The Commissioner has his cake, lose/lose and what verbal advice is worth.

There have been three recent AAT cases on GST matters which have piqued my interest, such is my sad and somewhat lonely world. All three provide real life lessons on the importance of getting the GST right from the beginning. That’s where I come in (advertisement).
The first is Naidoo and Commissioner of Taxation [2013] AATA 443 (28 June 2013) where the Commissioner wanted to have his (or the taxpayer’s) cake and eat it too.
Briefly, this was about whether or not the partnership was “carrying on an enterprise” and allowed to be registered for GST. As is relevant to this article, the partnership had registered for GST and been claiming GST refunds from 1 April 2007 to 31 March 2011. The refunds resulted from an excess of input tax credits over GST charged.
The Commissioner took the view that the partnership had never been carrying on an enterprise but interestingly only cancelled the GST registration from 31 March 2011 rather than from day one. He then assessed on the basis that the partnership was not entitled to any input tax credits as the expenses had not been incurred in carrying on an enterprise, an entirely reasonable position.
What appeared to be a substantially less reasonable position was that he refused to credit the partnership for the GST on its sales that had been returned in the BASs. This meant that the partnership could not get back the GST it had included in the BASs when it was not carrying on an enterprise but was not entitled to any input tax credits during the period.
Naturally, the Commissioner’s position was supported by a view of the legislation. Fortunately for the partnership, the Tribunal did not share the Commissioner’s view. The GST outcome, as in this case, does not always follow the path that you think it will.
Lesson One: understand the GST implications of “carrying on an enterprise”. Many people take it for granted (one way or another) to their detriment.
The next case is Rod Mathiesen Truck Hire Pty Ltd as trustee for the Mathiesen Family Trust and Commissioner of Taxation [2013] AATA 496 (15 July 2013). The taxpayer loses money on the sale of land but does not get a GST credit for the amount of the bad debt.
Very briefly, the facts are that the vendor of property reluctantly provided vendor finance of about $1m on the sale of about $3m of vacant land. Shortly thereafter, the bank moved on the purchaser and the vendor lost its $1m.
The vendor claimed that it should only remit GST on the $2m, as it never received the other $1m. The ATO (and the AAT) disagreed saying that the GST liability was on the $3m and the lost $1m was as a result of a failed loan, a financial supply for GST purposed. No “reducing adjustment” was available for GST purposes as would have been the case if the transaction was simply failure to pay for the land.
Lesson Two: make sure that the arrangements entered into protect your GST position.
Finally we have AJJJ’s Emporium Pty Ltd and Commissioner of Taxation [2013] AATA 501 (16 July 2013). Samuel Goldwyn is (apparently incorrectly) reported as saying “a verbal contract is not worth the paper it is written on”. The same could be said, it seems, about ATO phone advice.
This was simply about the quantum of penalties for over claimed input tax credits. There was no dispute that the input tax credits had been over claimed but the ATO assessed penalties at 50% on the basis that the taxpayers had been “reckless”.
I found a couple of things interesting about this case. Firstly, both parties (and indeed the AAT) relied heavily on a number the Commissioner’s Public Rulings and Practice Statements. While I have no issues with the matters they relied on, it is somewhat concerning that these rulings seem to be elevated to the status of case law.
Perhaps a more potent reminder for taxpayers is the way the AAT dealt with phone advice that the taxpayer purported to rely on. The AAT said, in part:
“…even assuming the applicant … provided accurate and complete background information when raising its telephone enquiry, it does not follow that it was entitled to rely upon general and essentially theoretical advice obtained under such circumstances. A private taxation ruling, or at least informed professional advice, could and should have been sought, given the relatively sizable amount of the applicant’s claim.”
Lesson Three: I will let you work this one out. Any questions, give me a call (no irony intended).

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