Unit Trend Services Pty Ltd v Commissioner of Taxation
[2012] FCAFC 112
•17 August 2012
FEDERAL COURT OF AUSTRALIA
Unit Trend Services Pty Ltd v Commissioner of Taxation [2012] FCAFC 112
Citation: Unit Trend Services Pty Ltd v Commissioner of Taxation [2012] FCAFC 112 Appeal from: Unit Trend Services Pty Ltd v Commissioner of Taxation [2010] AATA 497 Parties: UNIT TREND SERVICES PTY LTD ACN 010 382 242 v COMMISSIONER OF TAXATION File number: QUD 337 of 2010 Judges: DOWSETT, BENNETT AND GREENWOOD JJ Date of judgment: 17 August 2012 Catchwords: TAXATION – consideration of the application of the margin scheme to the supply of units in a property development – consideration of the instruments to be applied in calculating the margin – consideration of the elements of a scheme for the purposes of s 165‑10(2) and Division 165 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the “GST Act”) – consideration of s 165‑5(1) of the GST Act as to the circumstances in which the Division directed to “anti‑avoidance” measures operates – consideration of whether a GST benefit obtained by an entity from a scheme is “attributable to” the making by an entity of a choice, election, application or agreement expressly provided for by the GST law – consideration of the notion of “attributable to” in the context of the GST Act – consideration of whether the GST benefit is attributable to the relevant choices or attributable to the scheme – consideration of the choices embodied in a particular scheme giving rise to a GST benefit – consideration of the effect of changes in the provisions applicable to margin schemes effected by the Tax Laws Amendment (2005 Measures No. 2) Act 2005 (Cth) – consideration of the question of penalties Legislation: A New Tax System (Goods and Services Tax) 1999 (Cth) Div 9, 11, 31, 48, 75, ss 9, 17, 31, 38, 48, 75, 165, 182, 195
A New Tax System (Goods and Services Tax) Bill 1998 Explanatory Memorandum
A New Tax System (Goods and Services Tax) Bill 1998 Supplementary Explanatory Memorandum
A New Tax System Tax Administration Bill (No. 2) 2000 Explanatory Memorandum
Acts Interpretation Act 1901 (Cth) ss 24, 23
Administrative Appeals Tribunal Act 1975 (Cth) s 44
Income Tax Assessment Act 1936 (Cth) s 177
Tax Laws Amendment (2005 Measures No 2) Act 2005 (Cth) s 75
Taxation Administration Act 1953 (Cth) s 297-20 of Schedule 1
Taxation Laws Amendment Act (No 8) 2000 (Cth) Item 2A, s 38Cases cited:
Other materials:
Federal Commissioner of Taxation v Sun Alliance Investments Pty Ltd (in liq) (2005) 225 CLR 488 – cited and quoted
Sterling Guardian Pty Ltd v Commissioner of Taxation (2006) 149 FCR 255 - cited
Brady King Pty Ltd v Commissioner of Taxation [2008] FCAFC 118 - cited
Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 - cited
Federal Commissioner of Taxation v Peabody (1994) 181 CLR 359 at 385 - cited
Federal Commissioner of Taxation v Lenzo (2008) 167 FCR 255 - cited
Walters v Federal Commissioner of Taxation (2007) 162 FCR 421 - cited
MLC Limited v Commissioner of Taxation (2002) 126 FCR 37 - cited
Walsh v Rother District Council [1978] 1 All ER 510 – cited and quoted
Repatriation Commission v Law (1980) 47 FLR 57 – cited and quoted
Roncevich v Repatriation Commission (2005) 222 CLR 115 – cited and quotedMarch v Stramare (E. & M.H.) Pty Ltd (1991) 171 CLR 506 – cited and quoted
Project Blue Sky Inc. v Australian Broadcasting Authority (1998) 194 CLR 355
Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384
Newcastle City Council v GIO General Ltd (1997) 191 CLR 85New Shorter Oxford English Dictionary (Clarendon Press, 1993)
Tax Avoidance in Australia, Pagone GT (The Federation Press, 2010)Date of hearing: 1 March 2011 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 247 Counsel for the Applicant: Mr FL Harrison QC with Mr DW Marks Solicitor for the Applicant: Short Punch & Greatorix Counsel for the Respondent: Ms BD O'Donnell QC with Mr SR Lumb Solicitor for the Respondent: McInness Wilson Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 337 of 2010
ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL
BETWEEN: UNIT TREND SERVICES PTY LTD ACN 010 382 242
ApplicantAND: COMMISSIONER OF TAXATION
Respondent
JUDGES:
DOWSETT, BENNETT AND GREENWOOD JJ
DATE OF ORDER:
17 AUGUST 2012
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.Having regard to the reasons for judgment published today, the parties are directed within seven days to propose draft orders for the disposition of the appeal and cross‑appeal by lodging the draft orders with the Associate to the presiding judge, and in default of agreement, the parties are directed within a further seven days to make and file written submissions as to the forms of order.
2.Within the period of 14 days described in Order 1, the parties are to make and file written submissions as to costs, should the parties not be otherwise able to agree the terms of an order as to costs.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 337 of 2010
ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL
BETWEEN: UNIT TREND SERVICES PTY LTD ACN 010 382 242
ApplicantAND: COMMISSIONER OF TAXATION
Respondent
JUDGES:
DOWSETT, BENNETT AND GREENWOOD JJ
DATE:
17 AUGUST 2012
PLACE:
BRISBANE
REASONS FOR JUDGMENT
DOWSETT J
I have read the reasons prepared by Bennett and Greenwood JJ. In light of their Honours’ detailed identification of the evidence and issues, I need not deal at length with those matters.
BACKGROUND
By contract dated 14 December 1998, Simnat Pty Ltd (“Simnat”) agreed to purchase certain land at Surfers Paradise (the “original block”), which contract was settled on 20 April 1999. Simnat subsequently obtained approval for a development which included the construction, on the original block, of three residential towers (“Tower 1”), (“Tower 2”) and (“Tower 3”). On 31 July 2001 Simnat entered into a construction contract for Tower 1. By December 2002 it was completed. On 13 December 2002 a strata plan was registered for each of 183 units in Tower 1. Simnat sold units in Tower 1 “off the plan”. Pursuant to Div 75 of the A New Tax System (Goods and Services Tax) 1999 (Cth) (the “GST Act”) it applied the “margin scheme” to those supplies. I shall explain the margin scheme at a later stage. At the time of registration of the strata plan, the original block was subdivided so that the land on which each of Tower 2 and Tower 3 was being, or was to be constructed, was subdivided into separate blocks with separate titles.
On 1 July 2002, Simnat entered into a construction contract for Tower 2. On 14 April 2004 Simnat sold Tower 2 (still incomplete) to Blesford Pty Ltd (“Blesford”) at a price to be fixed by an independent valuer. It was eventually fixed at $149,800,000.00. The parties agreed that, for the purposes of s 38-325 of the GST Act, the sale was of a going concern. The sale was therefore “GST free”. As Simnat and Blesford were members of a GST group for the purposes of Pt 48 of the GST Act, the supply was also, pursuant to s 48-40(2), to be treated as if it were “not a taxable supply”. I shall shortly explain these statutory concepts. Simnat had, prior to the sale, entered into contracts for the sale of some of the units in Tower 2. Simnat assigned to Blesford all of its rights under such contracts and under the construction contract. The contract for the sale of Tower 2 by Simnat to Blesford was settled on 7 May 2004. Thereafter, Blesford sold the remaining units. Blesford completed all contracts of sale which it had entered into and those entered into by Simnat. Pursuant to s 75-5 of the GST Act, it chose to apply the margin scheme to those supplies.
On 29 January 2003 Simnat entered into a construction contract for Tower 3 and commenced to sell units in that building. By contract dated 15 April 2004 it sold Tower 3 to Mooreville Investments Pty Ltd (“Mooreville”). The purchase price was to be determined by an independent valuer. It was eventually fixed at $109,500,000.00. Again, it was agreed that the sale was of a going concern. As Mooreville was a member of the same GST group as Simnat and Blesford, it was also a sale within a GST group and therefore treated as not being a taxable supply. Simnat assigned to Mooreville all of its rights under the construction contract and the contracts for sale of units. Settlement of the contract for sale to Mooreville was delayed, but Mooreville eventually obtained title on 23 November 2004. It then began to sell units. Commencing on 8 December 2004 Mooreville settled the contracts for sale entered into by it and Simnat. Mooreville chose to apply the margin scheme to such supplies.
THE GST SCHEME
Section 9-40 of the GST Act imposes Goods and Services Tax (the “GST”) on any taxable supply. Pursuant to s 9-10 a supply is “any form of supply whatsoever”. Section 9-5 defines a taxable supply in this form:
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.
One category of GST-free supply is the supply of a “going concern”. Pursuant to s 38-325 the supply of a going concern is GST-free if:
(a) the supply is for consideration; and
(b)the recipient is registered or required to be registered; and
(c)the supplier and the recipient have agreed in writing that the supply is of a going concern.
Pursuant to s 9-30(2) a supply is input taxed if:
(a) it is input taxed under Division 40 or under a provision of another Act; or
(b)it is a supply of a right to receive a supply that would be input taxed under paragraph (a).
The concepts of GST-free supply and input taxed supply are only marginally relevant for present purposes.
GST is generally levied on the consideration for a supply. In many, perhaps most cases, the supplier will have acquired goods and services for use in producing the subject of its ultimate supply. Such supplies to the ultimate supplier will usually have been taxable supplies on which GST has been paid. In order to avoid taxation upon taxation throughout the supply chain, Div 11 of the GST Act establishes the concept of “creditable acquisition”. In effect the GST payable on the ultimate supply will be reduced by the amounts of GST paid on earlier supplies in the supply chain. Such amounts are called “input tax credits”. There are exceptions to this simplified description, one of which concerns the supply of interests in land.
GST GROUPS
Division 48 of the GST Act allows companies within a group to be approved as a “GST group”. In such a group one member of the group (the representative member”) “deals with all the GST liabilities and entitlements” of group members, subject to certain exceptions. Further, in most cases intra-group transactions are excluded from GST liability (see s 48-40(2)). The applicant (“Unit Trend”) is the company nominated as the representative member of a GST group which includes at least Unit Trend, Simnat, Blesford and Mooreville. Unit Trend therefore bears the GST obligations which would otherwise be incurred by individual members. It is also entitled to the benefit of any creditable acquisitions to which other group members may be entitled. At all relevant times since May 2004, Unit Trend, as the representative member, has reported GST payable on sales in Tower 2 and Tower 3, applying the margin scheme, and based on the consideration paid to Simnat in each case for acquisition of the relevant land and building under construction.
THE MARGIN SCHEME
In dispute between Unit Trend and the respondent (the “Commissioner”) is the basis for calculation of the margin upon which the GST on the supply of the units is to be calculated. For the reasons outlined by Bennett and Greenwood JJ, the GST Act makes special provision for the calculation of GST liability in the case of the supply of freehold interests, stratum units and long term leases. It is called the “margin scheme”. Division 75 permits a choice as to whether the margin scheme is to apply to a supply. When the margin scheme applies, GST is calculated on the “margin” rather than on the consideration for the supply. Broadly speaking, the margin is the difference between consideration for the relevant taxable supply and the cost of acquisition of the land (or a relevant part thereof, or interest therein) or, in some cases, between the consideration and a relevant valuation. Such acquisition is not a creditable acquisition and does not attract input tax credits. However other supplies received in the course of making the ultimate taxable supply, will generally be creditable acquisitions yielding input tax credits.
