Trustee for the Grewal Property Trust and Commissioner of Taxation
[2013] AATA 788
•8 November 2013
[2013] AATA 788
Division TAXATION APPEALS DIVISION File Number
2012/2831
Re
Trustee for the Grewal Property Trust
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Senior Member R W Dunne
Date 8 November 2013 Place Adelaide
The Tribunal varies the objection decision in part, as set out in paragraph 19 of these reasons, by allowing the applicant input tax credits of $15,846.
........................................................................
Senior Member R W Dunne
CATCHWORDS
TAXATION - goods and services tax - input tax credits - audit of business activity statements - requirement to keep records of indirect tax transactions, including records of creditable acquisitions - assessment of GST net amount - applicant not entitled to input tax credits claimed during the relevant period - burden of proof - objection decision under review varied in part.
LEGISLATION
A New Tax System (Goods and Services Tax) Act 1999 (Cth) ss 7-5, 11-5, 29-10
Taxation Administration Act 1953 (Cth) Schedule 1, ss 105-5, 382-5
CASES
FC of T v Dalco 90 ATC 4088
Gauci and Others v FC of T 75 ATC 4257
McCauley v FC of T 88 ATC 4605
Trautwein v FC of T (1936) 56 CLR 63REASONS FOR DECISION
Senior Member R W Dunne
8 November 2013
INTRODUCTION
This is an application for review of a decision by the respondent to disallow a taxation objection lodged by the applicant, as trustee for the Grewal Property Trust (“Trust”), against assessments of the applicant’s goods and services tax (“GST”) net amount for the quarterly tax periods from 1 January 2007 to 30 September 2010 (“Relevant Period”). The assessments of the GST net amount during the Relevant Period totalled $88,452.
At the hearing, the applicant was represented by his external accountant, Mr P Singh and the respondent was represented by Ms G Walker, of counsel. Evidence was given by the applicant trustee, Mr Mahanbir Singh Grewal.
The documents lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) were admitted into evidence[1], along with the respondent’s schedule of the input tax credits to be allowed.[2] In addition, after perusal by Ms Walker, I admitted into evidence the documents provided to the Tribunal before the hearing by the applicant.[3]
[1] Exhibit R1.
[2] Exhibit R2.
[3] Exhibit A1
ISSUES BEFORE THE TRIBUNAL
The issues before me are as follows:
(a)Is the applicant entitled to input tax credits in accordance with Division 11 of the A New Tax System (Goods and Services Tax) Act 1999 (“GST Act”)?
(b)If so, what is the extent of that entitlement?
LEGISLATION
The legislation that applies in the consideration of this matter is contained in the GST Act and the Taxation Administration Act 1953 (“TA Act”). The relevant provisions of that legislation are as follows:
GST Act
“7-5 Net amounts
Amounts of GST and amounts of input tax credits are set off against each other to produce a net amount for a tax period (which may be altered to take account of adjustments).”
“11-5 What is 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.”
“29-10 Attributing the input tax credits for your creditable acquisitions
(1) The input tax credit to which you are entitled for a creditable acquisition is attributable to:
(a)the tax period in which you provide any of the consideration for the acquisition; or
(b)if, before you provide any of the consideration, an invoice is issued relating to the acquisition--the tax period in which the invoice is issued.
(2) However, if you account on a cash basis, then:
(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 that 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.
(3)If you do not hold a tax invoice for a creditable acquisition when you give to the Commissioner a GST return for the tax period to which the input tax credit (or any part of the input tax credit) on the acquisition would otherwise be attributable:
(a)the input tax credit (including any part of the input tax credit) is not attributable to that tax period; and
(b)the input tax credit (or part) is attributable to the first tax period for which you give to the Commissioner a GST return at a time when you hold that tax invoice.
However, this subsection does not apply in circumstances of a kind determined in writing by the Commissioner to be circumstances in which the requirement for a tax invoice does not apply.
(4)If the GST return for a tax period does not take into account an input tax credit attributable to that tax period:
(a)the input tax credit is not attributable to that tax period; and
(b)the input tax credit is attributable to the first tax period for which you give the Commissioner a GST return that does take it into account.”
