the input tax credit for the acquisition is attributable to that tax period.”[112]

[112] GST Act; s 29-10(2)

Had he not accounted on a cash basis, any input tax credit to which he would have been entitled would have been 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.”[113]

[113] GST Act’ s 29-10(1) Provision is made for circumstances in which an entity claiming an input tax credit does not hold a tax invoice: GST Act; s 29-10(3).

The attribution rules relating to the payment of GST on a taxable supply are to the same effect;[114] so too are those relating to adjustments.[115] 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.[116] 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.[117] In the case of those who account on a cash basis, consideration must be provided for an acquisition or, in the case of a taxable supply, received. It is only attributable to a tax period, and so in the calculation of the net amount in that tax period, to the extent that it has been received or provided in that period. There is no room for a promise or a liability that comes to fruition at a later date.

CONSIDERATION: assessment of net amount
Has Mr Harland, as trustee of the PCS Global Trust, made a creditable acquisition?

[114] GST Act; s 29-5

[115] GST Act; s 29-20

[116] GST Act; s 29-5(1)

[117] GST Act; s 29-70(1)(c)(iii) and (iv)

A.Did Mr Harland as trustee of PCS Global Trust make an acquisition?
A.1The submissions

On behalf of the Commissioner, Mr Gray submitted that Mr Harland, as trustee of the PCS Global Trust, did not, within the meaning of s 11-10 of the GST Act, make an acquisition from Twin Tribes ANZ under the Heads of Agreement or under the Vendor Finance Agreement. He submitted that this was the case because:
(a)Mr Harland did not, within the meaning of s 11-10 of the GST Act, make an acquisition from Twin Tribes ANZ under the Heads of Agreement or under the Vendor Finance Agreement because:
(i)Mr Harland, as trustee of the PCS Global Trust, was not a party to either agreement;
(ii)each agreement was executed by PCS, which had ceased to exist on deregistration: Corporations Act 2001 (Corporations Act); s 601AD; and
(iii)the subject matter of each agreement was so broad and ill-defined, it cannot be said that anything was acquired by anybody under either of them.

Mr Harland submitted that he had entered a contract with Twin Tribes ANZ “… to provide point of sale and IT resources on a contract Vendor finance terms”.[118] He acquired the exclusive IT and support rights under the Heads of Agreement and was an “acquisition” within the meaning of s 11-10.

A.2Consideration
[118] Applicant’s Statement of Facts and Contentions dated 1 August 2013 at [1]

A.2.1 Has the entity registered for GST acquired anything?

The effect of s 11-20 of the GST Act is that a person is entitled to input tax credits for that person’s creditable acquisitions. A person is not entitled to input tax credits for another person’s creditable acquisitions. In order to make a creditable acquisition, the person must meet the four criteria set out in s 11-5 of the GST Act.[119]
[119] See [53] above
Mr Harland, as trustee of the PCS Global Trust, meets the fourth criteria for he is registered in that capacity under the GST Act and has been since 1 July 2003. He does not, however, meet the first three criteria. Beginning with the first two criteria, I am not satisfied on the evidence that he acquired the IT and support rights for any purpose, be it a creditable purpose or otherwise, or that was anything were supplied to him in his capacity as trustee of the PCS Global Trust, whether as a taxable supply or otherwise. He neither provided nor was liable to provide consideration for the IT and support rights as trustee of the PCS Global Trust as required by the third criterion. I will now explain why I have reached that conclusion.

Recognition also has to be given to s 284-225(1) which 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.[228] 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.[229]
[228] TAA; Schedule 1, s 284-225(3)
[229] 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.[230] 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.[231] 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.
[230] TAA; Schedule 1; s 284-220(1)(a)
[231] 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. Regard is not had to a taxpayer’s actions in informing on other taxpayers. The focus is entirely upon a particular taxpayer.

That is not to say that regard could not be had to a taxpayer’s informing on another taxpayer in considering a remission but that action would have to be seen against the background of the whole of the taxpayer’s actions. That background would then be the background against which consideration is given to whether remission is consistent with a legislative scheme for the imposition of a tax, the protection of the revenue that is gleaned from the imposition of that tax and a scale of penalties imposed by reference to the behaviour that led to a taxpayer’s having a shortfall amount.