THE 2005 ACT
During the presently relevant period, the provisions concerning the margin scheme changed in ways which affect Unit Trend’s liability to GST on the sales of units in Tower 2 and Tower 3. The changes were effected by the Tax Laws Amendment (2005 Measures No 2) Act 2005 (Cth) (the “2005 Act”). Hereafter, I shall refer to provisions in Div 75, as they were in force prior to the commencement of the 2005 Act, as “pre-amendment” and to provisions, as amended by that Act, as “as amended”. It may assist if I explain the relevant amendments rather than set out the original provisions and the amending provisions. Broadly speaking the amendments were as follows:
·Section 75-5(1) (pre-amendment), provided that the supplier might choose whether to apply the margin scheme. Pursuant to s 75-(1) (as amended) the question is to be agreed between the supplier and the recipient.
·Section 75-10(1) (pre-amendment) provided that where the margin scheme applied, the GST was to be calculated by reference to the “margin”. Prima facie, the margin, as defined in s 75-10(2) (pre-amendment), was “the amount by which the consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question.” However, s 75-10(3) (pre-amendment) prescribed that in certain circumstances (set out in a table), the margin was to be the difference between the consideration for the relevant taxable supply and a valuation at a date fixed in accordance with the table. None of the circumstances is relevant for present purpose.
It is arguable that the engagement of subs 75-10(3) (pre-amendment) and as amended, was, and is dependent upon an appropriate valuation having been “made”. Pursuant to s 75-10(3) (pre-amendment), such valuation had also to comply “with any requirements determined in writing by the Commissioner for making valuations for the purposes of this Division”.
The 2005 Act amended s 75-10(2), making it “(s)ubject to subsection (3) and section 75-11”. It also amended s 75-10(3) so that it now refers to an “approved valuation” having been made. The 2005 Act deleted reference in that subsection to ministerial determination.
·Section 75-11(2), inserted by the 2005 Act, provides:
If:
(a)you acquired the interest, unit or lease in question at a time when both you and the entity from whom you acquired it were members of the same GST group; and
(b) subsection (1) does not apply;
the margin for the supply you make is the amount by which the consideration for the supply exceeds an approved valuation of the interest, unit or lease as at 1 July 2000.
Prima facie, s 75-11(2) applies to the acquisitions by Blesford and Mooreville from Simnat.
Section 75-11(7) provides:
If:
(a)you acquired the interest, unit or lease in question from an entity who was your associate at the time of the acquisition; and
(b) none of the other subsections of this section apply;
the margin for the supply you make is the amount by which the consideration for the supply exceeds:
(c)if your acquisition was made before 1 July 2000 - an approved valuation of the interest, unit or lease as at 1 July 2000; or
(d)if your acquisition was made on or after 1 July 2000 – the GST inclusive market value of the interest, unit or lease at the time of the acquisition.
·The amendments to s 75-5(1) apply to all contracts made on or after 29 June 2005. The amendments to s 75-10 and the new s 75-11 apply in relation to all supplies made on or after 17 March 2005.
·Section 75-35 was inserted by the 2005 Act. It provides as follows:
(1)The Commissioner may, by legislative instrument, determine in writing requirements for making valuations for the purposes of this Division;
(2)A valuation made in accordance with those requirements is an approved valuation.
·It is accepted that 75-35 commenced on 17 March 2005. However it must be read in conjunction with item 21 in Schedule 6 to the 2005 Act which provides:
A determination by the Commissioner, for the purposes of paragraph 75-10(3)(b) of the [GST Act] that was in force immediately before the commencement of this Schedule:
(a)continues in force on that commencement as if it had been made under section 75-35 of that Act as amended by this Act; and
(b)may be revoked or amended by the Commissioner in the same way as a determination under section 75-35.
THE MATTERS IN DISPUTE
This is an appeal from a decision of the Administrative Appeals Tribunal (the “AAT”). The first matter in dispute concerns Div 75. Unit Trend has returned its GST liability for supply of units in Tower 2 and Tower 3, claiming to be entitled to calculate the margin using the prices paid by Blesford and Mooreville for their respective acquisitions from Simnat. The Commissioner initially asserted that the margin scheme did not apply to the relevant supplies and re-assessed Unit Trend’s GST liability for the period from May 2004 to May 2007 in an amount exceeding $21 million. However the dispute is now as to the figure to be deducted from the consideration for each supply in order to determine the margin. The Commissioner also made a declaration pursuant to s 165-40(a) of the GST Act, negating GST benefits in excess of $21 million. Later, he imposed penalties. The validity of the declaration and the amount of the penalties are also in dispute.
CALCULATION OF THE MARGIN
The parties disagree as to calculation of the correct figure to be deducted from the amount of consideration for each sale. The Commissioner submits that it must be a valuation which complies with s 75-11(2), and that Unit Trend must obtain appropriate valuations or accept his assessment of its GST liability.
Unit Trend submits that:
·for the period from 17 March 2005 until 1 December 2005, there was no legislative instrument made pursuant to s 75-35 which set out the requirements for making a valuation “in the circumstances of the present case”;
·in those circumstances, the combined effect of ss 75-11(2) and 75-11(7) is that s 75-11(7) applies so that the relevant margin for each supply by Blesford or Mooreville is the difference between the sale price for the unit in question and a proportion of the “appropriate GST inclusive market value” of the relevant land at the date of acquisition by Blesford or Mooreville from Simnat;
·alternatively, if there was an applicable legislative instrument, then:
·no GST liability arises because no approved valuation has been created; or
·the margin is that prescribed by s 75-11(7); or
·if s 75-11(7) does not apply, then s 75-10(2) applies.
Relevant determinations
The Commissioner identifies three determinations as applying relevantly for present purposes, namely:
·MSV 2000/2 dated 23 June 2000, commencing on 1 July 2000;
·MSV 2005/1 dated 11 March 2005, commencing on 16 March 2005; and
·MSV 2005/3 dated 7 September 2005, commencing on 1 December 2005.
MSV 2000/2
Unit Trend submits that MSV 2000/2 applies only to property acquired before 1 July 2000. This submission is apparently based upon para 3 of the determination which provides:
This determination will apply where you acquired the freehold interest in land, stratum unit or long-term lease before 1 July 2000 and you:
(a) make a taxable supply of real property by:
(i) selling a freehold interest in land; or
(ii) selling a stratum unit; or
(iii) granting or selling a long-term lease; and
(b)you choose to apply the margin scheme in working out the amount of GST on the supply for partly completed premises as at the valuation date.
The Commissioner submits that Unit Trend’s submission misconstrues the provisions of s 75-10(3) (pre-amendment), MSV 2000/2, s 75-35 and item 21 of Sch 6. Section 75-10(3) (pre-amendment) required a valuation which “complies with any requirements determined in writing by the Commissioner for making valuations for the purposes of this Division …”. Clearly, such a determination was to prescribe the requirements for “making” valuations. Paragraph 4 of MSV 2000/2 identifies two methods of valuation and then describes each. At the time at which it was made, the only valuations contemplated in Div 75 were those identified in s 75-10(3) (pre-amendment), including the table. Fairly clearly, the table distinguishes between events occurring before and after 1 July 2000, the date upon which the GST Act commenced. In other words s 75-10(3) (pre-amendment) and as amended was, and is concerned with transactions or circumstances which, in some sense, straddle that point in time.
In the table, only item 2A deals with acquisitions on or after 1 July 2000. Item 2A was introduced by the Taxation Laws Amendment Act (No 8) 2000 (Cth) (the “2000 Act”). The bill for that Act was introduced into Parliament in October 2000. The Act was assented to on 21 December 2000. That Act also inserted s 38-445(1A) and s 38-450. Sections 38-445(1A), 38-450 and the amendment to s 75-10(3) took effect from 1 July 2000. Section 38-445 had previously provided that a supply by government of unimproved land was GST-free. Section 38-445(1A) extended the same status to government supply of land where it had previously been supplied by way of lease, without improvement, and on condition that, upon satisfaction of the terms of the lease, the lessee would be entitled to a supply of freehold title or a long-term lease. Thus, the effect was to treat improved land as if it were unimproved. However the earlier supply of unimproved land must have occurred before 1 July 2000. Further, it must have been by way of a lease which, after that date, would have been a GST-free supply pursuant to s 38-450. Thus item 2A is also concerned with events occurring prior to 1 July 2000. Whereas s 38-445 applies to the supply of freehold interests and long-term leases, s 38-450 applies only to leases of unimproved land, such leases not being long-term leases.
Clearly, when MSV 2000/2 was made on 23 June 2000, the only valuations to which it was to apply were of interests in land acquired prior to 1 July 2000. Paragraph 3 simply identifies the valuations (specified in s 75-10(3), including the table) to which the determination was to apply. The purpose of item 21 was to extend the operation of determinations previously made pursuant to s 75-10(3) (pre-amendment) so that they applied to valuations required pursuant to Div 75 (as amended). The Commissioner was authorized to make determinations concerning the making of such valuations. Item 21 effectively deemed all previous determinations to be determinations so made. Item 21 would be meaningless if a determination made for the sole purpose specified in Div 75 (pre-amendment) were not to apply for all purposes contemplated by that division (as amended).
It follows that MSV 2000/2 applies for the purposes of s 75-11(2) in the case of any supply made on or after 17 March 2005 and before its revocation.
MSV 2005/1
MSV 2005/1 was made on 11 March 2005 and commenced on 16 March 2005. According to para 3, it “specifies an additional valuation method for the purposes of para 75-10(3)(b) of the GST Act”. It expressly provides that MSV 2000/2 is “not altered or withdrawn”. In para (5), it states that:
A valuation complies with the requirements for making valuations for the purposes of Division 75 of the GST Act if it is made in accordance with the following method … .
Unit Trend submits that MSV 2005/1 does not presently apply because, “We are not concerned with a valuation for the purposes of paragraph 75-10(3)(b) of the GST Act”. The determination took effect just prior to s 75-35 taking effect on 17 March 2005. Thus it was necessarily made pursuant to the authority conferred by s 75-10(3)(b) (pre-amendment). Given the date upon which it was made, one might infer that it was made in anticipation of the wider operation conferred by s 75-35 and item 21. That is, perhaps, the reason for the reference in para 5 to the “purposes of Div 75”. The plural reference may reflect the numerous requirements for valuations in Div 75 (as amended) as opposed to the single requirement in Div 75 (pre-amendment). More importantly, the reference to Div 75 would be otiose if the determination were to apply only for the purposes of s 75-10(3)(b), as such application had already been provided for in para 3.
In summary MSV 2005/1, made pursuant to s 75-10(3)(b) (pre-amendment), was continued in force by item 21 as a determination pursuant to s 75-35 for the purposes of Div 75 (as amended) in connection with supplies made on or after 17 March 2005.
MSV 2005/3
Unit Trend accepts that MSV 2005/3 applies, but only to supplies made on or after 1 December 2005. I do not understand the Commissioner to suggest otherwise.
Absence of a valuation
Assuming the existence of appropriate determinations, Unit Trend nevertheless submits that in the absence of an appropriate valuation as required by s 75-11(2), the relevant margin is that specified in s 75-10(2) or that specified in s 75-11(7). It is difficult to see why that should be so. Clearly, the method of calculating the margin prescribed in s 75-10(2) is displaced in the circumstances specified in s 75-11(2). Unit Trend’s submission may owe something to the somewhat curious wording of s 75-10(3)(b) (pre-amendment) and s 75-10(3) (as amended), to which I have referred. That section in both forms may have contemplated or contemplate the existence of an appropriate valuation as a condition precedent to its operation. Such a construction is unlikely but possible. However no such argument can be mounted with respect to s 75-11(2). If s 75-11(2) applies, GST can only be calculated on the margin as there defined. Neither s 75-10(2) nor s 75-11(7) is engaged in the present circumstances.
