Harland as Trustee for the PCS Global Discretionary Trust v Commissioner of Taxation

[2013] AATA 930

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(Decision by: Deputy President S A Forgie)

Harland as Trustee for the PCS Global Discretionary Trust
v Commissioner of Taxation

Tribunal:

Member:
Deputy President S A Forgie

Subject References:
TAXATION
GOODS AND SERVICES TAX
whether meets criteria for an input tax credit
whether acquisition and supply of rights under contract
entity claiming input tax credit not party to contract
whether consideration
assessment of penalty
objection decisions affirmed

Legislative References:
A New Tax System (Australian Business Number) Act 1999 - The Act
Competition and Consumer Act 2010 - s 4; s 14; s 47
Corporations Act 2001 - s 119; s 129; s 601AD
Crimes Act 1914 - s 4AA
Income Tax Assessment Act 1936-1969 - s 190
Income Tax Assessment Act 1936 - s 190; s 223; s 226G; s 226H
Income Tax Assessment Act 1997 - s 995-1
Limitation Act 1980 - The Act
Migration Act 1958 - s 20
Sales Tax Assessment Act (No 1) - s 45
Taxation Administration Act 1953 - s 3AA; s 3A; s 14ZL; s 14ZY; s 14ZZK; s 14ZZ; Sch1 105-5; Sch1 105-40; Sch1 284-75; Sch1 284-80; Sch1 284-85; Sch1 284-90; Sch1 284-220; Sch1 284-225; Sch1 298-20; Sch1 298-30
Tax Agent Services Act 2009 - The Act
A New Tax System (Goods and Services Tax) Regulations 1999 - r 40-5.09; r 40-5.11
Administrative Appeals Tribunal Regulations 1976 - r 19

