GST developments

What you need to know

This Bulletin outlines GST developments during April 2016 which may affect your business:

Report on GST Revenue Sharing Relativities 2016 Update

The Commonwealth Grants Commission released its report regarding the 2016-17 relativities to be used for distribution of GST revenue among the States and Territories, under the terms of reference given by the Treasurer on 31 March 2016.

The Committee recommended the per capita relativities set out in the table below be used for distribution - designed to ensure the states and territories each have the same capacity to deliver services, acquire infrastructure and hold financial assets.

These were adopted by the Treasurer on 21 April 2016 in the Determination of the GST Revenue Sharing Relativities for 2016-17 in accordance with the Federal Financial Relations Act 2009.

The Tax and Superannuation Laws Amendment (2016 Measures No 1) Regulation 2016 (Cth)

The Tax and Superannuation Laws Amendment (2016 Measures No 1) Regulation 2016 (Cth) (the Regulation) was registered on 14 April 2016 to make amendments to the GST regulations commencing 1 July 2017, to facilitate amendments to tax and superannuation laws in response to the Tax and Superannuation Laws Amendment (2016 Measures No. 1) Bill 2016 (Cth) (the Bill).

Under Schedule 1 of the Regulation, the A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) is amended to incorporate the supply of a bank account made available by a non-resident carrying on business in a foreign country and foreign superannuation fund in the definition of financial supply under regulation 40-5.09(3).

The Regulation is consequential upon passage of Schedule 1 of the Bill, which deals with the extension of GST provisions to all digital products and other imported services supplied to Australian consumers.

GSTR 2012/3A2 – Addendum to GSTR 2012/13

An addendum to GST Ruling GSTR 2012/13 was issued by the Commissioner on 6 April 2016. The Ruling, which was issued on 11 July 2012, explains when GST-free status under A New Tax System (Goods and Services Tax) Act 1999 can be attributed to care services and accommodation provided in privately funded nursing homes, aged care hostels and serviced apartments in a retirement village.

The effect of the addendum is to update references in the ruling to incorporate the new A New Tax System (Goods and Services Tax) (GST-free supply – Residential Care – Non-government Funded Supplier) Determination 2015 and the Quality of Care Principles 2014, developed since the Ruling came into force.

Crown Estates (Sales) Pty Ltd v Commissioner of Taxation [2016] FCA 335

Facts and case history

Crown Estates (Sales) Pty Ltd v Commissioner of Taxation [2016] FCA 335 was an appeal from the Administrative Appeals Tribunal (AAT) decision in Re Crown Estates (Sales) Pty Ltd and FCT [2015] AATA 949. The AAT held that Crown Estates (Sales) Pty Ltd and Crown Estates Pty Ltd as Trustee for Crown Estates Unit Trust, which conducted a property management business – letting and managing properties on behalf of their owners, did not make creditable acquisitions when acting as agents for the owners and thus were not entitled to claim input tax credits for:

• letting and managing properties on behalf of property owners; or
• engaging contractors and government entities and arranging for the provision of goods and services on behalf of the property owners in the course of letting and managing the properties.

Findings on appeal

The Federal Court of Australia upheld the Commissioner's objection to competency and dismissed the appeal for lack of identification of a question of law in the notice of appeal. While decisions regarding agency and creditable acquisitions usually constitute questions of fact, the Court noted that they could be phrased as questions of law by structuring the question in terms of whether the AAT had discretion to decide in the alternative based on the facts so presented. However, the Court then went on to address the issues in appeal anyway: upholding the AAT's decision regarding the agency relationship, noting more evidence had to be led by the taxpayer to establish that they made acquisitions in their own capacity as a business, not on behalf of their property owner clients, and deeming the administrative penalties to have been appropriately assessed.

SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2016] NSWSC 362

Facts

SAMM Property Holdings Pty Ltd v Shaye Properties Pty Ltd [2016] NSWSC 362 was a NSW Supreme Court decision relating to a contract for the sale of a property in Sydney in August 2015. Dispute arose through the wording of the GST clause in the contract providing that GST was not to be added to amounts due under the contract unless provided for by another provision, of which there was none. However, the auctioneer had announced at the auction that bids were exclusive of GST.

The vendor sought to rectify the contract to require GST be paid in addition to the contract price: requiring them to establish "clear and convincing proof" (Campbell JA Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407) that the parties had a mutual intention to include a term requiring GST be paid in addition to the $3.325 million stated purchase price, which was omitted via mutual mistake (Wilson J in Pukallus v Cameron [1982] HCA 63, citing Mason J in Maralinga Pty Ltd v Major Enterprises Pty Ltd [1973] HCA 23).

Findings

The case rested heavily on the parties' recollections of the events that took place at the auction, which varied widely, with the Court ultimately holding in favour of the vendor and requiring rectification of the contract due to:

• an 'almost contemporaneous note' made by the auctioneer six days after the auction following an open-ended request by the vendor's agent for his actual recollection of events due to a possible GST concern arising – of which no questions were asked in cross-examination. The auctioneer clearly stated he had announced that the supply was a taxable supply, making GST payable and that the price was exclusive of GST;
• the fact the purchaser's agent was standing close to the auctioneer at the time, while on the phone to the directors of the purchaser company who claimed to be able to hear what was being said – thus could both be taken to have heard the auctioneer's statement regarding GST; and
• a Reserve Price Letter shown to the purchaser's agent prior to their final bid in which the reserve price was lowered which clearly stated the reserve constituted the sale price "+ GST".