Unit Trend seems to assert that if the Commissioner wants valuations, he should get them, and that until he does, no GST is payable. The Commissioner responds to this rather adventurous submission by asserting that pursuant to Div 9, a taxable supply is liable to GST calculated pursuant to s 9-70 and is payable in any circumstances, unless the taxpayer demonstrates that some other amount is payable. However s 9-99 provides that special rules “relating to the amount of GST on taxable supplies” apply to the supplies dealt with in various divisions of the GST Act, including Div 75. Division 75 prescribes that for present purposes, GST is to be calculated on the margin rather than on the consideration for the supply. The Commissioner must therefore advance some basis for displacing the operation of Div 75 in order simply to rely on the general liability to pay GST calculated pursuant to Div 9.
There are at least three possible approaches. The first is that advanced by the Commissioner: that the election to apply the margin scheme necessarily implies acceptance of the obligation to obtain an appropriate valuation, and that failure to do so effectively negates the election, so that GST is payable pursuant to Div 9. The second possibility is that the GST Act creates an obligation to provide a relevant valuation as part of the self-assessment scheme established by Div 31. That argument may, to some extent, depend upon the form of return prescribed pursuant to s 31-15. However it seems that the fundamental aspect of the return is the relevant “net amount”. That term is defined in s 17-5 as the difference between the GST payable and available input tax credits. Under the margin scheme, the amount of GST payable is calculated by reference to the margin. I infer that discharge of the obligation to give a return, which identifies the net amount, necessarily involves identification of the margin in order to calculate the GST payable, the first step in calculating the net amount. Neither the giving of a return, nor the making of an assessment by the Commissioner is a condition precedent to liability or payment. The third possible argument is that Unit Trend has simply failed to prove that the relevant assessments are excessive.
In any event, as I understand it, the Commissioner does not resile from the position adopted in the Administrative Appeals Tribunal, that Unit Trend should be given a further opportunity to provide appropriate valuations.
Outcome of appeal concerning Div 75
It follows that the appeal, so far as it concerns Div 75, should be dismissed. The cross-appeal, so far as it concerns MSV 2005/1, should be upheld, but otherwise dismissed.
DIVISION 165
Division 165 provides for the avoidance of schemes which reduce the amount of GST payable on taxable supplies. Pursuant to s 165-40, the Commissioner may effectively negate such a scheme by declaring an amount to be the relevant taxpayer’s net amount for a particular period. Pursuant to s 165-55:
For the purposes of making a declaration under this subdivision, the Commissioner may:
(a) treat a particular event that actually happened as not having happened; and
(b)treat a particular event that did not actually happen as having happened and, if appropriate, treat the event as:
(i) having happened at a particular time; and
(ii) having involved particular action by a particular entity; and
(c) treat a particular event that actually happened as:
(i)having happened at a time different from the time it actually happened; or
(ii)having involved particular action by a particular entity (whether or not the event actually involved any action by that entity).
Division 165 operates where the provisions of s 165-5(1) are satisfied. Relevantly for present purposes that section provides:
(1) This Division operates if:
(a) an entity (the avoider) gets or got a GST benefit from a scheme; and
(b)the GST benefit is not attributable to the making, by any entity, of a choice, election, application or agreement that is expressly provided for by the GST law …; and
(c)taking account of the matters described in section 165-15, it is reasonable to conclude that either:
(i)an entity that (whether alone or with others) entered into or carried out the scheme, or part of the scheme, did so with the sole or dominant purpose of that entity or another entity getting a GST benefit from the scheme; or
(ii)the principal effect of the scheme, or of part of the scheme, is that the avoider gets the GST benefit from the scheme directly or indirectly; and
(d) the scheme:
(i)is a scheme that has been or is entered into on or after 2 December 1998; or
(ii)is a scheme that has been or is carried out or commenced on or after that date (other than a scheme that was entered into before that date).
The GST law goes somewhat beyond the GST Act, but the distinction is not presently relevant. Section 165-10 defines the terms “GST benefit” and “scheme”. Pursuant to subs (2):
A scheme is:
(a) any arrangement, agreement, understanding, promise or undertaking:
(i) whether it is express or implied; and
(ii)whether or not it is, or is intended to be, enforceable by legal proceedings; or
(b)any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.
Relevantly, pursuant to s 165-10(1), an entity gets a GST benefit from a scheme if:
(a)an amount that is payable by the entity under this Act apart from this Division is, or could reasonably be expected to be, smaller than it would be apart from the scheme or a part of the scheme; …
Subsection 165-10(3) provides:
An entity can get a GST benefit from a scheme even if the entity or entities that entered into or carried out the scheme, or a part of the scheme, could not have engaged economically in any other activities:
(a) of the kind to which this Act applies; and
(b)that would produce an effect equivalent (except in terms of this Act) to the effect of the scheme or part of the scheme;
other than the activities involved in entering into or carrying out the scheme or part of the scheme.
The Commissioner has made a determination pursuant to s 165-40, negating a GST benefit said to have been derived by Unit Trend from a scheme. The AAT identified the scheme as alleged by the Commissioner as follows:
[Another company] received advice from a professional adviser which formed the basis of the scheme. The scheme involved:
(a)a group of companies that engage in property development (at least including [Simnat] and [Blesford or Mooreville];
(b)[Simnat] owns or buys land proposed for development, and undertakes the development to a point where the development has substantially progressed, and the overall value of the development is considerably higher than the price [Simnat] paid for the land;
(c)[Simnat] sells the partially completed development to [Blesford or Mooreville] at market value. The timing of the sale is to occur at a time when the market value is significantly higher than the price [Simnat] paid for the land;
(d)the sale by [Simnat] to [Blesford or Mooreville] is to be free of GST (either because it is the sale of a going concern, or because [Simnat] and [Blesford or Mooreville] are within a registered GST group under Division 48);
(e)[Blesford or Mooreville] completes the development, and sells to end buyers. Any sales made by [Simnat] to end buyers would be honoured and completed by [Blesford or Mooreville];
(f)upon transfer to end buyers, [Blesford or Mooreville] would choose to apply the margin scheme in respect of its liability for GST (calculated based upon consideration [Blesford or Mooreville] provided to [Simnat]).
Alternatively, the scheme involved the transferring by [Simnat] of Tower 2 and 3 to [Blesford] and [Mooreville] respectively in a manner which did not attract GST and the making of the transfers for a consideration which reduced the margin which would otherwise have applied had [Simnat] completed the sales or, in a broader sense, the transferring by [Simnat] of Towers 2 and 3 to [Blesford] and [Mooreville] respectively in a manner which did not attract GST; the making of the transfers for a consideration which reduced the margin which would otherwise have applied had [Simnat] completed the sales; and choosing to apply the margin scheme in respect of the subsequent supplies by [Blesford] and [Mooreville] to third party purchasers.
Unit Trend did not dispute that the Commissioner had identified a scheme for the purposes of Div 165. The AAT concluded that Unit Trend had derived a GST benefit from the scheme in connection with supplies made prior to 17 March 2005 by Blesford or Mooreville, pursuant to contracts entered into by Simnat. The GST benefit was, in effect, the difference between the GST payable, calculating the margin by reference to the acquisition price paid by Simnat, and the GST payable, calculating the margin by reference to the respective purchase prices paid by Blesford and Mooreville to Simnat. Unit Trend argued that by virtue of s 165-5(b), Div 165 did not operate in connection with those supplies because the GST benefit was attributable to the making by a relevant entity of a choice, election, application or agreement (hereafter a “choice”) expressly provided for by the GST law. The AAT rejected that submission. The applicant appeals against such rejection. Unit Trend’s argument effectively appears in para 11 of its outline of submissions as follows:
A liability for GST would have arisen on the intra-group sales but for Blesford’s and Mooreville’s either joining the group, or agreeing with Simnat that the intra-group sales should be of going concerns. And but for those agreements and the agreements to apply the margin scheme on the end sales, the applicant would have paid full GST on both the transfers from Simnat and on the end sales. This is what the [Commissioner] and the [AAT] ignored. It is only because both of those agreements and choices provided for by the Act that the applicant is liable (but for Div 165) for less tax than if Blesford and Mooreville had not been interposed, that is to say, that the GST benefit exists.
Clearly, the dispute turns upon the meaning of the word “attributable” in s 165-5(1)(b). In Federal Commissioner of Taxation v Sun Alliance Investments Pty Ltd (in liq) (2005) 225 CLR 488, the High Court considered a provision which enquired as to whether an amount “could reasonably be taken to be attributable to profits that were derived by the company …” before a certain date. In that context, the Court adopted, at [77], the following approach in construing the word “attributable”:
It remains then to engage in that process of attribution required by para (b) of s 160ZK(5) in respect of the distributions made by Phoenix and SAIL. In doing so, several points should be noted. The first is that para (b) presents a question of characterisation of an amount which is the whole or a part of the distribution made by a company to the holder of the RDA share, as identified in para (a). Secondly, para (b) presents an inquiry as to the existence of a sufficient link between that whole or part of the distribution and profits derived by the company before a specified event (acquisition of the RDA share). Thirdly, that link may be described in terms of necessary causation but, as with all questions of causality, the starting point is the identification of the purpose (here the legislative purpose) to which the question is directed … . Fourthly, here, the legislative purpose of s 160ZK(5) is to ensure that a capital loss not be claimed where the result of the course of action described in the sub-section is that there has been no economic loss to the taxpayer. Finally, the criterion of linkage in para (b), an attribution that is reasonable, is to be read and applied accordingly.
In seeking to identify the purpose for which the word “attributable” is to be construed, it is necessary to consider the purpose of Div 165 as a whole. That task must start with s 165-1 which purports to state the object of that Division. Reference to that section for the purpose of identifying such object or purpose is authorized by s 182-10(2)(a). Section 165-1 provides:
The object of this Division is to deter schemes to give entities benefits by reducing GST, increasing refunds or altering the timing of payment of GST or refunds.
If the dominant purpose or principal effect of a scheme is to give an entity such a benefit, the Commissioner may negate the benefit an entity gets from the scheme by declaring how much GST or refund would have been payable, and when it would have been payable, apart from the scheme.
This Division is aimed at artificial or contrived schemes. It is not, for example, intended to apply to:
•an exporter electing to have monthly tax periods in order to bring forward the entitlement to input tax credits; or
•a supplier of child care applying to be approved under the A New Tax System (Family Assistance) (Administration) Act 1999 (this would make the supplies of child care GST-free); or
•a supplier choosing under section 9-25 of the A New Tax System (Wine Equalisation Tax) Act 1999 to use the average wholesale price method for working out the taxable value of retail sales of grape wine; or
•a bank having its car fleet serviced earlier than usual, and before 1 July 2000, so that the servicing does not, at least initially, bear the GST.
Two aspects demand immediate comment. First, the section identifies deterrence of certain schemes as the object of Div 165. However schemes cannot be deterred. The deterrent must be aimed at persons, natural or corporate, presumably discouraging them from entering into schemes. Further, although the object is said to be deterrence, the real object is protection of the revenue. Secondly, use of the words “artificial or contrived” is a rhetorical flourish. The words are not used in the operative provisions of Div 165.
As Bennett and Greenwood JJ demonstrate, there was concern that Div 165, as originally enacted, might catch persons who simply chose to make a decision contemplated by the GST law, having regard to his or her own best interests. This risk arises from the very broad definition of the word “scheme”. The third paragraph in s 165-1 deals with that concern. It asserts that the Division is not intended to apply to certain conduct, of which examples are given.