In this matter, Mr Harland as trustee of the PCS Global Trust has persisted in his claim that he was entitled to claim an input tax credit up until at least shortly before the hearing. Even at the hearing, he did not concede that he was not entitled to it although he no longer wished to pursue that argument. While I accept that he has made disclosures to the ATO regarding what he knows of the activities of Twin Tribes ANZ and of those associated with it and will continue to do whatever is asked of him, those disclosures have not reduced the effort and resources that the Commissioner has had to put towards identifying the shortfall amount and to putting his case in support of his position. As late as August 2013, Mr Harland was maintaining in his written Statement of Facts and Contentions not only that he was entitled to an input tax credit in the amount of $5,359,991.00 but that he was also entitled to a further input tax credit of a similar amount. That was some months after he had made voluntary disclosures to the ATO in February 2013 regarding the activities of Twin Tribes ANZ. Remission of a penalty by reducing the base penalty amount in those circumstances is not consistent with the penalty scheme that I have outlined or with protection of the revenue. Therefore, I decline to exercise the discretion to reduce the base penalty amount.

DECISION

For the reasons I have given, I affirm the Commissioner’s objection decision dated 26 November 2012 disallowing the objections made by Mr Harland as trustee of the PCS Global Trust on 8 June 2012 against the assessment of net amount for the tax period ended 31 March 2012 dated 16 April 2012 and against the administrative penalty assessment dated 17 April 2012.

LEGEND
The Names
168.

Name

Abbreviation

Andrew Garrett

Simon Harland

Simon Harland’s Australian Business Number

Andrew Garrett Family Trust

Holy Grail Hospitality (St Kilda) Pty Ltd

Oenoviva-Artisans

Oenoviva (Australia & New Zealand) Pty Ltd

Oenoviva ANZ Pty Ltd

Oenoviva Limited

Oenoviva

Oenoviva (Australia & New Zealand) Plant and Equipment Trust

Oenoviva PE Trust

PCS Global Discretionary Trust

PCS Global Trust

PCS Global Discretionary Trust Pty Ltd

PCS Global Trust Pty Ltd

PCS Global Pty Ltd

PCS

Two Tribes Wine Company (Australia & New Zealand) Pty Ltd

Twin Tribes ANZ

Two Tribes Wine Company (Australia & New Zealand) Hybrid Trust

Twin Tribes Hybrid Trust

169.
The relationships

Role

Name

Abbreviation

Taxpayer

Simon Harland as Trustee for PCS Global Discretionary Trust

Simon Harland as Trustee for PCS Global Trust

Entities under which Mr Harland traded using registered ABN

PCS Global Pty Ltd:

Director and Secretary: Simon Harland

Incorporated: 5 June 2003

Deregistered: 28 October 2007

PCS Global Disscretionary Trust Pty Ltd

PCS

Director: Simon Harland

Registered ABN: 14 245 782 891

PCS Global Trust

The Licensor

Oenoviva Limited

Director: Andrew Garrett

Trustee of: Oenoviva (Australia & New Zealand) Plant and Equipment Trust

Oenoviva

Director: Andrew Garrett

Trustee of: Oenoviva PE Trust

The Franchisor

Two Tribes Wine Company (Australia & New Zealand) Pty Ltd

Director: Andrew Garrett

Incorporated: 9 January 2009

Changed name: 4 April 2012

Changed name to: Oenoviva (Australia & New Zealand) Pty Ltd

Trustee of: Two Tribes Wine Company (Australia & New Zealand) Hybrid Trust

Two Tribes ANZ

Director: Andrew Garrett

Changed name to: Oenoviva ANZ Pty Ltd

Trustee of: Two Tribes Hybrid Trust

The Outlet

Soulmama

Soulmama

The Trader

Holy Grail Hospitality (St Kilda) Pty Ltd

Trustee of: Andrew Garrett Family Trust

Trading as: Soulmama

Holy Grail Hospitality (St Kilda) Pty Ltd

Trustee of: Andrew Garrett Family Trust

Trading as: Soulmama

Role	Name	Abbreviation
Taxpayer	Simon Harland as Trustee for PCS Global Discretionary Trust	Simon Harland as Trustee for PCS Global Trust
Entities under which Mr Harland traded using registered ABN	PCS Global Pty Ltd: Director and Secretary: Simon Harland Incorporated: 5 June 2003 Deregistered: 28 October 2007 PCS Global Disscretionary Trust Pty Ltd	PCS Director: Simon Harland Registered ABN: 14 245 782 891 PCS Global Trust
The Licensor	Oenoviva Limited Director: Andrew Garrett Trustee of: Oenoviva (Australia & New Zealand) Plant and Equipment Trust	Oenoviva Director: Andrew Garrett Trustee of: Oenoviva PE Trust
The Franchisor	Two Tribes Wine Company (Australia & New Zealand) Pty Ltd Director: Andrew Garrett Incorporated: 9 January 2009 Changed name: 4 April 2012 Changed name to: Oenoviva (Australia & New Zealand) Pty Ltd Trustee of: Two Tribes Wine Company (Australia & New Zealand) Hybrid Trust	Two Tribes ANZ Director: Andrew Garrett Changed name to: Oenoviva ANZ Pty Ltd Trustee of: Two Tribes Hybrid Trust
The Outlet	Soulmama	Soulmama
The Trader	Holy Grail Hospitality (St Kilda) Pty Ltd Trustee of: Andrew Garrett Family Trust Trading as: Soulmama	Holy Grail Hospitality (St Kilda) Pty Ltd Trustee of: Andrew Garrett Family Trust Trading as: Soulmama

ONE APPLICATION OR TWO WHEN REVIEW IS SOUGHT OF TWO?
The Federal Court authorities

In written submissions dated 29 November 2012, Mr Gray and Ms Baker submitted, on behalf of the Commissioner, that a taxpayer may lodge one application in the Tribunal for review of multiple reviewable objection decisions. They cited a judgment of Lee J in McDermott Industries (Aust) Pty Ltd v Federal Commissioner of Taxation[232]. That case concerns a single appeal to the Federal Court under s 14ZZ of the TAA from multiple appealable objection decisions made by the Commissioner. In essence, his Honour concluded that O 29 r 5 of the Federal Court Rules provided:
“… for the Court to order that separate proceedings, even if involving different applicants, be consolidated as a single proceeding where a common question of law or fact is raised in those proceedings. Such a rule recognises a public interest in the elimination of the unnecessary multiplicity of legal proceedings. It may be noted that in O 6 r 1 the Rules also provide that an applicant may claim relief in respect of more than one cause of action in the one proceeding.
7 It follows that unless the TAA, in clear terms, provides otherwise, a proceeding in the original jurisdiction of this Court, albeit described by the TAA as an appeal’, may be commenced by an applicant in respect of several ‘objection decisions’ of the Commissioner where common questions of law or fact are involved in those decisions. That is to say, if, implicitly, the TAA acknowledges that several ‘appeal’ proceedings may be consolidated as a single ‘appeal’ by order of the Court, it follows that the TAA also accepts that if the Rules so provide, a single ‘appeal’ proceeding may be commenced by an applicant in respect of several ‘objection decisions’ where appropriate. Furthermore, for the reasons stated by Ryan J in Krampel Newman Partners Pty Ltd v Federal Commissioner of Taxation [2001] ATC 4473, no contrary intention appears in O 52B of the Rules relating to the institution of ‘appeal’ proceedings under the TAA, nor in the TAA, so as to exclude the operation of s 23 of the Acts Interpretation Act 1901 (Cth) which would permit a single ‘appeal’ proceeding to be commenced in respect of several ‘objection decisions’.”[233]
[232] [2003] FCA 139; (2003) 52 ATR 42
[233] [2003] FCA 139; (2003) 52 ATR 42 at [6]-[7]; 424-425