Case References:
Alexandra Private Geriatric Hospital Pty Ltd v Blewett - (1984) 2 FCR 368; 56 ALR 265
Ansett Transport Industries (Operations) Pty Ltd v Commonwealth - [1977] HCA 71; (1977) 139 CLR 54; 17 ALR 513; (1978) 52 ALJR 254
AP Group Limited v Commissioner of Taxation - [2013] FCAFC 105
Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2) - [2011] FCA 1090; (2011) 196 FCR 457
Australian Woollen Mills Pty Ltd v The Commonwealth - [1954] HCA 20; (1954) 92 CLR 424
Bakewell v Deputy Federal Commissioner of Taxation (SA) - [1937] HCA 11; (1937) 58 CLR 743
Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd - (1986) 40 NSWLR 622
Beaton v McDivitt - (1987) 13 NSWLR 162
Bolton v Stone - [1951] AC 850; [1951] 1 All ER 1078
BRK (Bris) Pty Ltd v Commissioner of Taxation - [2001] FCA 164; (2001) 46 ATR 347
Elmdene Estates v White - [1960] AC 528
Federal Commissioner of Taxation v Dalco - [1990] HCA 3; (1990) 168 CLR 614; 90 ALR 341; 20 ATR 1370; 64 ALJR 166; 90 ATC 4088
Federal Commissioner of Taxation v Multiflex Pty Ltd - [2011] FCAFC 142; (2011) 197 FCR 580; 284 ALR 279; 82 ATR 153; 125 ALD 8
Galea v Commissioner of Taxation - [1990] FCA 456; (1990) 90 ATC 5060; 21 ATR 1108
Gauci and Federal Commissioner of Taxation - (1975) 135 CLR 81
Hart v Commissioner of Taxation - [2003] FCAFC 105; (2003) 131 FCR 203; 53 ATR 371
Harvey v Edwards, Dunlop & Co Ltd - [1927] HCA 13; (1927) 39 CLR 302
Kajewski v Federal Commissioner of Taxation - [2003] FCA 258; [2003] ATC 4375
Kennedy v Administrative Appeals Tribunal - [2008] FCAFC 124; (2008) 168 FCR 566; 249 ALR 87; 103 ALD 238; [2008] ATC 20-037; 73 ATR 276; 48 AAR 500
Krampel Newman Partners Pty Ltd v Federal Commissioner of Taxation - [2001] FCA 976; [2001] ATC 4473
Masters v Cameron - [1954] HCA 72; (1954) 91 CLR 353
McAndrew v Federal Commissioner of Taxation - (1956) 98 CLR 263; 30 ALJR 464
McCormack v Federal Commissioner of Taxation - [1979] HCA 18; (1979) 143 CLR 284; 23 ALR 583; 9 ATR 610; 53 ALJR 436; 79 ATC 4111
McDermott Industries (Aust) Pty Ltd v Federal Commissioner of Taxation - [2003] FCA 139; (2003) 52 ATR 42
Minister for Aboriginal Affairs v Peko-Wallsend Ltd - [1986] HCA 40; (1986) 162 CLR 24; 66 ALR 299
Minister for Immigration v Dela Cruz - [1992] FCA 71; (1992) 34 FCR 348; 110 ALR 367; 26 ALD 663
Minister for Immigration and Multicultural Affairs v Yusuf - [2001] HCA 30; (2001) 206 CLR 323; 180 ALR 1; 62 ALD 225
Multiflex Pty Ltd v Federal Commissioner of Taxation - [2011] FCA 789
Pampered Paws Connection Pty Ltd v Pets Paradise Franchising (Qld) Pty Ltd (No. 10) - [2012] FCA 25
Pang v Bydand Holdings Pty Limited - [2010] NSWCA 175
Pearson v Deputy Commissioner of Taxation - [2009] FCA 558; (2009) 74 ATR 437
Peco Arts Inc v Hazlitt Gallery Ltd -
Perry v Ellis - [1946] SASR 282
Re Dixon ATF the Dixon Holdsworth Superannuation Fund and Federal Commissioner of Taxation - [2006] AATA 130; (2006) 62 ATR 1001; 2006 ATC 2092
Re Ku-ring-gai Cooperative Building Society (No 12) Ltd - [1978] FCA 50; (1978) 22 ALR 621; 36 FLR 134
Re Rod Mathieson Truck Hire Pty Ltd as trustee of the Mathieson Family Trust and Commissioner of Taxation - [2013] AATA 496
Re The Trustee for the Confidential Trust and Commissioner of Taxation - [2013] AATA 682
Revlon Manufacturing Limited v Federal Commissioner of Taxation - (1995) 63 FCR 535
Riordan v Australian Sports Drug Agency - [2002] FCA 858; (2002) 120 FCR 424; 35 AAR 262; 69 ALD 344
Sherritt Gordon Mines Ltd v Federal Commissioner of Taxation - [1977] VR 342; (1976) 10 ALR 441
Sinclair Scott & Co Ltd v Naughton - [1929] HCA 34; (1929) 43 CLR 310
Tasman Capital Pty Ltd v Sinclair - [2008] NSWCA 248; (2008) 75 NSWLR 1
The Leasing Centre (Aust) Pty Ltd v Rollpress Proplate Group Pty Ltd - [2010] NSWSC 282
Thiess Contractors Pty Ltd v Placer (Granny Smith) Pty Ltd - [1999] WASC 1046
Toohey v Gunther - [1928] HCA 19; (1928) 41 CLR 181
Weyers & Anor v Federal Commissioner of Taxation - [2006] ATC 4523; (2006) 63 ATR 268; [2006] FCA 818
White v Elmdene Estates Ltd -

Other References:
Federal Court Rules, O 29 r 5
Chambers 21st Century Dictionary, 1999, reprinted 2004, Chambers

Hearing date: 21 November 2013
Decision date: 20 December 2013

Melbourne

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Decision by:
Deputy President S A Forgie

REASONS FOR DECISION

1. As trustee of the PCS Global Discretionary Trust (PCS Global Trust), ^[1] Mr Simon Harland claimed that he was entitled to $5,359,891.00 ^[2] by way of input tax credits under the A New Tax System (Goods and Services Tax) 1999 (GST Act). He made his claim when he lodged a Business Activity Statement (BAS) with the Commissioner for Taxation for the period 1 January to 31 March 2012 claiming that the Commissioner owed him an amount of $5,364,931.00 he had paid for Goods and Services Tax (GST) on purchases under an agreement or agreements he had entered with Two Tribes Wine Company (Australia & New Zealand) Pty Ltd (Two Tribes ANZ). ^[3] In essence, he purchased the right to provide what might, in summary, be called IT and support services for businesses each operating an enoteca, or wine shop and restaurant, under a franchise agreement with Two Tribes ANZ.