Section 165-5 defines the circumstances in which the Division “operates”. If its requirements are satisfied, the Division is engaged, and the Commissioner may act, effectively setting aside the scheme. The Division will only be engaged if an entity has “got” a GST benefit from a scheme. Section 165-5(1)(b) seems to assume that notwithstanding the fact that a GST benefit has been “got” from a scheme, that benefit may be attributable to a choice expressly provided for in the GST Act. One might have thought that s 165-1 indicates an intention to exempt choices which stand alone and therefore would not generally be thought to constitute a scheme. However s 165-5 goes further, dealing with circumstances in which there is a discernible scheme which has produced a GST benefit. The word “attributable” seems to involve a decision as to whether the relevant benefit is attributable to the scheme under consideration or to “a choice”, such choice presumably being one aspect of the scheme.
The Oxford English Dictionary defines the word “attributable” to mean “capable of being attributed or ascribed, esp. as owing to, produced by”. It defines the verb “attribute” as “to ascribe, impute, or refer as an effect to the cause; to reckon as a consequence of” (italics in original source). For present purposes, then, the question is whether or not the reduction in Unit Trend’s GST liability, effectively as the result of the intermediate sales by Simnat to Blesford and Mooreville, was attributable to the identified scheme or to a choice expressly provided for in the GST law.
In its written submissions, Unit Trend points to a number of choices made in connection with the scheme, namely:
·the choice by Blesford and Mooreville to join the GST group;
·the choices to transfer the buildings under construction as going concerns; and
·agreements by Blesford and Mooreville with buyers that the margin scheme was to apply.
The third choice may not be correctly expressed. Many of the contracts of sale seem to have been completed prior to the commencement of the 2005 Act, so that it was for the supplier to elect whether to apply the margin scheme. Perhaps commercial considerations dictated that the purchasers agree. The choice to transfer the partly built towers as going concerns also seems to be of little significance, given that the transfers were intra-group sales and therefore taken not to be taxable supplies.
In any event, Unit Trend’s submission seems to be that the GST benefit should be seen as the product of a number of choices expressly provided for by the GST law, and that the benefit is therefore attributable to them collectively. I doubt whether s 165-5(1)(b) should be read as authorizing such an approach. The section rather seems to contemplate a direct link between the benefit and the relevant choice. Of course, s 23 of the Acts Interpretation Act 1901 (Cth) (the “Interpretation Act”) provides that in any act “words in the singular number include the plural and words in the plural number include the singular”. However, as s 2(2) of the Interpretation Act provides, that presumption is subject to any contrary intention in another act.
If I am correct in inferring that the inquiry posed by s 165-5(1)(b) is as to whether a GST benefit is attributable to a relevant scheme or to a relevant choice, it is most unlikely that Parliament intended that an outcome attributable to numerous choices would be excluded from the general operation of Div 165. After all, schemes will frequently involve multiple choices. Where one benefit is attributable to the interaction of numerous choices, it would be more accurate to attribute such benefit to that interaction, rather than to individual choices, taken discretely. The position may be otherwise where the scheme yields discrete benefits, each of which is attributable to a different, discrete choice.
In any event, in the present case, the scheme which produced the benefit included the intermediate sales by Simnat to Blesford and Mooreville. Such sales lay at the heart of the scheme, even if the various choices were also necessary integers of it. In my view, the GST benefit was attributable to the events of which such sales were necessary parts, in other words, the scheme. In those circumstances, the benefit was attributable to the scheme, and not to any particular choice expressly provided for by the GST law.
Outcome of appeal concerning Div 165
The appeal should be dismissed.
PENALTY
The only question of penalty which is presently relevant concerns the penalty addressed in para 172 of the AAT’s reasons. It arose out of the scheme shortfall created by the Commissioner’s declaration pursuant to s 165-40, as it applied to supplies made by Blesford and Mooreville prior to 17 March 2005, and pursuant to contracts entered into by Simnat. The AAT found that the penalty had been properly imposed. However Unit Trend had applied to the Commissioner for remittal of the penalties pursuant to s 297-20 of Sch 1 to the Taxation Administration Act 1953 (Cth). The Commissioner had refused to remit the penalty, and Unit Trend had asked the AAT to review that decision. The AAT did not deal with that matter. The parties agree that it should be remitted to the AAT for further consideration. I would allow Unit Trend’s appeal in that respect.
ORDERS
In view of the complexity of the orders made below, I would order that, within seven days, the parties bring in draft orders disposing of the appeal and cross-appeal in accordance with these reasons. In default of agreement the parties should, within a further seven days, make written submissions as to forms of order. The parties should also, within that 14 day period, make written submissions as to costs, assuming that the question cannot be resolved by consent.
I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate:
Dated: 17 August 2012
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 337 of 2010
ON APPEAL FROM THE ADMINISTRATIVE APPEALS TRIBUNAL
BETWEEN: UNIT TREND SERVICES PTY LTD ACN 010 382 242
ApplicantAND: COMMISSIONER OF TAXATION
Respondent
JUDGES:
DOWSETT, BENNETT AND GREENWOOD JJ
DATE:
17 AUGUST
PLACE:
BRISBANE
REASONS FOR JUDGMENT
BENNETT AND GREENWOOD JJ
These proceedings involve an appeal on questions of law (an application under s 44 of the Administrative Appeals Tribunal Act 1975 (Cth)) heard before the Full Court, from a decision of the Administrative Appeals Tribunal (the “Tribunal”) (constituted by Deputy President Hack SC and Senior Member O’Loughlin), in part affirming and in part setting aside objection decisions of the Commissioner of Taxation (the “Commissioner”) concerning the applicant’s (“Unit Trend”) objection to assessments (and amended assessments) made on 29 February 2008 of Unit Trend’s net amount of GST payable under a “GST law” as that term is defined by s 195‑1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the “GST Act”) on sales to the public of units in two residential towers on the Gold Coast.
The Commissioner, by the above assessments, assessed Unit Trend’s net amount of GST as approximately $21m.
On 29 February 2008, the Commissioner also issued a declaration to Unit Trend under Division 165 of the GST Act which confers power on the Commissioner to set aside a GST benefit obtained by an entity from a scheme, having regard to the provisions of that Division and in particular subdivision 165‑A. The declaration was issued by the Commissioner in reliance upon s 165‑40(a) of the GST Act.
On 13 March 2008, the Commissioner issued a Notice of Assessment of penalties to Unit Trend in an amount of $5,405,367.00 based upon GST shortfalls arising from the assessments and amended assessments.
Before explaining the content of the Tribunal’s decision, however, the sequence of transactions at the centre of the assessments needs to be described based upon the findings of the Tribunal and matters admitted by the Commissioner (subject to the discharge of the taxpayer’s onus). Throughout these reasons references will be made to the provisions of the GST Act without always adding the description, “the GST Act”.
The transactions
Unit Trend is the representative member of a GST group of companies approved by the Commissioner for that purpose under s 48‑5 of the GST Act. The group includes Simnat Pty Ltd (“Simnat”); Blesford Pty Ltd (“Blesford”); Mooreville Investments Pty Ltd (“Mooreville”); and Rapcivic Contractors Pty Ltd (“Rapcivic”). Blesford and Mooreville became members of the GST group (by reason of applications made to the Commissioner) with effect from 1 March 2004 and 1 July 2004 respectively. Simnat, Blesford and Mooreville are all wholly owned subsidiaries of Raptis Group Limited (“Raptis”). Mr Jim Raptis is a director of Unit Trend and all of the above companies. He is the majority beneficial shareholder in Raptis.
In late 1997, Mr Raptis identified land in Surfers Paradise that he considered worthy of acquiring for development by the Raptis group of companies. On 14 December 1998, Simnat entered into a contract to purchase the land for $30m. The land became known as the Chevron development site (the “site”). The contract settled on 20 April 1999 and Simnat became registered proprietor of the site.
Simnat obtained development approval from the Gold Coast City Council to construct a three tower high‑rise development (the “Chevron Towers”) on the site. When complete, the Chevron Towers development would consist of 60 speciality shops, a supermarket, office space, a tavern, car park facilities and three residential towers between 39 and 50 storeys each with a total of 575 units.
On 31 July 2001, Simnat appointed Rapcivic to construct Tower I on the site. Construction of Tower 1 was completed by December 2002. Simnat sold units in Tower I to the public. The margin scheme under the GST Act was applied to those sales. Business activity statements (“BAS”) were lodged for those sales applying the margin scheme.
On 13 December 2002, a strata plan was registered for 183 units (lots) in Tower I. A Community Titles Scheme was also established under the relevant Queensland Act. Simnat became the registered owner of each of the lots in the strata plan. Once registered, Simnat proceeded to settle contracts with third party purchasers. Registration of a survey plan had created a separate title for the land on which Tower I was constructed and also separate allotments for Tower II (Lot 902) and Tower III (Lot 903). Registration of the survey plan with separate titles for Lots 902 and 903 meant that the development projects for Towers II and III were capable of separate sale.
Tower II
By contract dated 1 July 2002, Simnat engaged Rapcivic to construct Tower II. The development was undertaken using certain debt facility arrangements. By contract dated 14 April 2004, Simnat sold Tower II to Blesford. By clause 17, the purchase price was to be determined by an independent valuer. The proposed settlement date was 20 April 2004. Tower II was valued as at 22 April 2004 at $149,800,000 and that sum became the purchase price. By clause 3.1 of the contract, the parties agreed that the sale of Tower II was the supply by Simnat of a “going concern” and that all things necessary for the continued operation of a relevant enterprise were to be supplied to Blesford under the contract.
By force of those arrangements, Simnat contended that it had engaged in a supply of a going concern to Blesford within s 38‑325 of the GST Act and thus the supply to Blesford was GST‑free. Before the Tribunal, the Commissioner accepted that position.
By clause 6 of the contract, Simnat assigned to Blesford all of its rights under the contracts it had entered into with third parties for the purchase of units upon completion.
On 7 May 2004, the contract for the sale of Tower II from Simnat to Blesford settled and Blesford, on 10 May 2004, became the registered proprietor of Lot 902 (and related Lot 5). Once Tower II was transferred to Blesford, Blesford continued marketing units in Tower II and it commenced to make off the plan sales of units to the public. When Tower II was completed to the relevant stage, Blesford settled those contracts. It also settled the contracts Simnat had previously entered into which had been assigned to Blesford. The same standard form contracts were used both before and after the transfer of Tower II to Blesford (and Tower III) to Mooreville. At [12], the Tribunal notes that Simnat was the nominated vendor of 230 of the 289 units in Tower II. Blesford was the nominated vendor of the remaining 59 units.
Blesford applied the margin scheme to unit sales to end purchasers and BAS returns were lodged reporting the GST payable on those sales on the basis of the application of the margin scheme. In determining the margin upon which GST would be calculated, for the purposes of Division 75 of the GST Act, Blesford adopted the price it paid to Simnat for Tower II ($149.8m) and determined the margin between that price and the value of the end sales (applying an apportionment of the acquisition price to each unit).
Tower III
By contract dated 29 January 2003, Simnat engaged Rapcivic to construct Tower III. By contract dated 15 April 2004, Simnat sold Tower III to Mooreville. The purchase price was to be determined by an independent valuer. The proposed settlement date was 22 April 2004. Tower III was valued at $109,500,000 and that value became the purchase price. Simnat and Mooreville agreed that the sale was the supply of a going concern. The Commissioner accepts that Simnat made a supply of a going concern to Mooreville for the purposes of s 38‑325 of the GST Act.
By clause 6 of the contract, Simnat assigned to Mooreville all of its rights under the contracts it had entered into with third parties for the purchase of completed units.
Suncorp Metway was the first ranked secured financier for Tower III. Although Simnat sought Suncorp Metway’s approval for the transfer to Mooreville, approximately six months elapsed before approval was given on 23 November 2004. On that date, Tower III was transferred to Mooreville. On 23 November 2004, Mooreville became registered proprietor of the units in Tower III. Mooreville then began to make off the plan sales of units to the public. At [12], the Tribunal notes that Simnat was the nominated vendor in 142 of the 241 contracts for apartments sold in Tower III. Mooreville was the nominated vendor in the remaining 99 contracts for units in Tower III.