The case of Krampel Newman Partners Pty Ltd v Federal Commissioner of Taxation[234] (Krampel), to which Lee J referred, considered whether a single application lodged by a number of applicants seeking review of an appealable objection decision was a nullity. In Krampel, Ryan J turned to Order 52B of the Federal Court Rules as it then applied. That specifically addressed appeals against appealable objection decisions and the procedure to be followed. While Order 52B required that an application be in writing, for example, there was nothing in it that suggested that only one objecting applicant could be an applicant in a single application. Ryan J could find nothing implicit in s 14ZZ of the TAA to that effect. He noted that:
[234] [2001] FCA 976; [2001] ATC 4473
“16. It is true that a practice has grown up of confining applications under s 14ZZN to a single taxpayer and, indeed, to a single objection decision in respect of one taxpayer, so that several applications are filed on behalf of the same taxpayer in relation to successive tax years. The practices is recognised by sub-regs (2)(2A) and (2B) of the Federal Court Regulations to which Mr Steward of Counsel for the Commissioner referred. Those sub-regulations provide:
‘2(2A) A fee is not payable in relation to:
(a) an appeal under section 14ZZ of the Taxation Administration Act 1953; or
(b) an appeal from a decision of the Administrative Appeals Tribunal in its Taxation Appeals Division; or
(c) an appeal from a single Judge to the Full Court in relation to an appeal under section 14ZZ of the Taxation Administration Act 1953;
if the Registrar who receives the appeal is satisfied that the appeal (in this regulation called ‘the relevant appeal’) meets the criteria set out in subregulation (2B).

2(2B) The criteria are that:
(a) the person lodging the relevant appeal has lodged another appeal and has paid a fee in relation to it; and
(b) the same paragraph of subregulation (2A) described both appeals; and
(c) the relevant appeal concerns an issue (other than a procedural issue) that is substantially the same as an issue raised in the other appeal.

17. However, the existence of a practice which has grown up before the enactment of a particular statutory provision like s 14ZZN, cannot govern the interpretation or effect of that provision. Nor can delegated legislation like rules of court, which an Act like the Taxation Administration Act might contemplate as existing, but does not enable to be made. Moreover, O 52B finds its place in a body of procedural rules which, even though some of them are cast in imperative or peremptory terms, does not evince an intention that any non-compliance will render the resultant act null and void. Thus, O 1 r 8 provides;
‘The Court may dispense with compliance with any of the requirements of the Rules either before or after the occasion for compliance arises.’

18 On the other hand, non-compliance with s 14ZZN itself, either by exceeding the time limit or by failing to lodge with this Court anything answering the description of an appeal, will nullify the right of appeal conferred by s 14ZZ(a)(ii) of the Taxation Administration Act. An illustration of an exercise in interpretation giving effect to this distinction is afforded by the reasoning of Dixon CJ, McTiernan, Taylor and Windeyer JJ in Clayton v Heffron [1960] HCA 92; (1960) 105 CLR 214 at 247. …”[235]

[235] [2001] FCA 976; [2001] ATC 4473 at [16]-[18]; 4,478

The inter-relationship of the AAT Act and the TAA
A. The scheme of the legislation

Although the TAA deals consistently with appealable objection decisions and reviewable objection decisions, there is a very important difference between the two. Whereas Ryan J in Krampel could have regard to the fact that delegated legislation such as the Rules of Court cannot govern the interpretation or effect of a provision such as 14ZZ of the TAA, I must have regard to the fact that the AAT Act may be relevant in interpreting s 14ZZ in so far as it provides for an application to be made to the Tribunal for review of a reviewable objection decision. That follows from the fact that the Tribunal’s power to review an application made under s 14ZZ of the TAA arises from s 25(4) of the AAT Act and that power is, in turn, dependent on a reading s 25(1) and s 14ZZ together. This is not a situation in which the AAT Act is something that might have been contemplated by Parliament when it enacted s 14ZZ(a)(i). It was the foundation stone on which s 14ZZ(a)(i) was enacted and it works this way.

Section 25(1) of the AAT Act provides:
“(1) An enactment may provide that applications may be made to the Tribunal:
(a)for review of decisions made in the exercise of powers conferred by that enactment; or
(b)for the review of decisions made in the exercise of powers conferred, or that may be conferred, by another enactment having effect under that enactment.”
Where an enactment:
“… makes provision in accordance with subsection (1) …, that enactment:
(a)shall specify the person or persons to whose decisions the provision applies;
(b)may be expressed to apply to all decisions of a person, or to a class of such decisions; and
(c)may specify conditions subject to which applications may be made.”[236]
[236] AAT Act; s 25(3)

Section 25(5) provides for the situation in which a decision-maker does not make a decision within a prescribed time limit:
“For the purposes of an enactment that makes provision in accordance with this section for the making of applications to the Tribunal for review of decisions, a failure by a person to do an act or thing within the period prescribed by that enactment, or by another enactment having effect under that enactment, as the period within which the person is required or permitted to do that act or thing shall be deemed to constitute the making of a decision by that person at the expiration of that period not to do that act or thing.”

