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  • Litigation

    With the successful introduction of our early dispute resolution processes, the number of current GST litigation cases at the end of 2014–15 is the lowest since 2005. Current case numbers have decreased by 28% on last year, with 94 current cases at 30 June 2015. In 2014–15, we received 106 new matters and completed 143 cases.

    Figure 27: Current GST litigation cases at 30 June

    As mentioned in the previous commentary, current GST litigation cases are at the lowest level since 2005. This diagram provides the case numbers for each financial year from 2005–06 to 2014–15, being: 111, 193, 175, 157, 155, 127, 157, 151, 131, and finally 94 in 2014–15.

    There were 23 GST decisions involving the Commissioner (non-debt) delivered by the courts and the Administrative Appeals Tribunal (AAT) during the year. In addition, one special leave application was considered by the High Court.

    Around 83% of the decided cases supported the Commissioner’s position, compared to around 68% in 2013–14. Taxpayers were successful in around 4% of cases and, in around 13% of cases, the decisions partially supported the Commissioner’s position and partially supported the taxpayer’s position.

    Important decisions during 2014–15 dealt with the following issues:

    • increasing adjustments under Division 135 of the GST Act
    • supply made by way of lease
    • vexatious litigation proceedings
    • time limits on entitlement to input tax credits
    • input tax credit claims relating to the provision of residential accommodation in remote mining areas

    At 30 June 2015, around 17% of GST litigation cases involved property related issues, which is consistent with the previous year. Just over 50% of cases dealt with largely non-technical issues where taxable supplies have been under-stated or input tax credits over-claimed. The majority of these cases arose from serious evasion, refund integrity and cash economy audits.

    Around 90% of GST litigation cases were before the AAT or the Small Taxation Claims Tribunal, with 73% of cases involving micro enterprises and individuals, and 25% involving small and medium enterprises. Only around 2% of cases involved large business enterprises and government entities.

    Figure 28: GST litigation by issue for month ending 30 June 2015

    GST litigation for the month ending 30 June 2015 broken down by issue: Substantiation 55%, property 17%, enterprise 11%, penalty-only 6%, income tax 4%, cross border 2%, TAA issues 2%, GST classification 2%.

    Significant GST decisions

    Commissioner of Taxation v MBI Properties Pty Ltd [2014] HCA 49

    Venue – High Court


    This was a significant case involving an increasing adjustment made under Division 135 of the GST Act. The case also involved implications around the sale of reversionary interests and supplies made by way of lease more generally.

    Key issues in the case were as follows:

    • Whether the taxpayer, after completing their purchase of a reversionary estate in certain leased apartments, made a "supply" (as defined in the GST Act) to the existing tenants during the remainder of the term of each lease?
    • Whether, if the taxpayer did make a relevant supply to the existing tenants, there was any "price" for the supply for the purpose of calculating an increasing adjustment under section 135-5(2) of the GST Act?


    The High Court unanimously upheld the Commissioner’s appeal against the earlier decision of the Full Federal Court. The Court decided that the taxpayer was liable for an increasing adjustment under section 135-5 of the GST Act. The Court held that, by assuming the lessor's rights and obligations under the relevant leases, the taxpayer intended to and did in fact make input taxed supplies of residential premises by way of lease through the enterprise it acquired. The Court also held that the supplies the taxpayer made, or intended to make, were for a “price” which was the rent to be paid by the existing tenant to the taxpayer under each lease.

    The High Court considered the Full Federal Court was wrong to conclude that the purchaser of leased premises makes no supply to sitting tenants. The High Court decision confirms that, for the purposes of section 9-10 of the GST Act, the purchaser makes a supply to the existing tenants by way of lease for which the rent is consideration within the meaning of the GST Act. The decision of the High Court has helped to provide commercial guidance in relation to supplies made by way of lease.

    A Decision Impact Statement has been issued in relation to this decision.

    Rio Tinto Services Ltd v Commissioner of Taxation [2015] FCA 94

    Venue – Federal Court


    In this matter, the taxpayer argued that it was entitled to input tax credits for acquisitions made in providing and maintaining residential accommodation for their workforce in remote mining areas in Western Australia. The accommodation was leased to the workers. The taxpayer’s alternative argument was that if not all input tax credits were available then there should be some apportionment.

    The provision or supply of residential accommodation is an input taxed supply under section 40-35 of the GST Act. The Commissioner accepted that the taxpayer provided residential accommodation to their workforce in the course of conducting their mining business. However, the Commissioner denied the input tax credit claims on the basis that they related to supplies that would be input taxed, thus falling within paragraph (a) of subsection 11-15(2) of the GST Act.


    The Court decided that paragraph 11-15(2)(a) should be construed consistently with the scheme of the GST Act. The Act provides that GST is not payable on input taxed supplies made by the taxpayer and correspondingly, there is no entitlement to input tax credits on acquisitions that relate to those input taxed supplies.

    The Court went on to note that, having regard to the facts of the case, all the acquisitions in question had a direct and immediate connection with the taxpayer’s provision of the leased accommodation and that direct and immediate connection constituted a sufficient and material relationship for the purposes of paragraph 11-15(2)(a).

    The Court also concluded that the question of apportionment did not arise for determination because the acquisitions in question related wholly to the provision of the accommodation.

    STOP PRESS: The taxpayer’s appeal to the Full Federal Court was dismissed with costs on 24 August 2015. The taxpayer has not lodged a special leave application to appeal the decision to the High Court.

      Last modified: 14 Dec 2015QC 47462