Settlement of those sales commenced from 8 December 2004.
Mooreville applied the margin scheme to unit sales to end buyers. BAS returns were lodged reporting the GST payable on those sales, on that basis. Like Blesford, Mooreville in determining the margin for the purposes of Division 75 of the GST Act, used the price it paid to Simnat for Tower III as the consideration for the acquisition of the interest ultimately the subject of the sale to end purchasers.
The BAS returns and the steps taken by the Commissioner arising out of an audit
Unit Trend as the group representative entity reported GST payable on sales of units in Towers II and III in BAS returns commencing from May 2004 and monthly thereafter. In all of these BAS returns, Unit Trend chose to apply the margin scheme on the footing of the acquisition price Blesford and Mooreville had paid to Simnat as the relevant consideration in determining the margin upon which GST would be determined.
As a result of an audit by the Commissioner of Unit Trend’s BAS returns, the Commissioner issued assessments on 7 December 2006 of the GST net amount payable by Unit Trend for the months of December 2004 and January 2005 together with an assessment of shortfall penalty. Unit Trend lodged an objection and the resolution of that matter is held over pending the resolution of these proceedings.
On 29 February 2008, the Commissioner issued assessments and amended assessments of the GST net amount payable by Unit Trend for the periods between May 2004 and May 2007 of approximately $21m (s 105‑25 of Schedule 1 of the Taxation Administration Act 1953 (Cth)). On the same day, the Commissioner made an anti‑avoidance declaration under s 165‑40(a) of the GST Act “negating” the GST benefit Unit Trend had obtained by applying the margin scheme to sales of the units to end purchasers on the footing of a margin determined on the basis of the difference between the acquisition price paid by Blesford and Mooreville and the value of the end purchases. In making the declaration, the Commissioner contended that Unit Trend (an avoider) had obtained a GST benefit from a scheme as those terms are understood for the purposes of the GST Act and that the integers of ss 165‑5, 165‑10 and 165‑15 were otherwise made out thus enlivening the declaration power under s 165‑40.
On 13 March 2008, the Commissioner issued an assessment of shortfall penalties of $5,405,367.00 on the basis of the taxpayer’s failure to take reasonable care in the preparation of the BAS documents. Unit Trend objected to the Commissioner’s assessments of the GST net amount payable for the relevant period, the making of the declaration and the issuing of the penalty assessment. On 21 October 2009, the Commissioner made a decision on each of those objections. The Commissioner made relatively minor adjustments to the GST net amounts but generally maintained the contention in relation to the application of Division 165 and the position adopted in relation to shortfall penalties.
The margin scheme
The concession by the Commissioner that the supply by Simnat to Blesford and Mooreville were supplies of a going concern under s 38‑325 and that no objection arose under s 48‑40(2) of the GST Act, resulted in an acceptance by the Commissioner that the sales by Simnat of Lot 902 (the Tower II development) to Blesford and Lot 903 (the Tower III development) to Mooreville were GST‑free. Because the supply of Towers II and III by Simnat were both GST‑free, Blesford and Mooreville as acquirers would not be entitled under the general scheme of the GST Act to any input tax credits on the acquisition of the land and Tower development projects. One feature of the general regime in such a case is that each developer would then be required to pay GST on the entire value of the developed property as supplied to the ultimate purchasers through settlement of each unit contract.
Another recognised feature of the GST regime however is that it only taxes value added after 30 June 2000, the regime having commenced on 1 July 2000. The margin scheme contained in Division 75 of Chapter 4 of the GST Act provides for special rules designed to ameliorate what might otherwise be the unfair operation of the GST Act on some forms of business activity: Sterling Guardian Pty Ltd v Commissioner of Taxation (2006) 149 FCR 255; Brady King Pty Ltd v Commissioner of Taxation [2008] FCAFC 118.
Blesford and Mooreville, through Unit Trend, elected to invoke the application of these special rules under Division 75 in the supply of stratum units to end purchasers. Division 75 of the GST Act however was amended during the currency of each Tower project by the Tax Laws Amendment (2005 Measures No. 2) Act 2005 (Cth), No. 78 of 2005, (the “2005 Amendment Act”) which, as to the amendments to s 75‑10 and s 75‑11, commenced operation retrospectively from 17 March 2005, notwithstanding that the 2005 Amendment Act generally (and s 75‑5(1) specifically) commenced operation on 29 June 2005.
It followed for the Tribunal that each taxable supply of a unit by Blesford and Mooreville (or by Simnat) consisting of settlement prior to 17 March 2005 was governed by Division 75 as it stood prior to the commencement of the 2005 Amendment Act and settlements on or after 17 March 2005 were governed by Division 75 as amended. It was common ground between the parties that the event constituting a supply is settlement of the contract rather than entry into the contract: Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342).
As to the settlements pre and post 17 March 2005, the Commissioner at para 26 of his Statement of Facts, Issues and Contentions (“SFIC”) (AB, p 1662 ff) says that between 24 May 2004 and 17 March 2005, Blesford settled unit contracts for 244 of the 289 units in Tower II, and the remaining 45 contracts were settled after 17 March 2005. As to Tower III, the Commissioner at para 44 of his SFIC says that between 8 December 2004 and 17 March 2005, Mooreville settled unit contracts for 156 of the 241 units in Tower III.
The Tribunal’s decision
Prior to the 2005 Amendment Act, ss 75‑1, 75‑5, 75‑10(1) and (2) and 75‑15 were in these terms:
75‑1 What this Division is about
This Division allows you to use a margin scheme to bring within the GST system your taxable supplies of freehold interests in land, of stratum units and of long‑term leases.
…
75‑5 Choosing to apply the margin scheme
(1) If you make a *taxable supply of *real property by:
(a) selling a freehold interest in land; or
(b) selling a *stratum unit; or
(c) granting or selling a *long‑term lease;
you may choose to apply the *margin scheme in working out the amount of GST on the supply.
(2)However, you cannot choose to apply the *margin scheme if you acquired the freehold interest, *stratum unit or *long‑term lease through a *taxable supply on which the GST was worked out without applying the margin scheme.
…
75‑10 The amount of GST on taxable supplies
(1)If a *taxable supply of *real property is under the *margin scheme, the amount of GST on the supply is 1/11 of the *margin for the supply.
(2)The margin for the supply is the amount by which the *consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question.
(3)…
…
75‑15 Subdivided land
For the purposes of section 75‑10, if the freehold interest, *stratum unit or *long‑term lease you supply relates only to part of land or premises that you acquired, the *consideration for your acquisition of that part is the corresponding proportion of the consideration for the land or premises that you acquired.
In particular, s 75‑10(2) contemplates that the margin for the relevant supply (the supplier having chosen under s 75‑5 to apply the margin scheme) is the amount by which the consideration for the supply exceeds the consideration for the supplier’s acquisition of the relevant interest.
At [26], the Tribunal notes Unit Trend’s contention that for settlements up to 16 March 2005, Unit Trend was entitled to apply the margin scheme and for the purposes of s 75‑10(2), the consideration for its acquisition of the relevant interest was the price paid by Blesford and Mooreville to Simnat. The Commissioner contended that the margin scheme could not apply as the reference in s 75‑5(1) to “you [making] a taxable supply of real property” should be understood as importing a group single entity rule so that once a member of a group makes an acquisition (Simnat in this case at $30m), the phrase “the consideration for your acquisition of the interest … in question” must be taken to be $30m not $148.9m in the case of Blesford or $109.5m in the case of Mooreville. At [32], the Tribunal rejected that contention and at [33], the Tribunal said this:
The result is that, subject to the operation of Div 165 (dealt with below), we conclude that in the case of supplies made up to 16 March 2005, the appropriate consideration was a proportionate amount of the sale price between Simnat and Blesford and between Simnat and Mooreville.
Neither party appeals from this aspect of the Tribunal’s decision.
At [34], the Tribunal dismissed Unit Trend’s contention that the relevant transfers upon which GST treatment turns includes the transfers from Simnat to Blesford and Mooreville both of which occurred prior to 17 March 2005. At [34], the Tribunal said this:
We should deal first with one argument for Unit Trend. It identifies the transfers from Simnat to Blesford and to Mooreville, which occurred prior to 17 March 2005, as the transfers to be considered. We do not agree. The issue is the liability to GST on the transfers from Blesford and Mooreville to end purchasers in respect of contracts settled on or after 17 March 2005.
By the 2005 Amendment Act, the provisions of Division 75, relevantly, were amended to take the following form:
75‑1 What this Division is about
This Division allows you to use a margin scheme to bring within the GST system your taxable supplies of freehold interests in land, of stratum units and of long‑term leases.
…
75‑5 Applying the margin scheme
(1)The *margin scheme applies in working out the amount of GST on a *taxable supply of *real property that you make by:
(a) selling a freehold interest in land; or
(b) selling a *stratum unit; or
(c) granting or selling a *long‑term lease;
if you and the *recipient of the supply have agreed in writing that the margin scheme is to apply.
(1A) The agreement must be made:
(a) on or before the making of the supply; or
(b) within such further period as the Commissioner allows.
Note: Refusing to allow, or allowing, a further period within which to make an agreement is a reviewable GST decision (see Division 7 of Part VI of the Taxation Administration Act 1953).
…
75‑10 The amount of GST on taxable supplies
(1)If a *taxable supply of *real property is under the *margin scheme, the amount of GST on the supply is 1/11 of the *margin for the supply.
(2)Subject to subsection (3) and section 75‑11, the margin for the supply is the amount by which the *consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question.
(3) Subject to section 75‑11, if:
…
75‑11 Margins for supplies of real property in particular circumstances
Margin for supply of real property acquired from fellow member of GST group
(1) If:
(a)you acquired the interest, unit or lease in question at a time when both you and the entity from whom you acquired it were *members of the same *GST group; and
(b)on or after 1 July 2000, there has been a supply (an earlier supply) of the interest, unit or lease that occurred at a time when the supplier was not a member of the GST group; and
(ba)the *recipient was at that time, or subsequently became, a member of the GST group;
the margin for the supply you make is the amount by which the *consideration for the supply exceeds:
(c)the consideration for the last such earlier supply, if the supplier and the recipient were not *associates at that time; or
(d)the *GST inclusive market value of the interest, unit or lease at that time, if the 2 entities were associates at that time.
(2) If:
(a)you acquired the interest, unit or lease in question at a time when both you and the entity from whom you acquired it were *members of the same *GST group; and
(b) subsection (1) does not apply;
the margin for the supply you make is the amount by which the *consideration for the supply exceeds an *approved valuation of the interest, unit or lease as at 1 July 2000.
…
Margin for supply of real property acquired from associate
(7) If:
(a)you acquired the interest, unit or lease in question from an entity who was your *associate at the time of the acquisition; and
(b) none of the other subsections of this section apply;
the margin for the supply you make is the amount by which the *consideration for the supply exceeds:
(c)if your acquisition was made before 1 July 2000 – an *approved valuation of the interest, unit or lease as at 1 July 2000; or
(d)if your acquisition was made on or after 1 July 2000 – the *GST inclusive market value of the interest, unit or lease at the time of the acquisition.
…
75‑15 Subdivided land
For the purposes of sections 75‑10 to 75‑14, if the freehold interest, *stratum unit or *long‑term lease you supply relates only to part of land or premises that you acquired, the *consideration for your acquisition of that part is the corresponding proportion of the consideration for the land or premises that you acquired.
