Tony Ince, Mostyn Consulting

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).

We have had a number of instances recently where Western Australian based businesses have been assessed for payroll tax in other states. This comes as a result of workers carrying out “services” in those other states.
In every case, the business had simply included those wages in their WA payroll tax returns and paid payroll tax in WA.
Central to this problem is that payroll tax is a state-based tax. Every jurisdiction, while having similar legislation, has its own rates and thresholds. Payroll tax raised in that jurisdiction stays in that jurisdiction. So if a business remits payroll tax in the wrong jurisdiction, it is a win for that state or territory and a loss for the other.
Perhaps spurred on by tightening budgets, we have notice an increase in states querying businesses on where their payroll tax is payable. Note that wages paid to workers performing services overseas can also be subject to payroll tax. Another topic for another time.
The rules on where payroll tax is payable can be complex. In every state and territory, however, it starts with the premise that payroll tax is payable in that jurisdiction on “wages … paid or payable by an employer for or in relation to services performed by a person wholly in this jurisdiction”. Because payroll tax is a monthly tax, the test is a monthly test.
This begs the question, of course, as to where the services are performed. A business based in WA without any branches or other presence in other states may send workers to carry out work in another state. The workers still live in WA and the business has no presence in the other state, so are the services for which the business charges performed in WA or the other jurisdiction? There is some case law on this but the answer is still uncertain and depends largely on the individual facts.
If the services are not performed “wholly” in one jurisdiction, there are a number of tests to determine where the payroll tax is payable. It is not my intention to go through all of these, merely to alert you to the potential problems.
It is also possible that the payroll tax is apportioned. Imagine the issues with this an a monthly basis!!
What is the problem?
So a WA business inadvertently remits payroll tax in WA on wages paid to workers in another jurisdiction. The other jurisdiction becomes aware of the issue and issues an assessment to the WA business. If it is an honest mistake (which almost invariably it is), it is likely that no penalties will be applied. This is usually the case even though the thresholds and rates in the other jurisdiction will be different, meaning that the WA business will have invariably over paid or under paid payroll tax.
The business simply pays the assessment and claims a refund in WA.
This is where the problem arises. The other jurisdiction will issue an assessment for up to six years retrospectively. Because of the sneaky way the WA laws are structured, refunds are usually only available for one year.
So the WA business could find itself significantly out of pocket for a simple misunderstanding of the payroll tax laws throughout Australia.
Note also that every jurisdiction levies payroll tax based on Australia-wide wages. So even though the wages paid in one jurisdiction may be below the threshold, when combined with other wages paid in other jurisdictions, a payroll tax liability may arise.
The concept of where wages are paid in Australia or even offshore can be a tricky area in determining payroll tax liability. It is important to get it right from the start. Once set up correctly, the monthly calculation should be relatively straightforward.