Commissioner of Taxation of the Commonwealth of Australia v 4 Doonan Street Collinsville Pty Ltd (in liq) [2016] NSWCA 69

Facts and case history

Commissioner of Taxation of the Commonwealth of Australia v 4 Doonan Street Collinsville Pty Ltd (in liq) [2016] NSWCA 69 was an appeal by the Commissioner and cross-appeal by Doonan Street Collinsville Pty Ltd (company), a trustee of a caravan park trading trust, from the Supreme Court of New South Wales decision In the Matter of 4 Doonan Street Collinsville Pty Ltd (in liq) [2015] NSWSC 437. The appeal involved two findings by the primary judge: that four of the five debits deducted by the Commissioner from the Credit Surplus in the Running Balance Account (RBA) were not authorised under Part IIB of the Taxation Administration Act 1953 (Cth) (TAA); and that Part IIB applied in the case of insolvency of the company.

The debits related to amendments made to the tax return filed by the company while in receivership, reducing from its assessable income a capital gain which, as trustee of a trading trust, it was not required to pay. The Commissioner allowed the amendments, noting a reduction of tax liability of $651,340.85, however only refunded around half this amount. The rest, the Commissioner maintained, comprised the company's liability for other federal taxes: GST, PAYG Withholding, PAYG Instalments, Superannuation Guarantee and General Interest Charge (the debits), and so applied these amounts against the credits remaining in the RBA under s 8AAZLA TAA.

Findings on appeal

The New South Wales Court of Appeal found the primary judge erred in concluding the debits were invalid, allowing the Commissioner's appeal and setting aside the original judgement . The Court held that not only did the Commissioner have the ability to offset credits and debits in the RBA, but that the combined effect of provisions in the TAA was that Part IIB Division 3 mandated treatment of the RBA required the Commissioner to do this until all debits claimable were exhausted.

The Court dismissed the company's cross-appeal against the primary judge's finding that the TAA applies to companies even in the case of insolvency, despite the company claiming it was precluded under sections 500, 501 and 555 of the Corporations Act 2001 (Cth) regulating division of company assets among creditors and certain void transactions against company property upon winding up. The Court found the requirement to pay the refund entitlement of $651,340.85 did not arise until after the Commissioner finished offsetting the company's tax liabilities against credits in the RBA as required by Part IIB TAA and issued the amended notice of assessment in 2013, and did not constitute "property of the Company", to which it had an entitlement to claim payment, during the financial year pertaining to the tax return.

Davan Developments Pty Ltd v HLB Mann (SE Qld) Pty Ltd [2016] QCA 90

Facts and case history

Davan Developments Pty Ltd v HLB Mann (SE Qld) Pty Ltd [2016] QCA 90 was an appeal from the earlier decision of the District Court of Brisbane in Davan Developments Pty Ltd v HLB Mann (SE Qld) Pty Ltd [2015] QDC 121, in which Davan Developments Pty Ltd (Davan) brought claims of negligence and breach of contract against HLV Mann (SE Qld) Pty Ltd (HLB), claiming documents prepared and lodged by HLB in relation to a sale of land were inconsistent with an underlying subdivision and development agreement behind the sale.

The agreement was originally established between three parties to subdivide and develop land, then purchase the lots for amounts representative of their required contribution to the project. However, one party later declined to purchase their lot, effectively bringing the agreement to an early demise. The third partner in the agreement proceeded with the purchase of their lot – with GST being charged on this supply.

Davan claimed that due to the breaches by HLB, it was required to pay tax for the transaction which it could otherwise have avoided, either by virtue of holding the land on trust for the beneficiaries under the agreement or the sale not constituting a taxable supply.

The District Court found there was no breach, but that had there in fact been a breach, it had not caused the loss in question. Additionally, the Court found that had the breach caused the loss, contributory negligence by Davan would have halved the damages available, due to the company's failure to inform HLB of the nature of the agreement. Davan challenged these three findings.

Findings on appeal

The Court of Appeal dismissed the appeal. The Court found there was no trust on which to frame an argument of negligence by HLB in acknowledging the GST liability regarding the sale in the prepared tax return or in failing to advise Davan to document the agreement with reference to the trust. This finding was due to the lack of inference of the existence of a trust on the facts, including: that the agreement was merely one of a right of first refusal; the lack of documentation regarding the agreement; the omission of reference to a trust in the transfer documentation; lack of separation of the project from other property developments undertaken by Davan; and reference to the transfer as a 'purchase' at a price not commensurate with the purchaser's one third contribution to the development.

The Court further found no negligence or breach of contract by HLB in classifying the sales as taxable supplies, as the supply was made in the course of Davan's enterprise for profit, following the earlier collapse of the joint venture agreement. The Court noted that had the agreement still been in place, Davan would have been more likely to successfully establish lack of an enterprise. Given 'activity' in the definition of an enterprise need not amount to a business, the dealings in relation to this parcel of land qualified as an enterprise even if they were not part of Davan's larger development business.

However, the Court was unconvinced by the trial judge's reasoning regarding contributory negligence, and commented had it been required to consider this matter it may not have reduced damages by virtue of contributory negligence.