Decision Impact Statement
A & C Sliwa Pty Ltd and Commissioner of Taxation
 AATA 390
2011 ATC 10-184
Venue: Administrative Appeals Tribunal
Venue Reference No: 2009/5232
Judge Name: SM Fice
Appeals on foot: No.
Decision Outcome: Partly Adverse
Impacted AdviceRelevant Rulings/Determinations:
Property development and construction
Attribution of GST
Sale outside ordinary course of business
Derivation of income
Tax shortfall penalties
Outlines the ATO's response to this case which concerned whether income tax and GST had been properly paid in relation to the conduct of the applicant's property development and construction business.
Brief summary of facts
The applicant was engaged in property development and construction. It agreed to sell two lots of land to a related company in mid-2003 for prices based on an appraisal by a real estate agent. Agreed deposits were not paid to the applicant before the transfers of land occurred on 13 August 2004. At issue before the Tribunal was whether the disposal of the lots was outside the ordinary course of the applicant's business, for the purposes of section 70-90 of the Income Tax Assessment Act 1997 (ITAA 1997), and to what tax period was the GST on the sale of the lots attributable under section 29-5 of the ANTS (GST) Act 1999 (GST Act).
The applicant also provided construction services to the related company in relation to a number of properties owned by that company. At issue was when the applicant derived income from the provision of those services in relation to one property, and to what tax period was the GST on the supply of those services attributable.
There was no dispute in relation to the GST attribution issues that the applicant had not made a choice to account for GST on a cash basis under section 29-40 of the GST Act.
The Commissioner also accepted that his decision on the applicant's objection to the income tax assessment for the 2006 year was in error in not excluding from the assessable income for that year the amount of extra GST payable by the applicant on the sale of a property to which the margin scheme under Division 75 of the GST Act could not apply.
Finally, at issue were whether the applicant was liable to pay various tax shortfall penalties, and whether any such penalties should be remitted.
Issues decided by the tribunal
The Tribunal found that the disposal of the two lots of land occurred outside of the ordinary course of the applicant's business, such that the applicant's assessable income included the market value of the land at the time of disposal under section 70-90 of the ITAA 1997. The Tribunal also found that the GST on the sale of the lots was attributable to the tax period in which transfers of land were executed, and in which tax invoices referred to settlement statements, and not to the tax period in which the applicant's books of account inaccurately showed a set-off of cross liabilities.
The Tribunal was not satisfied that the applicant had discharged the onus of proving that the GST payable on the construction services provided to the related company was attributable to tax periods other than those the subject of the GST assessments. The Tribunal also found that the income from the provision of construction services was derived by the applicant when the works were completed and the applicant had a legal right to claim payment for them.
The Tribunal agreed that the Commissioner was correct to accept that he had erred in not excluding from the applicant's assessable income the amount of extra GST payable by it on the sale of the property to which the margin scheme could not apply.
The Tribunal found that the applicant was liable for the tax shortfall penalties assessed by the Commissioner, and that no remission of the penalties was warranted.
ATO view of Decision
The Tribunal found in favour of the Commissioner on nearly all of the income tax and GST associated with the conduct of the applicant's property development and construction business. The Commissioner properly conceded at hearing that he had erred in the objection decision in not excluding from the applicant's assessable income the amount of extra GST payable by it on the sale of the property to which the margin scheme could not apply.
Implications for ATO precedential documents (Public Rulings & Determinations etc)
Implications for Law Administration Practice Statements
Income Tax Assessment Act 1997
A New Tax System (Goods and Services Tax) Act 1999
Taxation Administration Act 1953
Arthur Murray (NSW) Pty Ltd v. FC of T
(1965) 114 CLR 314
14 ATD 98
Brent v. FC of T
(1971) 125 CLR 418
71 ATC 4195
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Brookton Co-Operative Society Ltd v. FC of T
(1981) 147 CLR 441
11 ATR 880
81 ATC 4346
Commr of Taxes (SA) v. The Executor Trustee and Agency Co of SA Ltd
(1938) 63 CLR 108
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FC of T v. Steeves Agnew and Co. (Vic) Pty Ltd
(1951) 82 CLR 408
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Grollo Nominees Pty Ltd and Ors v. FC of T
97 ATC 4585
73 FCR 452
36 ATR 424
Hart v. FC of T
(2003) 131 FCR 203
2003 ATC 4665
53 ATR 371
Henderson v. FC of T
(1970) 119 CLR 612
1 ATR 596
70 ATC 4016
Manzi and Ors v. Smith and Anor
(1975) 132 CLR 671
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Pastoral and Development Pty Ltd v. FC of T
(1971) 124 CLR 453
2 ATR 401
71 ATC 4177
Spencer v. Commonwealth
(1907) 5 CLR 418
 HCA 82