On or after 17 March 2005, the margin scheme “applies” by s 75‑5(1) if the supplier and the recipient have agreed in writing that the margin scheme is to apply to the supply. Section 75‑10(2) is made subject to s 75‑10(3) which is subject to s 75‑11. At [35] and [36] the Tribunal notes Unit Trend’s contention as to settlements between 17 March 2005 and 1 December 2005 to the effect that s 75‑11(2) applies in determining the margin by reference to the amount by which the consideration for the supply of each unit exceeds “an approved valuation of the interest, unit or lease as at 1 July 2000”, but that, because no legislative instrument setting out the requirements for an “approved valuation” had been made under s 75‑35 (applicable to the circumstances of the case), s 75‑11(2) could not operate. That being so, s 75‑11(7)(b) was satisfied and thus the margin is the amount by which the consideration for the supply exceeds the “*GST inclusive market value of the interest … at the time of the acquisition”: s 75‑11(7)(d).
Unit Trend also contended that even if an applicable instrument existed, since no approved valuation had been brought into existence, no GST liability arose or, alternatively, any GST liability was to be determined on the footing of the s 75‑11(7) margin.
Unit Trend contended that the terms of the particular determination, said to apply, are expressed to apply where the property was acquired before 1 July 2000 and thus the determination could not apply in the circumstances of this case as Blesford and Mooreville acquired the land after 1 July 2000.
The Commissioner contended that s 75‑11 governed all contracts settled on or after 17 March 2005. It was common ground that s 75‑11(1) had no application. The Tribunal thought s 75‑11(1) had no application because Simnat’s acquisition occurred before 30 June 2000 and therefore s 75‑11(1)(b) was not satisfied. That being so, s 75‑11(2)(b) was satisfied and since Simnat, Blesford and Mooreville were members of the same GST group at the dates of supply by Simnat to Blesford and Mooreville (that is, the settlement dates of 7 May 2004 and 23 November 2004 respectively), s 75‑11(2)(a) was satisfied. Thus, s 75‑11(2) applied so that the margin for the supply of units to end purchasers for contracts settled on or after 17 March 2005, was the amount by which the consideration for the supply of a unit exceeded “an *approved valuation of the interest, unit or lease as at 1 July 2000”.
At [37] and [38], the Tribunal found that applicable legislative instruments had been brought into existence for relevant periods governing valuation determinations for the purposes of the margin scheme which by force of ss 75‑11 and 75‑35 applied so as to determine the manner in which approved valuations were to be produced: [38]; determinations MSV2000/2; MSV2005/1; MSV2005/2 and MSV2005/3.
As to the valuation methodologies, the Tribunal at [41] notes that MSV2000/2 provides for the valuation of a partly completed interest by one of two methods. One method (said by the Tribunal to have been adopted by Unit Trend) is the valuation of the interest by a professional valuer taking account of the market value of the completed premises, the cost to complete and the profit margin and holding costs attributable to the period on or after the valuation date. At [42], the Tribunal notes that the parties did not rely on MSV2005/1 or MSV2005/2. At [43], the Tribunal notes that MSV2005/3 altered the requirements for an approved valuation.
Unit Trend relied on a valuation of Tower II as at 30 June 2000 of $29m and a valuation of Tower III as at 30 June 2000 of $19.1m (neither valuation was a valuation as at 1 July 2000). Before the Tribunal, Unit Trend conceded that the valuation for Tower III did not discharge the obligation cast upon the taxpayer to provide an “approved valuation”. It sought a remittal opportunity to provide a valuation to the Commissioner that discharged that obligation.
As to Tower II, the Tribunal was unable to be satisfied that the valuer had given consideration to the requirement in the determination instrument to take into account the profit margin and holding costs attributable to the period on or after the valuation date and thus the Tribunal could not be satisfied that the valuation for Tower II complied with the requirements of MSV2000/2 (A New Tax System (Goods and Services Tax) Margin Scheme Valuation Requirements Determination (No. 2) 2000).
At [51], the Tribunal said this:
Thus, in our view, the valuation of Tower II cannot be regarded as valid for present purposes. Unit Trend accepts that no valuation of Tower III has been provided with the result that there is no approved valuation of either Tower for the purposes of supplies on or after 17 March 2005.
[emphasis added]The Commissioner contended before the Tribunal that absent an approved valuation, Unit Trend was not entitled to the concessional benefit derived from the application of the margin scheme for supplies (settlements) made on or after 17 March 2005 because the general rule in s 75‑10(2) of striking the margin as the excess of the supply consideration to end purchasers over the proportionate acquisition consideration of the relevant interest by either Blesford or Mooreville, was expressly subject to s 75‑11 and, in particular, s 75‑11(2) which speaks of an approved valuation.
The Tribunal also noted that the Commissioner relied upon amendments made in 2008 to s 75‑11 to introduce what was described by the Commissioner as a “default position” when an approved valuation was not supplied. The Commissioner contended that the later amendment should be taken into account in construing the provisions of the Act as they stood before the amendment which tended to suggest that where no approved valuation was produced by the taxpayer, the margin scheme did not apply.
At [54], the Tribunal observed that it did not need to determine these questions on the footing that:
… the Commissioner has accepted that, if we reach the conclusion that the valuation is not an approved valuation, Unit Trend ought to be given an opportunity to provide an approved valuation within a further period of time.
At [55], the Tribunal said this:
The result of this is that we have come to the view that, in relation to sales that settled up to and including 16 March 2005, Unit Trend was entitled, subject to the operation of Div 165, to apply the margin scheme on the basis that the consideration for the acquisition was the sale price between Simnat and Blesford and Mooreville. In relation to sales settled on and after 17 March 2005, the calculation of the margin needs to be based on an acceptable valuation [which should be a reference to “an approved valuation”]. There is no acceptable valuation for either Tower II or Tower III. Given the parties’ agreement that the matters be reconsidered upon provision of acceptable valuations we would give effect to the parties’ agreement and remit the matter to the Commissioner for further consideration of valuations to be provided by Unit Trend.
[emphasis added]At [20], the Tribunal drew a distinction, due to the operation of the 2005 Amendment Act, between supplies (settlements) made before and after 17 March 2005. The Tribunal also emphasised at [20] a distinction between supplies made pursuant to contracts with end purchasers entered into by Simnat and supplies made pursuant to contracts with end purchasers entered into by either Blesford or Mooreville. At [33], the Tribunal concluded that in the case of settlements made up to and including 16 March 2005, the appropriate consideration was a proportionate amount of the acquisition price between Simnat and Blesford and Simnat and Mooreville. That same finding is repeated at [55]. As to the application of the margin scheme and the determination of the amount of the margin for settlements up to and including 16 March 2005, no distinction is made by the Tribunal as between contracts entered into by Simnat on the one hand and Blesford or Mooreville on the other. The distinction was regarded by the Tribunal as important in the context of the Division 165 declaration (discussed later in these reasons).
We have mentioned these matters at [81] to [100] in order to give content to grounds (c) and (d) of Unit Trend’s appeal which are directed to the application of the margin scheme and the method of determining the amount of the margin, and which are in these terms:
(c)The Tribunal ought to have found that there was no margin scheme valuation determination in force, for the purposes of subsection 75‑11(2) of the GST Act, which applied to the supplies by [Blesford] or [Mooreville], given that neither of those companies acquired the land before 1 July 2000
(d)Thus, the Tribunal erred in finding that subsection 75‑11(2) of the GST Act applied to the supplies by those companies under the margin scheme. Rather, as that provision did not apply (given the lack of the means of so applying it, to wit, an applicable margin scheme valuation determination), one or the other of s 75‑10 and subsection 75‑11(7) applied.
The questions of law raised by these grounds are these:
(c)Was there a margin scheme valuation determination which applied, for the purposes of subsection 75‑11(2) of the GST Act, to a supply of a strata title unit (unit) by [Blesford] or [Mooreville]?
(d)[Blesford] and [Mooreville] had acquired the units from a fellow member of the GST group, and as acquisitions of going concerns, but did not hold valuations which complied with any margin scheme valuation determination. Which, if any, of the provisions of sections 75‑10 and 75‑11 of the GST Act applied where, on or after 17 March 2005, [Blesford] and [Mooreville] supplied the units and purported to do so under the margin scheme?
These questions and the grounds of contended error in support of them address that part of the Tribunal’s decision setting aside the Commissioner’s objection decision relating to supplies made on or after 17 March 2005 and a remittal of the matter to the Commissioner for reconsideration having regard to any valuations of the freehold interest in Tower II and Tower III as at 1 July 2000 according to the steps and directions set out at para 3 of the Tribunal’s decision of 21 July 2010.
The question of Unit Trend’s entitlement to apply the margin scheme to sales to end purchasers settled before or after 17 March 2005 was determined by the Tribunal before considering whether Division 165 was engaged so as to enable the Commissioner to negate any GST benefit obtained by Unit Trend, in the circumstances of the case.
The Court determined that the legislative purpose of the particular provision was directed to ensuring that a capital loss not be claimed where the result of the course of action described in the subsection was that the taxpayer had suffered no economic loss. The Court also observed at [77] that the “criterion of linkage”, an attribution described by the subsection as “reasonable”, was to be “read and applied accordingly”. At [80], the Court observed that criterion (b) was concerned with “the concept of causation, rather than source …”. In considering the concept of causation embodied in the notion of “attributable to” for the purposes of the subsection, the Court said this at [80]:
In determining whether the plaintiff’s loss of employment was “attributable to” the provisions of the Local Government Act 1972 (UK), Donaldson J in Walsh v Rother District Council said:
‘[T]hese are plain English words involving some causal connection between the loss of employment and that to which the loss is said to be attributable. However, this connection need not be that of a sole, dominant, direct or proximate cause and effect. A contributory causal connection is quite sufficient.’
Nothing, in either the text of [the subsection] or in its objects as expressed in the Explanatory Memorandum on the Bill for the Amending Act, indicates that a narrower meaning should be presently ascribed to that phrase.
The Court also observed that the phrase “could reasonably be taken to be” suggested that for the subsection to be enlivened the pre‑acquisition profits need not actually be a contributory cause. It would be sufficient if the profits “may reasonably be capable of being seen as such”. The Court said this at [82]:
… given the breadth of the nexus contemplated by the words “attributable to”, where a pre‑acquisition unrealised gain is a contributory cause to a post‑acquisition realised profit, then that unrealised gain would, failing some break in the proverbial chain of causation, reasonably be capable of being taken to be a contributory cause to any distribution sourced in the subsequent realised profit.
[emphasis added]There are many authorities to the same effect as the view expressed by Donaldson J in Walsh v Rother District Council [1978] 1 All ER 510 approved by the High Court in FCT v Sun Alliance and almost all of them concern the meaning to be ascribed to “attributable to” in the context of beneficial legislation conferring rights and entitlements to compensation for matters such as loss of employment, workers’ compensation benefits, pensions or other entitlements concerning war service and legislation directed to beneficial social security measures in a civil society, more generally.
In Repatriation Commission v Law (1980) 47 FLR 57, Bowen CJ and Brennan and Lockhart JJ said at p 68 in the context of the Repatriation Act 1920 (Cth) that it seemed clear that the expression “attributable to” involved an element of causation and the “cause need not be the sole or dominant cause: it is sufficient to show ‘attributability’ if the cause is one of a number of causes providing it is a contributing cause”. In Roncevich v Repatriation Commission (2005) 222 CLR 115, McHugh, Gummow, Callinan and Heydon JJ in the context of a claim to an entitlement to a pension under the Veterans’ Entitlements Act 1986 (Cth) due to incapacity from a defence‑caused injury, said this at [27]:
The use disjunctively in s 70(5) of the expressions “arose out of” and “attributable” manifest a legislative intention to give “defence‑caused” a broad meaning, and certainly one not necessarily to be circumscribed by considerations such as whether the relevant act of the appellant was one that he was obliged to do as a soldier. A causal link alone or a causal connection is capable of satisfying a test of attributability without any qualifications conveyed by such terms as sole, dominant, direct or proximate.