2. The Commissioner did not accept that Mr Harland, as trustee of the PCS Global Trust, was entitled to that input tax credit. He issued an assessment related to the net amount payable by Mr Harland, as trustee of the PCS Global Trust, for the tax period ending 31 March 2012 under s 105-5(1) of the Taxation Administration Act 1953 (TAA) and another relating to the imposition of penalties imposed as a consequence of the resulting shortfall amount. The assessment led to an amount of $5,364,696.00 being added to the Running Balance Account (RBA) kept by the Commissioner in relation to Mr Harland as trustee of the PCS Global Trust. That amount is a "shortfall amount" for the purpose of the imposition of penalties. Penalties were assessed in the amount of $2,682,348.00 on the basis that the shortfall amount resulted from the recklessness of Mr Harland as trustee of the PCS Global Trust, or that of his agent, as to the operation of a taxation law. ^[4] The Commissioner refused to remit any part of the penalties.

3. The Commissioner disallowed the objections made by Mr Harland, as trustee of the PCS Global Trust, to his assessments and to his decision to refuse to remit all or part of the penalties. At the hearing of his application lodged on 25 January 2013, ^[5] Mr Harland stated that he was no longer seeking the input tax credits but was seeking to have the penalty set aside. I have decided that I agree with the Commissioner's reviewable objection decision dated 26 November 2012. Therefore, I affirm the Commissioner's reviewable objection decision dated 26 November 2012 disallowing the objections made by Mr Harland as trustee of the PCS Global Trust on 8 June 2012 against the assessment of net amount for the tax period ended 31 March 2012 dated 16 April 2012, against the assessment of the administrative penalty assessment dated 17 April 2012 and against the Commissioner's decision refusing to remit any part of the penalties. That means that I have neither set aside nor remitted any part of the penalty of $2,682,348.00 imposed by the Commissioner. I will now set out my reasons for reaching that decision.

THE ISSUES

4. At one level, the assessment of the net amount is resolved by the identification of the entity entering the agreement or agreements with Two Tribes and the entity claiming the tax input credit for they are not the same. As Mr Harland, as trustee of the PCS Global Trust, was not a party to the agreement or agreements, he was not entitled to claim any input tax credit arising from any transaction to which they related. Resolution of that issue does not, however, resolve the issues arising from the Commissioner's assessment of penalties and his subsequent objection decision affirming his assessment. Those issues require a more detailed examination of the issues surrounding and arising from the agreement or agreements before a decision can be reached as to whether Mr Harland, as trustee of the PCS Global Trust, had a shortfall amount because they are relevant in deciding the base penalty amount that should be imposed in determining the appropriate penalties.

BURDEN OF PROOF

5. The Administrative Appeals Tribunal Act 1975 (AAT Act) applies in relation to the review of reviewable objection decisions such as those made by the Commissioner. Section 25(3)(c) of the AAT Act permits an enactment providing for applications to be made to the Tribunal to "... specify conditions subject to which applications may be made." Section 14ZZK of the Taxation Administration Act 1953 (TAA) provides, in so far as it is relevant in this case:

"On an application for review of a reviewable objection decision:

(a)

the applicant is, unless the Tribunal orders otherwise, limited to the grounds stated in the taxation objection to which the decision relates; and

(b)

the applicant has the burden of proving that:

(i)

if the taxation decision concerned is an assessment (other than a franking assessment) - the assessment is excessive; or

(ii)-(iii)

..."

What the burden means

6. Referring to a similar burden formerly imposed on the taxpayer by s 190(b) of the Income Tax Assessment Act 1936 (ITAA36), Mason J said in Gauci v Federal Commissioner of Taxation ^[6] (Gauci):

" The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190 (b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail." ^[7]

7. His Honour also explained the rationale for imposing a burden upon the taxpayer when he said:

"... There is nothing inherently unfair in the provision which places the onus on a taxpayer to prove his case when the purpose for which an asset was acquired depends so much on his intentions and on circumstances of which he, rather than the Commissioner, has comprehensive knowledge." ^[8]

Standard of proof unaltered: balance of probabilities

8. Section 14ZZK does not alter the standard of proof that generally applies in the Tribunal. That means that a person who bears a burden of proof may meet it by producing to the Tribunal evidence and other material that is relevant and probative and that satisfies it of the existence or non-existence of relevant factual issues on the balance of probabilities rather than simply on the basis of possibilities.