TA Act
“105‑5 Commissioner may make assessment of indirect tax
(1) The Commissioner may at any time make an assessment of:
(a) your net amount, or any part of your net amount, for a tax period; or
(b) your net fuel amount, or any part of your net fuel amount, for a tax period or fuel tax return period.
(2) The Commissioner may at any time make an assessment of the amount of indirect tax payable by you on an importation of goods.
(3) The Commissioner may make an assessment under this section even if he or she has already made an assessment for the tax period, fuel tax return period or importation concerned.”
“382‑5 Keeping records of indirect tax transactions
Records of transactions
(1) You must:
(a) keep records that record and explain all transactions and other acts you engage in that are relevant to a supply, importation, acquisition, dealing, manufacture or entitlement to which this subsection applies; and
(b) retain those records for the longest of:
(i) 5 years after the completion of the transactions or acts to which they relate; and
(ii) the period of review for any assessment of an *assessable amount to which those records, transactions or acts relate; and
(iii) if such an assessment has been amended under Subdivision 155‑B—the period of 4 years mentioned in paragraph 155‑70(2)(a) (which provides for a refreshed period of review) that applies to the latest such amendment.
…”
BACKGROUND
Mr Mahanbir Singh Grewal is the trustee of the Trust. He was registered for GST and the main business activity of the Trust was described as a motel, which traded as the Port Augusta East Motel. Business Activity Statements (“BAS”) for the Trust were lodged for the Relevant Period. The respondent wrote to the applicant on 6 November 2010 to advise that the BAS were subject to a GST audit and requested, by 22 November 2010, that the trustee initially provide documentation to evidence the Trust’s entitlement to the input tax credits claimed in the BAS for the quarterly tax period ended 30 June 2010. If the information was not provided by the date requested, the input tax credits would be disallowed. When the applicant was unable to provide the documentation by the end of January 2011 and by 9 February 2011, assessments of the GST net amount were issued to the applicant.
On 10 February 2011, the respondent advised the applicant that the GST audit had been completed and that the GST net amount of input tax credits was reduced by $88,452. On 13 February 2012, the applicant lodged an objection against the GST assessments. In paragraph 3 of the notice of objection the applicant stated:[4]
“…
(h)At the time of lodging all its BASs the Entity received and possessed tax invoices when it lodged all of its activity statements.
…
(j)Due to extreme localised flooding on Friday 12 December 2008, the office of the Port Augusta East Motel was flooded causing the loss of a substantial amount of records relating to the Relevant Tax Periods unto [sic] that time. Since that time records have continued to be maintained. …”
[4] Exhibit R1, T6 page 47.
On 16 March 2012, the respondent again sought the sampling documentation previously requested for the quarterly tax period ended 30 June 2010. The information requested for the sample period was as follows:
“A detailed transaction listing containing a list of all supplies and acquisitions that comprise the figures reported on the activity statement including the GST amount for each transaction.
The 10 largest tax invoices in value which substantiates [sic] the GST credits claimed in the activity statement.
Bank statement [sic] or other proof of payment in respect of the acquisitions on the aforementioned tax invoices.”[5]
[5] Exhibit R1, T7 page 60.
On 26 March 2012, the respondent wrote to the applicant requesting further information by 9 April 2012. In its letter, the respondent stated:
“In the conversation of 23 March 2012 we advised that in reviewing the sales and acquisitions that have been reported in the activity statements for the periods under review it was noted that the income from the sales was insufficient to pay for the reported acquisitions.”[6]
[6] Exhibit R1, T9 page 66.
Between 1 May 2012 and 8 May 2012, certain information was provided by the applicant, including information not requested by the respondent and tax invoices, some of which related to periods outside the sample period.
EVIDENCE OF MR GREWAL
In giving his evidence, Mr Grewal said that the expenses of the Trust during the Relevant Period represented 15 percent of its turnover. Capital expenditure had been incurred up to 2008. The Trust’s turnover was improving, but it did not generate sufficient revenue. As a result, borrowings were necessary from the applicant’s family to cover improvements. When improvements were undertaken, the suppliers were mainly PA and CI Martin and Mr Phillip Brown from Northern Hardware. Expenses varied and were paid when funds became available. The Trust’s record-keeping was maintained by an internal book keeper. The Trust’s income was received (or derived) by three entities, a motel, a shop and a shopping centre.