Provisions of the AAT Act may be added to, excluded or modified by the enactment providing for an application to be made to the Tribunal:
“If an enactment provides for applications to the Tribunal:
(a)that enactment may also include provisions adding to, excluding or modifying the operation of any of the provisions of sections 27, 29, 32, 33 and 35 or of subsection 41(1) or 43(1) or (2) in relation to such applications; and
(b)those sections and subsections have effect subject to any provisions so included.”[237]
[237] In Re The Trustee for the Confidential Trust and Commissioner of Taxation [2013] AATA 682 at [14]-[28], I set out my reasons for concluding that, despite the apparent restrictions in s 25(6) to particular provisions of the AAT Act, Parliament could modify other provisions.

None of these provisions gives the Tribunal power to review a decision. That is left to
s 25(4), which provides:
“The Tribunal has power to review any decision in respect of which application is made to it under any enactment.”
B. An analysis

While it is true that s 23(b) of the Acts Interpretation Act 1901 (AI Act) provides that “words in the singular number include the plural and words in the plural number include the singular”, that provision must be read subject to s 2(2) of that same legislation. Section 2(2) provides that its application is subject to a contrary intention. When I look at s 25 of the AAT Act, it seems to me that Parliament is evincing a contrary intention. It has used both the singular and plural forms of the words “application” and “decision” and it seems to me that it has done so deliberately. When making provision for other enactments to permit applications to be made to the Tribunal, it uses the plural form of both words. It does so when outlining modifications that may be made to the AAT Act by those other enactments. When it comes to the Tribunal’s power to review, though, it adopts the singular form of both words and continues to do so when it further provides in s 25(4A) that:
“The Tribunal may determine the scope of the review of a decision by limiting the questions of fact, the evidence and the issues that it considers.”

The use of the singular continues in s 29 of the AAT Act when it sets out what is required to make an “… application to the Tribunal for review of a decision” and in s 30(1) when it makes provision for those who are parties to “… a proceeding before the Tribunal for a review of a decision …”. The obligation imposed by s 37 to give reasons and provide documents is imposed on “… a person who has made a decision that is the subject of an application for a review by the Tribunal …. That person is obliged to give “… reasons for the decision” and to provide documents “… relevant to the review of the decision by the Tribunal.” These are but a few examples but they illustrate that Parliament has consciously chosen when to use the words in their singular sense and when in their plural sense. There is no room for the operation of s 23(b) of the AI Act in this context.

That means that an enactment may provide that applications may be made to the Tribunal for the review of decisions but each application that is in fact made to the Tribunal is for review of a particular decision for the Tribunal’s powers relate to a single application of that sort as do a decision-maker’s obligations when that application has been made.

That interpretation is entirely consistent with the approach taken by Parliament in Part IVC of the TAA. Section 14ZZ(a)(i) provides that a person dissatisfied with the “Commissioner’s objection decision” may apply to the Tribunal for review of “a reviewable objection decision”. The modifications made to the operation of certain provisions of the AAT Act are entirely consistent with the expression of those provisions in the singular form and with their application to individual decisions. That in turn is consistent with the scheme of the TAA leading to the Commissioner’s making an objection decision. An objection decision is made in response to a taxation objection.[238] A “taxation objection” is made when a provision of an Act or of regulations permits it and by “… a person who is dissatisfied with an assessment, determination, notice or decision, or with a failure to make a private ruling …”.[239] That means that the person wanting to object to a decision, however described, must look for the particular provision permitting a taxation objection to be made. In this case, the provision permitting a taxation objection against a reviewable indirect tax decision,[240] including assessment of the net amount is found in s 105-40 of Schedule 1 to the TAA and that permitting a taxation objection against the assessment of penalty under Division 284 is found in s 298-30(2) of the TAA. Each taxation objection is made in relation not only to a different decision but to a particular decision.
[238] TAA; s 14ZY
[239] TAA; s 14ZL
[240] “Indirect tax” includes GST: TAA; s 3AA(2) and ITAA97; s 995-1 referring to GST Act; s 195-1

Given the focus on an application for review of a decision in the AAT Act and the same focus in the TAA, it seems to me that it is intended that an application be made for review of each reviewable objection decision.