[emphasis added]In the tortious context, Mason CJ said this in March v Stramare (E. & M.H.) Pty Ltd (1991) 171 CLR 506 at p 509 about the law’s approach to the notion of causation and its relationship with scientific approaches to causation as an “explanation” of things:
It has often been said that the legal concept of causation differs from philosophical and scientific notions of causation. That is because “questions of cause and consequence are not the same for law as for philosophy and science”, as Windeyer J. pointed out in National Insurance Co of New Zealand Ltd v Espagne. In philosophy and science, the concept of causation has been developed in the context of explaining phenomena by reference to the relationship between conditions and occurrences. In law, on the other hand, problems of causation arise in the context of ascertaining or apportioning legal responsibility for a given occurrence. The law does not accept John Stuart Mill’s definition of cause as the sum of the conditions which are jointly sufficient to produce it. Thus, at law, a person may be responsible for damage when his or her wrongful conduct is one of a number of conditions sufficient to produce the damage …
Section 165‑5(1)(b) is not a broadly based enabling provision of the kind found in legislation directed to the matters such as those described in [189] of these reasons. However, the statutory purpose of the provision in excluding the operation of the anti‑avoidance Division is to preserve the entitlement to and effect of the specific legislative options, choices, elections etc expressly provided for under a GST law giving rise to benefits that might otherwise be defeated by an unintended operation of Division 165. The provision excluding Division 165 ought to be construed in a way that gives effect to that purpose.
Section 165‑5(1)(b) crafts a rule that gives operation to the Division to secure the Parliament’s objectives recited in s 165‑1 of preventing the Division (and the Commissioner’s power of negation) from operating if the GST benefit has the relevant degree of connection with the making of expressly conferred choices etc.
Having regard to the matters discussed at [168] to [176] of these reasons, the language of s 165‑5(1) in the context of the Division as a whole, preventing the Division from operating, seems to more properly contemplate causation in an allocative sense asking whether the nexus between the GST benefit and the exercise of the statutory choice is sufficiently close to provide an answer to the question, is the choice etc made by the taxpayer as expressly provided by a GST law, the predominant cause or the direct cause of the GST benefit? In that sense, the subsection does not import by its terms in the context of the Division and the Act a concept of causation in which the relevant choice etc is simply one of a number of contributory causes, as a sufficient connection. Otherwise, the Division would seem to have little field of operation. In approaching the question of construction we have had regard to the principles set out in Project Blue Sky Inc. v Australian Broadcasting Authority (1998) 194 CLR 355 at [69] – [71] and [78] (McHugh, Gummow, Kirby and Hayne JJ); Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 218 CLR 273 at 280‑281 (McHugh ACJ and Gummow and Hayne JJ); Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at [47] (Hayne, Heydon, Crennan and Kiefel JJ); CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408 (Brennan CJ, Dawson, Toohey and Gummow JJ); Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 99 (Toohey, Gaudron and Gummow JJ) and at 112‑113 (McHugh J).
However, if, having regard to the legislative purpose, a view is formed that “attributable to” imports the notion of causation in the sense of “some connection” or a “causal link alone” or a test of attributability that does not involve any qualification or limitation conveyed by such terms as “sole, dominant, direct or proximate” or the notion that “a contributory causal connection is quite sufficient”, then, clearly enough, Unit Trend has satisfied that test of causation and the GST benefit is attributable to a causal link alone consisting of the exercise of one or more choices expressly provided for by the Act.
The GST benefit in this case is sourced in the scheme having regard to all of the elements of that scheme as found on the facts. Section 165‑5(1)(b) asks whether the GST benefit obtained from the scheme is caused in an allocative sense by the choices made by the taxpayer in the sense of belonging to the choices, elections or agreements expressly provided for by the GST law.
There were a number of choices.
Simnat, Blesford and Mooreville chose to enter into a GST‑free supply (and acquisition) of a going concern that satisfied the requirements of the GST Act, at a supply price to Blesford and Mooreville that transferred the land at the relevant date for a consideration that reflected the market value of the improved land. The transfers as part of the going concern transaction also effected an intra‑GST group transfer which apart from the going concern transaction, gave rise to a GST‑free transfer. Having effected a complying transfer of a going concern in conformity with the GST law, Blesford and Mooreville sold and settled units in each Tower having chosen to apply the margin scheme to those sales, and having agreed with purchasers that the margin scheme was to apply to those sales. Unit Trend chose to apply the margin scheme to all sales. The going concern transaction resulted in a supply price to Blesford and Mooreville on which the margin of supply to end purchasers would be calculated for settlements up to and including 16 March 2005.
Had not these choices been made to apply the margin scheme to end purchaser transactions, together with the choices made in the antecedent arrangements or transactions all forming part of the scheme from which the GST benefit arose, as found, the GST benefit calculated on the end purchaser transactions would not have arisen. The GST benefit is thus attributable to the choices, elections and agreements made by the taxpayer in the sense that the GST benefit is explained by those choices etc as expressly provided for by the GST Act.
The Commissioner correctly observes that the taxpayer’s election or choice to enter into agreements to transfer Towers II and III from Simnat to Blesford and Mooreville was not itself an election or choice expressly provided for by the GST law. It was a commercial election or choice that brought about, in effect, an uplift in the intermediate cost base in the hands of Blesford and Mooreville which would diminish the margin on end sales. However, entry into those intra‑group transactions on terms consistent with a sale of a “going concern” in a manner which conformed with s 38‑325(1)(c) of the GST Act (as the Commissioner accepts), did involve an election or choice to transfer on terms expressly in conformity with s 38‑325 and thus in a manner expressly consistent with the GST Act. The taxpayer was entitled to make a choice or election to enter into a going concern transaction in conformity with s 38‑325 which had the effect that GST would not become payable on settlement of the transfers from Simnat to those entities.
If what lies at the heart of the GST benefit obtained from the scheme is the intermediate transaction resulting in an uplift in the transactional cost base (coupled with the application of the margin scheme to end sales) the intermediate transaction within the scheme involved the taxpayer making a choice or election to enter into a going concern transaction in conformity with s 38‑325(1)(c). But for the making of the choice or election to transfer Towers II and III as a going concern in conformity with s 38‑325(1)(c), a GST liability would have arisen by reason of the settlement of each transfer.
However, the choice or election to engage in a going concern transaction in conformity with s 38‑325(1)(c) was not the only choice. Put simply, Unit Trend entered into a scheme comprising a number of sequential steps that ultimately gave rise to a GST benefit attributable to (or owing to or produced by) a number of choices, elections or agreements made as expressly provided for by the GST law (as it then stood) given expression in the arrangements comprising the scheme giving rise to that benefit with the result that Division 165 does not apply as s 165‑5(1)(b) of Subdivision 165‑A is not satisfied. Section 165‑5(1) is conditioned on the GST benefit being attributable to the making of a choice, election, application or agreement expressly provided for by the GST law. The fact that it could be said that the benefit is attributable to a “scheme” resulting from a series of such choices etc does not prevent the GST benefit also being attributable to the making of those choices. This arises from the express use of “attributable to” rather than a narrower or more restrictive test.
The Tribunal concluded that the application of the margin scheme to end purchaser transactions did not involve the exercise of a choice etc on the part of Unit Trend because the margin scheme, in the circumstances of the particular development, would necessarily have been applied in any event. However, even though the particular commercial circumstances may have inevitably led to the exercise of a prudent choice to apply the margin scheme, the election to do so nevertheless involved a choice. The supplier of each unit to an end purchaser could have chosen (for no apparently good commercial reason) to pay GST on the basis of the supply price. Alternatively (for apparently good commercial reason), it could have chosen to (and did) apply the margin scheme to those transactions with the result that GST would be calculated on the margin of supply only, appropriately determined.
As to ground (a) of the appeal, the Tribunal did not fall into error in determining that for the purposes of s 165‑5(1)(b) the notion of “attributable to” means that the GST benefit must be explained by a choice, election, application or agreement in the sense of an allocative concept in which the GST benefit belongs to or is directly explained by that choice or election etc. The Tribunal, however, fell into error in concluding that for settlements up to and including 16 March 2005 the GST benefit was not explained by the choices, elections etc made by Unit Trend, as the GST benefit deriving from the scheme was properly explained by each choice, election and agreement made by Unit Trend in the transactions central to the scheme (and therefore the “getting” of the GST benefit), and also to the end purchaser transactions on which the amount of the GST benefit was ultimately calculated.
If the statutory purpose of s 165‑5(1)(b) is to be served of preserving for the taxpayer the choices, elections etc expressly conferred by the GST law, the GST benefit must be answerable to, explained by or belong to those choices.
It follows that for all settlements up to and including 16 March 2005, Division 165 did not operate because it was excluded as the GST benefit on the end purchaser transactions was attributable to the choices etc made by Unit Trend as described. It also follows that the Tribunal’s decision affirming the Commissioner’s objection decision in relation to settlements by Simnat of Simnat contracts up to and including 16 March 2005 must be set aside.
The application of the margin scheme and issues in relation to the calculation or determination of the amount of the margin
Unit Trend makes these contentions concerning the application of the margin scheme and the methods for determining the amount of the margin.
Fundamentally, Unit Trend contends that the GST Act, by operation of choices made or agreements reached, applies, as a matter of law, the margin scheme to the relevant transactions but due to a failure to bring subordinate legislative instruments into existence, the relevant provisions of the primary Act cannot operate and either no GST is payable on the transactions or the amount of the GST is to be calculated in accordance with Blesford and Mooreville’s GST inclusive market value of their relevant interest at the time of their acquisition of that interest. That market value is said to be represented by the existing market valuations.
The reasoning is as follows.
Up to 29 June 2005 (the commencement generally of the 2005 Amendment Act), the supplier could exercise a choice under s 75‑5(1) to apply the margin scheme and under s 75‑10(2) the margin for the supply is the excess of the supply price over the supplier’s acquisition price for the relevant interest. The choice once made determined, by operation of s 75‑5(1), the application of the margin scheme. The amount of the margin was determined, as earlier described, by s 72‑10(2) the “acquisition method”. That method of calculating the margin applied to supplies up to and including 16 March 2005. A new method applied on and after 17 March 2005. For supplies up to and including 16 March 2005, the acquisition method might however be displaced if any one of the circumstances set out in the table to s 75‑10(3) applied. If so, and if a valuation of the relevant interest at the specified date (1 July 2000) existed, the amount of the margin is the excess of the supply price over that value.
None of the circumstances set out in s 75‑10(3) are said to be engaged.
From 29 June 2005, the taxpayer’s choice, as the event under the GST Act engaging the application of the margin scheme, was removed in favour of the application of the margin scheme by operation of s 75‑5(1) if the supplier and the recipient had agreed in writing that the margin scheme is to apply.
Under the new s 75‑10(2), the amount of the margin remained (for supplies on and after 17 March 2005) the excess of the supply price over the supplier’s acquisition price. Section 75‑10(2) however was made subject to s 75‑10(3) and also subject to s 75‑11. Section 75‑10(3) was also rendered subject to s 75‑11.
Under the amended provisions, s 75‑10(3) displaced the acquisition method (as it did previously) but subject to the operation of s 75‑11. If s 75‑11(2) applied, the margin would be determined as the supply price over an “approved valuation” as at 1 July 2000.
Unit Trend contends that s 75‑10(3) does not apply as the circumstances in the table are not engaged and the second limb is not satisfied as no approved valuation has been obtained. Therefore, s 75‑11 is engaged, it is said, and if s 75‑11(2) applies, the margin is calculated by reference to an approved valuation as at 1 July 2000.
