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  • 11. Litigation

    We seek to ensure the right cases are litigated and all alternative forms of dispute resolution explored. Litigation may be appropriate to provide law clarification, or the behaviour involved is such that we need to send a strong message to the community, or there is an intractable dispute.

    There was a 12.8% increase in current Part lVC litigation cases from 86 cases at 30 June 2019 to 97 cases at 30 June 2020. This can largely be attributed to an increase in cases containing international/cross-border and property issues.

    As at 30 June 2020, the 10 significant cases on hand were:

    • A Federal Court matter concerning declaratory proceedings filed by the taxpayer who alleges his former tax agent fraudulently misappropriated GST refunds. The taxpayer seeks declarations that he is not indebted to the Commissioner and that the Commissioner should credit refunds to the taxpayer’s running balance account. The taxpayer’s claim for damages for conscious maladministration was struck out by the Federal Court in August 2018. The taxpayer has also filed a claim of negligence against the Commissioner. The Commissioner filed his evidence on 1 July 2020.
    • Two Federal Court matters concerning whether commissions and rebates paid to foreign junket tour operators should be included in the GST amount for the purposes of Division 126 of the GST Act. These matters were heard in June 2020 and a decision has been reserved.
    • The taxpayer’s appeal to the Federal Court, against the fully favourable decision received by the Commissioner in the precious metals matter of ACN 154 520 199 Pty Ltd (in liquidation). The Appeal was heard by the Full Bench of the Federal Court in May 2020 and a decision has been reserved.
    • Four Administrative Appeals Tribunal (AAT) cases which consider the issue of whether the supply of the Applicants’ services to Australian drivers (prior to 1 July 2017) was ‘done’ in Australia.
    • An AAT property case which will test the Commissioner’s view in respect to the development of land in the ACT and the calculation of the cost base for the purposes of the margin scheme.
    • The Commissioner’s appeal to the High Court against the unfavourable decision of the Full Federal Court in the Travelex Limited matter.

    Significant decisions

    • Commissioner of Taxation v Travelex Limited [2020] FCAFC 10. The Full Court dismissed the Commissioner’s appeal. The court held that there is no legislative entitlement to amend a pre-1 July 2012 BAS. Despite this, the majority held that delayed refund interest was payable from the date of the original return. The High Court granted the Commissioner special leave to appeal the decision, however the ability to revise a BAS does not form part of the appeal.
    • Melbourne Apartment Project Pty Ltd (as trustee) v Commissioner of Taxation [2019] FCA 2118. The Federal Court found in favour of the taxpayer. The court held that the sale of a residential apartment is a supply of accommodation. The Commissioner decided not to appeal the decision and a Decision Impact Statement issued on 30 April 2020.
    • ACN 154 520 199 Pty Ltd (In Liq) v Commissioner of Taxation [2019] AATA 5981. The issue was whether the taxpayer made creditable acquisitions, through refining scrap gold, and carried on a scheme for the dominant purpose of deriving a GST benefit. The Commissioner’s decision was upheld, and the taxpayer had no entitlement to input tax credits. The taxpayer subsequently appealed the decision to the Full Court.
    Table 9: GST litigation results

     

    2015–16

    2016–17

    2017–18

    2018–19

    2019–20

    Number of new Part IVC First Instance GST cases created (number)

    54

    47

    50

    64

    60

    GST cases completed (number)

    84

    61

    59

    45

    52

    Favourable (%)

    12

    21

    10

    14

    21

    Unfavourable (%)

    1

    0

    5

    4

    4

    Partly favourable (%)

    0

    0

    2

    2

    0

    Conceded (whole or in part) (%)

    19

    21

    8

    40

    43

    Settled (%)

    24

    27

    14

    9

    7

    Withdrawn by taxpayer (%)

    17

    23

    29

    20

    21

    Dismissed by court or AAT (%)

    19

    5

    27

    9

    4

    Other (%)

    8

    3

    5

    2

    0

    Over the past 20 years several significant litigation decisions have impacted our administration of the GST.

    HP Mercantile Pty Limited v Commissioner of TaxationExternal Link[2005] FCAFC 126 – Clarified the operation of section 11-15 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), dealing with input tax credits and the relationship between an acquisition and an input taxed supply.

    The decision confirmed that the taxpayer was not entitled to input tax credits relating to expenses incurred in making input taxed supplies to recover debts previously purchased by the entity, and reinforced ATO existing practice.

    Commissioner of Taxation v Multiflex Pty LtdExternal Link[2011] FCAFC 142 – The case concerned the period of time that the Commissioner could retain a refund amount under section 35-5 of the GST Act to enable any necessary verification activities to be carried out. The Court held that the reasonable time in which the Commissioner must perform the duty under section 35-5 of the GST Act was a period not longer than that required for the administrative processing of a GST return.

    This decision highlighted the contradictory forces at work in the administration of GST – the Commissioner's need to secure the revenue and taxpayers' needs to receive their input tax credits in a timely fashion. The practical importance of this case was that it led to the law being amended in June 2012, to introduce section 8AAZLGA of the Taxation Administration Act 1953 (TAA). This provision gives the Commissioner power to withhold refunds pending a verification check, while providing appropriate rights that protect the taxpayer’s interests.

    Commissioner of Taxation v Qantas Airways LtdExternal Link[2012] HCA 41 The case dealt with whether GST was payable on airfares for travel not taken by passengers. After setting out the relevant terms of the arrangements between the taxpayer and its customers, it was concluded that the conditions did not provide an unconditional promise to carry the customer on a particular flight but rather a promise to use its best endeavours to carry the customer.

    The case was important because it reinforced our existing understanding of the term ‘supply for consideration’.

    Rio Tinto Services Limited v Commissioner of TaxationExternal Link[2015] FCAFC 117 – This case concerned whether the taxpayer was entitled to input tax credits in respect of acquisitions made in the course of providing remote housing accommodation to its workforce in the Pilbara mining region of Western Australia.

    The case was important because it reinforced our existing understanding and practice in relation to the application of subsection 11-5(2) of the GST Act and the claiming of input tax credits.

      Last modified: 30 Aug 2021QC 64820