Mr Grewal said that he had been unable to respond to the requests for information sought by the respondent. He was not in Australia all the time and had tried to find all the relevant documentation that had been requested. He said that flooding in the motel had occurred on 18 December 2008, the whole office was disrupted for a period of time and records were lost.
In cross-examination by Ms Walker, Mr Grewal said that the business of the Trust separated in 2004 and two families operated the separate businesses. As a result, there was a mixing of income and expenditure of the businesses prior to 2008. However, since 2008 there was no mixing in relation to the sample period ended 30 June 2010.
When referred to paragraph 3 (h) and (j) of the notice of objection, Mr Grewal said that the six largest tax invoices had been provided to the respondent. He also confirmed that PA and CI Martin had undertaken most of the work and he could obtain tax invoices in respect of that work.
CONSIDERATION
Is the applicant entitled to input tax credits in accordance with Division 11 of the GST Act?
An entity that is registered for GST is entitled to input tax credits for its creditable acquisitions. A creditable acquisition is made when the requirements of s 11-5 of the GST Act are satisfied. One of the fundamental principles of GST is that, subject to a minimum of $75 threshold, an entity can only claim an input tax credit in respect of a creditable acquisition if it is holding a valid tax invoice in respect of that acquisition at the time of lodging its BAS for the tax period in which the acquisition is attributable: see s 29-10(3) of the GST Act.
Section 29-10 of the GST Act sets out the rules for attributing input tax credits for creditable acquisitions made during a tax period. As it is clear that, in the business (or businesses) of the Trust, the trustee accounts on a cash basis, s 29-10(2) attributes an input tax credit in a tax period to the extent of the consideration paid in that tax period. As already said, in the case of the Trust, an input tax credit in respect of creditable acquisitions will only be available where the applicant (as trustee) holds a valid tax invoice at the time of lodging his BAS for the relevant tax period, that is, the quarterly tax period ended 30 June 2010.
As indicated by the respondent in paragraph 28 of its statement of facts, issues and contentions, under s 382-5 of Schedule 1 to the TA Act an entity is required to keep records of its indirect tax transactions, including records for creditable acquisitions made. Thus, as the applicant lodged a business activity statement for the quarterly tax period ended 30 June 2010 and claimed input tax credits for creditable acquisitions during that period, the applicant must have kept records that record and explain all transactions and other acts relevant to those creditable acquisitions. Moreover, as the applicant lodged BAS for the wider Relevant Period and claimed input tax credits for creditable acquisitions during that wider period, the applicant must have also kept records that record and explain all transactions and other acts relevant to those creditable acquisitions.
On the evidence, the applicant has failed to comply with the provisions of s 382-5 of Schedule 1 to the TA Act. In these circumstances, subject to what is said in paragraph 19, the applicant is not entitled to claim the input tax credits totalling $88,452 that appear in the BAS for the Relevant Period (that is, 1 January 2007 to 30 September 2010).
To what extent is the applicant entitled to input tax credits under Division 11 of the GST Act?
The applicant has sought to show that he was entitled to input tax credits under Division 11 of the GST Act for the three years from 1 January 2007 to 30 September 2010. In fact, initially the applicant was only required to satisfy Division 11 for one period, namely the quarterly tax period ended 30 June 2010. The applicant has provided some materials after the lodgement of the notice of objection. Based on those materials and the information contained in the Trust’s BAS for the Relevant Period, the respondent has calculated, on a basis which I find acceptable under the circumstances, that the applicant is entitled to input tax credits allowable of $15,846 for the Relevant Period, comprising:
Input tax credits allowable for capital purchases $8,134
Input tax credits allowable for non-capital purchases $7,712
Subject to these allowable input tax credits, the GST assessments made under s 105-5 of Schedule 1 to the TA Act will be maintained.