C. Practical application

The Tribunal’s practice reflects this interpretation but takes a practical approach to what might otherwise amount to an excessive use of paper and effort in filing it. Where review is sought in one application of a number of reviewable objection decisions relating to assessments of, say income tax for various years and each raises the same issues, but only one application, the Tribunal has treated that single application as if it were a series of applications. It has treated each application in the series as relating to a particular reviewable objection decision relating to an objection to an assessment relating to a particular year. Each application is given a separate file number but material lodged is lodged in relation to all of the applications and recorded in a single file.

That practical approach is consistent with the Tribunal’s obligations arising under the Administrative Appeals Tribunal Regulations 1976 (AAT Regulations) in relation to the imposition of application fees. Where two or more applications relate to the same applicant and may, in the opinion of the Registrar, District Registrar or Deputy Registrar, be conveniently heard together, he or she may order that only one application fee is payable.

The practical approach is also consistent with a situation such as this in which the reviewable objection decisions, of which Mr Harland seeks review, are not of the same kind. That is to say, one relates to an assessment of GST, another to an assessment of penalty and a third to the Commissioner’s decision to refuse to remit the penalty under s 298-20. A single application for review might be lodged but it should be understood as three and given three separate application numbers. The applications arise out of the same circumstances, though, and findings of fact made in reviewing one are relevant in reviewing the others. It is to be presumed that an order that only one application fee is payable would be made under r 19(5) of the AAT Regulations and that, as happened in this case, the three would be heard together.

D. A qualification

The practical application should not be permitted to override the statutory requirement that there is in fact a reviewable objection decision.[241] If, for example, the Commissioner’s objection decision had not addressed penalties, the application for review could not be taken to have sought its review. As it is, the reviewable objection decision did apply to an assessment of the amount of administrative penalties under Division 284 and that decision was made in response to an objection made under s 298-30(1).
[241] As to this, see further Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124; (2008) 168 FCR 566; 249 ALR 87; 103 ALD 238; [2008] ATC 20-037; 73 ATR 276; 48 AAR 500 at [22]; 573; 94; 245; 8; 478; 282-283; 507; French, Tamberlin and Mansfield JJ

I certify that the one hundred and eighty five preceding paragraphs are a true copy of the reasons for the decision herein of
Deputy President S A Forgie,

Signed: ………..[sgd]................................................

Leah Berardi Associate

Date of Hearing  21 November 2013
Date of Decision  20 December 2013
Self-represented Applicant                   Mr S Harland
Counsel for the Respondent                 Mr P Gray SC and Ms M Baker
Solicitor for the Respondent                 Mr V Tavolaro
Australian Government Solicitor

“… 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.

“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

“Description	Quantity	Unit Price	GST	Amount AUD
credit against in 023R	1.00	10,000.00	No GST	10,000.00
Subtotal	10,000.00
TOTAL AUD	10,000.00
OFFSET AGAINST WORK DONE … [illegible initials or signature] 16/2/2013 This is not a legal credit note”[50]

Name	Abbreviation
Andrew Garrett
Simon Harland
Simon Harland’s Australian Business Number
Andrew Garrett Family Trust
Holy Grail Hospitality (St Kilda) Pty Ltd
Oenoviva-Artisans
Oenoviva (Australia & New Zealand) Pty Ltd	Oenoviva ANZ Pty Ltd
Oenoviva Limited	Oenoviva
Oenoviva (Australia & New Zealand) Plant and Equipment Trust	Oenoviva PE Trust
PCS Global Discretionary Trust	PCS Global Trust
PCS Global Discretionary Trust Pty Ltd	PCS Global Trust Pty Ltd
PCS Global Pty Ltd	PCS
Two Tribes Wine Company (Australia & New Zealand) Pty Ltd	Twin Tribes ANZ
Two Tribes Wine Company (Australia & New Zealand) Hybrid Trust	Twin Tribes Hybrid Trust