The central contention of Unit Trend is that for the period from 17 March 2005 to 30 November 2005 there was no legislative instrument in place prescribing the requirements for an approved valuation for a margin scheme that applied to end purchaser transactions and therefore s 75‑11(2) could not operate.
On this argument, s 75‑11(2) was stillborn for that period. Because s 75‑11(2) could not operate for that period, s 75‑11(7) must apply, it is said. In that case, the margin for the supply is the excess of the supply price over the GST inclusive market value of the interest, unit, etc at the time of acquisition.
In the alternative, Unit Trend says that if a legislative instrument for determining the requirements of an approved valuation did apply in the period 17 March 2005 to 30 November 2005, no GST liability arises on the end purchaser transactions because no approved valuation was “brought into existence” upon which s 75‑11(2) can operate, or alternatively, the margin determined by s 75‑11(7) must apply.
As to the absence of an instrument in the period 17 March 2005 to 30 November 2005, Unit Trend says that MSV2000/1 does not (in terms - para 3) apply as Blesford and Mooreville acquired their interest after 1 July 2000 and not before. The same proposition is said to apply to MSV2000/2. MSV2005/1 applies with respect to s 75‑10(3)(b) which has no application in these proceedings.
The Commissioner accepts that MSV2005/2 has no application.
MSV2005/3 applies but only from 1 December 2005 thus creating the lacuna in the period between 17 March 2005 and 30 November 2005, according to Unit Trend. Since there is no instrument in place between 17 March 2005 and 30 November 2005, s 75‑11(2) produces no “effect” for want of subordinate legislation and s 75‑11(2) cannot be made workable, it is said, as the legislature has not provided the means for determining an “approved valuation” and, in any event, there is no approved valuation in existence.
Because s 75‑11(2) cannot operate (and it is not suggested that any of the other subsections of s 75‑11 apply (apart from s 75‑11(7) itself)), s 75‑11(7)(b) is satisfied and the margin falls, according to Unit Trend, to be calculated under s 75‑11(7)(d), and thus the margin is the excess of the supply price over the GST inclusive market value of the interest at the time of acquisition. The relevant valuations are then said to be those in the material at AB, p 274‑281 and AB, p 310‑353.
Unit Trend contends that if however s 75‑11(7) does not apply, and s 75‑11(2) does not operate, s 75‑10(2) must then apply because s 75‑10(3) to which s 75‑10(2) is subject, is not engaged as neither limb of s 75‑10(3) is engaged. In that case, the margin is the excess of the supply price over the supplier’s acquisition price.
As to the position after 1 December 2005 when MSV2005/3 commenced operation, Unit Trend says that until an approved valuation comes into existence in accordance with MSV2005/3, no GST liability arises or, if it does, the margin is the s 75‑11(7) margin.
Unit Trend says that for supplies in the period 17 March 2005 to 30 November 2005, the margin has been calculated based upon valuations as at or near the date of transfer of the interest sold by Simnat to Blesford and Mooreville which represents the GST inclusive market value of the interest for the purposes of s 75‑11(7)(d). If s 75‑10(2) applies, the same valuations will apply, it is said. Unit Trend says that if, however, it becomes relevant to have approved valuations to enable the margin scheme to apply, Unit Trend seeks the opportunity to provide the valuations. The present orders of the Tribunal requiring the submission of such valuations are stayed by Orders of Logan J pending the outcome of this appeal.
Conclusions in relation to the application of the margin scheme and the calculation of the amount of the margin
The position in relation to these contentions seems to me to be this.
Section 75‑35 provides that the Commissioner may by legislative instrument determine the requirements for making valuations for the purposes of Division 75. A valuation made in accordance with those requirements is an “approved valuation”; s 75‑35(2). The Commissioner contends that three applicable legislative instruments determine the requirements for making valuations for the purposes of Division 75: MSV2000/2 (dated 23 June 2000; commenced on 1 July 2000); MSV2005/1 (dated 11 March 2005; commenced on 16 March 2005); MSV2005/3 (dated 7 September 2005; commenced on 1 December 2005).
MSV2000/2 recites that it is made under “paragraph 75‑10(3)(b) of the [GST Act] and subsection 4(1) of the Acts Interpretation Act 1901”. The instrument commenced on the commencement of the GST Act. Clause 3 provides as follows:
Circumstances in which the Determination will apply
3. This determination will apply where you acquired the freehold interest in land, stratum unit or long‑term lease before 1 July 2000 and you:
(a) make a taxable supply of real property by:
(i) …
(ii) selling a stratum unit; or
(iii) …
(b)you choose to apply the margin scheme in working out the amount of GST on the supply for partly completed premises as at the valuation date.
The two methods for making a valuation for the purposes of Division 75 are set out at clauses 4, 5 and 6.
Item 21 of Schedule 6 of the 2005 Amendment Act provides (s 3) as follows:
21 Savings provision – determinations under paragraph 75‑10(3)(b)
A determination by the Commissioner, for the purposes of paragraph 75‑10(3)(b) of the [GST Act] that was in force immediately before the commencement of this Schedule:
(a)continues in force on that commencement as if it had been made under section 75‑35 of that Act as amended by this Act; and
(b)may be revoked or amended by the Commissioner in the same way as a determination under s 75‑35.
Item 20 of the 2005 Amendment Act introduced into the GST Act s 75‑35. MSV2000/2 continued in force as if it had been made under s 75‑35 of the GST Act as amended by the 2005 Amendment Act.
The Commissioner emphatically supports the correctness of the Tribunal’s conclusion that s 75‑11 and s 75‑35 govern the way in which determinations about approved valuations operate and that by virtue of s 75‑35 it is the “requirements” that may be determined. Therefore, a valuation made in accordance with those “requirements” is an approved valuation.
There can be no doubt that MSV2000/2 is a determination in force as if made under s 75‑35 and the requirements for making approved valuations are those set out in the determination. Item 21 continued the “determination” in force as if made under s 75‑35. Item 21 does not select out of the determination only the requirements clauses. It continues in force the determination according to its terms and by clause 3, the requirements of the determination apply to a valuation of a completed freehold interest or stratum unit where the freehold has been acquired before 1 July 2000. Thus, on the face of the determination, it does not apply at all, by its terms, and therefore the determination apparently does not govern the requirements that apply where, as here, the freehold interest was acquired after 1 July 2000. However, determination MSV2000/2 was made on 23 June 2000 at a time when it could only apply to interests in land acquired before 1 July 2000. The underlying purpose of Item 21 was to apply earlier determinations made under s 75‑10(3) to valuations required by Division 75 in its amended form. Item 21, in a practical sense, gathered up the earlier determinations and treated them as determinations authorised to be made by the Commissioner setting out the requirements for making valuations for the purposes of Division 75, as amended. MSV2000/2 therefore is an applicable instrument for the period on and after 17 March 2005 for the purposes of s 75(11)(2).
MSV2005/1 commenced operation on 16 March 2005. It continues in force by operation of Item 21 as a determination under s 75‑35. It specifies an additional valuation method for the purposes of 75‑10(3)(b) without altering or withdrawing the application of MSV2000/2. Clause 8 applies the determination “in respect of valuations made for the purposes of applying the margin scheme in working out the amount of GST on supplies made on or after 17 March 2005”. Clause 5 provides that a valuation complies with the requirements for making valuations for the purposes of Division 75 of the GST Act if it is made in accordance with the methods set out in the determination.
MSV2005/1 does apply. As already noted, the determination commenced operation on 16 March 2005 immediately prior to s 75‑35 taking effect on the following day, 17 March 2005, in contemplation of the future operation of Division 75. It follows that although MSV2005/1 was made pursuant to s 75‑10(3)(b), the determination was continued in force by Item 21 pursuant to s 75‑35 for the purposes of the future operation of Division 75 and thus applied to supplies made on or after 17 March 2005.
MSV2005/3 commenced operation on 1 December 2005 and by clause 3, it “specifies the requirements for making valuations for calculating the margin for taxable supplies of real property made on or after 1 December 2005 for the purposes of Division 75 of the GST Act”. The earlier determinations continue according to their terms.
It follows that for the period from 16 March 2005 to 30 November 2005, MSV2000/2 and MSV2005/1 applied and for the period on and from 1 December 2005, MSV2005/3 applied.
The result is that for supplies on and after 17 March 2005, s 75‑11(2) applied as Blesford and Mooreville acquired their respective interests as members of the same GST group and s 75‑11(1) has no operation, thus satisfying s 75‑11(2)(b). It seems to be common ground that s 75‑11(1) does not apply.
The margin determined by s 75‑11(2) is the excess of the supply price over an approved valuation for supplies on and after 17 March 2005. MSV2000/2, MSV2005/1 and MSV2005/3 supply the requirements for making approved valuations, by operation of s 75‑35 and Item 21 of the 2005 Amendment Act.
It follows that: grounds (c) and (d) of the appeal must be dismissed; ground (a) of the Commissioner’s cross‑appeal is upheld; ground (b) of the Commissioner’s cross‑appeal is dismissed as it is not pressed; ground (c) of the Commissioner’s cross‑appeal is upheld; and ground (d) is dismissed as that ground addresses MSV2005/2 which is not pressed as an applicable determination.
The shortfall penalty issues
At [171], the Tribunal determined that the question of whether a shortfall penalty arises for supplies made on and after 17 March 2005 is “moot” as each matter is to be remitted to the Commissioner to enable Unit Trend to obtain approved valuations in accordance with the applicable subordinate instruments. Accordingly, the Tribunal’s decision to set aside the Commissioner’s objection decision concerning shortfall penalties on those supplies, and remit each matter to the Commissioner for reconsideration in accordance with para 3 of the Tribunal’s decision (as varied in accordance with these reasons to reflect the applicable subordinate instruments) is affirmed.
As to shortfall penalties on supplies up to and including 16 March 2005, the position is this.
The Tribunal determined that Blesford and Mooreville were entitled to apply the margin scheme to settlements up to that date pursuant to contracts made by them, and determine the amount of the margin on the basis of their acquisition price for the freehold interest. The tax benefit they (Unit Trend) obtained from the scheme on those transactions was improperly negated by the Commissioner because Division 165 did not operate. That was found to be so because the sole or dominant purpose test and the principal effect test, were not satisfied so far as those companies were concerned, on the facts.
Apart from those conclusions on the facts as found by the Tribunal, Division 165 does not operate because, as determined in these reasons, the GST benefit from the scheme was attributable to choices, elections etc made by Unit Trend as expressly provided for by the GST Act.
Accordingly, the Tribunal’s decision at para 2 setting aside the Commissioner’s decision concerning shortfall penalties on those supplies is affirmed.
As to shortfall penalties on supplies up to and including 16 March 2005 pursuant to settlements of contracts entered into by Simnat, the Tribunal found that Unit Trend was entitled to apply the margin scheme on the same footing. However, the GST benefit obtained from the scheme on settlements of Simnat contracts was properly negated, according to the Tribunal, as those persons who entered into and carried out that part of the scheme did so for the dominant purpose of securing the GST benefit from the scheme. However, as set out in these reasons, Division 165 did not operate because the GST benefit from the scheme on the Simnat settlements was also attributable to choices, elections etc made by the taxpayer. Accordingly, the Tribunal’s decision affirming the Commissioner’s declaration and the imposition of shortfall penalties ought to be set aside and remitted to the Commissioner with a direction to allow the objection.
Accordingly, having regard to these reasons, the parties are requested to submit within seven days, proposed orders to be made. Should the parties not be able to agree proposed orders, the parties should, within a further seven days, file and serve written submissions as to the orders to be made and any submissions as to costs.
I certify that the preceding one hundred and ninety‑six (196) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Bennett and Greenwood. Associate:
Dated: 17 August 2012
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