Burden of Proof
I should say something about the burden of proof imposed upon the applicant. Under the TA Act, a person who is dissatisfied with an objection decision, that is a reviewable objection decision, may apply to the Tribunal for a review of the decision (s 14ZZK(b)). The TA Act modifies the operation of the Administrative Appeals Tribunal Act 1975 in certain respects. One of the modifications relates to the burden of proof. Generally, neither party carries a burden of proof in proceedings in the Tribunal. However, under s 14ZZK(b)(i) when the Tribunal reviews an objection decision the person applying for review:
“… has the burden of proving that:
(i) if the taxation decision concerned is an assessment (other than a franking assessment) – the assessment is excessive;”
There have been no modifications to the Tribunal’s essential task. This task was explained in the decision of the Full High Court in FC of T v Dalco 90 ATC 4088. There, speaking of the Income Tax Assessment Act 1936 (but the principles apply equally to the GST Act and the TA Act) and also in speaking of an appeal (but the same principles apply to a review in this Tribunal), Brennan J observed (at 4091):
“… It would be inappropriate for a court determining an appeal to make an order altering the tax liability assessed (s 199) unless the court were satisfied that the amount to which it proposed to alter the assessment represented the true tax liability of the taxpayer. Although the grounds of objection limit the grounds of appeal, the ultimate question for the court hearing the appeal is not whether the grounds have been made out but whether the amount assessed as taxable income is wrong. The burden which rests on a taxpayer is to prove that the assessment is excessive and that burden is not necessarily discharged by showing an error by the Commissioner in forming a judgment as to the amount of the assessment.
…”
As Brennan J also said in Dalco (at page 4093), the manner in which a taxpayer can discharge the burden of proof varies with the circumstances. In some cases, the burden maybe discharged by pointing to some error of computation. The burden can also be discharged by the taxpayer proving that the Commissioner erroneously included in the assessment an amount that should not have been included. On the other hand, as Mason J pointed out in Gauci and Others v FC of T 75 ATC 4257 at 4261 (when considering the application of the predecessor to s 14ZZK(b)):
“Section 190(b) of the Act imposed on the appellants the burden of proving that the assessments were excessive. The appellants relied on their evidence and that of Graham in order to show that the assessments were excessive. Once that evidence was rejected, the appellants’ case necessarily failed.”
Section 14ZZK(b) effectively creates a rebuttable presumption that an assessment is not excessive. As was further said by Mason J in Gauci (at page 4261):
“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.”
Finally, in commenting on the applicant’s absence of records, Lockhart J in McCauley v FC of T 88 ATC 4605 at 4612 referred to the judgment of Latham CJ in Trautwein v FC of T (1936) 56 CLR 63 and said:
“I have already made some observations about the effect of the absence of records on the taxpayer’s case and it is pertinent to recite the observation on this matter by Latham CJ in Trautwein’s case (supra) at p 87:
‘In the absence of some record in the mind or in the books of the taxpayer, it would often be quite impossible to make a correct assessment. The assessment would necessarily be a guess to some extent, and almost certainly inaccurate in fact. There is every reason to assume that the legislature did not intend to confer upon a potential taxpayer the valuable privilege of disqualifying himself in that capacity by the simple and relatively unskilled method of losing either his memory or his books.’
…”
Prior to the completion of the GST audit relating to the BAS and on several occasions since the completion of the audit, the applicant has been given every opportunity to produce documentation or other evidence to support his claims for imputation credits which were not allowed in the GST assessment of net amount. The applicant has been unable to produce documentation or other evidence which demonstrates that the input tax credits that the respondent has allowed are insufficient.
Mr Singh referred to the 2008, 2009 and 2010 income tax returns of the Trust that were included in the applicant’s documents.[7] Based on the capital and non-capital input tax credits referred to in those returns, he submitted that credits totalling $27,552 should be allowable in respect of the period 1 July 2007 to 30 June 2010. This amount was simply based upon the taxable supplies recorded in the income tax returns and had no regard whatsoever to the requirements imposed by s 29-10(3) of the GST Act. For this reason, I am unable to accept the input tax credits figure submitted by Mr Singh for the applicant.
[7] Exhibit A1.
DECISION
The objection decision is varied in part, as set out in paragraph 19 of these reasons, by allowing the applicant input tax credits of $15,846.
I certify that the preceding 27 (twenty -seven) paragraphs are a true copy of the reasons for the decision herein of ...................[Sgd].....................................................
Administrative Assistant
Dated 8 November 2013
Date of hearing 17 September 2013 Advocate for the Applicant Mr P Singh, Wakefield Chartered Accountants Counsel for the Respondent Ms G Walker Advocate for the Respondent Mr C Ziersch, ATO Legal Practice
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