How a taxpayer may satisfy the burden

9. The case of McCormack v Federal Commissioner of Taxation ^[9] illustrates the nature of a taxpayer's task in satisfying the burden. It does so in a case in which the Commissioner had treated the net profit from the sale of a property as assessable income on the basis that it arose from the sale of a property Mrs McCormack had acquired for the purpose of profit-making by sale within the meaning of s 26(a) of ITAA36 as it was then in force. Gibbs J explained Mrs McCormack's task:

"... The taxpayer bears the burden of proving that the assessment was excessive. To discharge that burden in a case such as the present he must prove affirmatively, on the balance of probabilities, that the property was not acquired for the purpose of profit-making by sale. The burden may be discharged by drawing inferences from the evidence. In some cases in which all the relevant facts are known, and there is no material upon which it might properly be concluded that the property was acquired for the relevant purpose, the inference may properly be drawn that the property was not acquired for the relevant purpose. But it is not enough, even when all the facts are known, that there is no material upon which it may be concluded that the property was acquired for the purpose mentioned in s. 26(a). If a taxpayer can succeed, simply because there is no evidence from which it can be concluded that the relevant purpose existed, that must mean that the burden of proving the existence of that purpose lies on the Commissioner. That in my respectful opinion would be to invert the onus of proof. The taxpayer will succeed if the proper inference from the evidence is that the property was not acquired for the relevant purpose, but if there is no evidence as to the purpose for which the taxpayer acquired the property the appeal must fail." ^[10]

10. If all of the material facts were known and the amount of a taxpayer's taxation liability turned on the application of the law to those facts, the taxpayer could discharge the burden of proof by establishing that the Commissioner had erroneously included in the assessed taxable income an amount that should not have been included. ^[11]

11. It is open to the taxpayer to attack the Commissioner's power to make an assessment ^[12] or the calculation of the amount of an assessment. If the taxpayer chooses to attack the calculation of the amount of the assessment:

"... mere error in the formation of that judgment by the Commissioner does not warrant the setting aside of the amount assessed. Given the validity of the exercise of the power to make an assessment ..., the ultimate question is whether the amount of the assessment is excessive. The amount of the assessment might not be excessive in fact, though the reasons which led to the assessment were erroneous. ..." ^[13]

12. Therefore, merely establishing on the balance of probabilities that the Commissioner has made an error cannot satisfy the taxpayer's burden of proof under s 14ZZK(b)(i) in relation to an assessment for the burden is to prove that "the assessment is excessive". The point was made in Dalco:

"... A taxpayer who shows on the facts that are known a mere error by the Commissioner in assessing the amount of the taxpayer's taxable income does not show that his objection should have been allowed or that the appeal against the assessment must be allowed. ..." ^[14]

No burden of proof on Commissioner and no obligation to put forward material establishing a particular view

13. Referring to a similar burden formerly imposed on the taxpayer by s 190(b) of ITAA36, Mason J said in Gauci:

" The Act does not place any onus on the Commissioner to show that the assessments were correctly made. Nor is there any statutory requirement that the assessments should be sustained or supported by evidence. The implication of such a requirement would be inconsistent with s. 190 (b) for it is a consequence of that provision that unless the appellant shows by evidence that the assessment is incorrect, it will prevail." ^[15]

14. His Honour also explained the rationale for imposing a burden upon the taxpayer when he said:

"... There is nothing inherently unfair in the provision which places the onus on the taxpayer to prove his case when the purpose for which an asset was acquired depends so much on his intentions and on circumstances of which he, rather than the Commissioner, has comprehensive knowledge." ^[16]

15. In Galea v Commissioner of Taxation, ^[17] Hill J said:

" To the extent that the applicant seeks to rely upon the description of what the Commissioner did here as being an attempt to mount a positive case, it is not clear to me at all why this has any relevance. As is clear from Dalc o, supra, and as the tribunal itself said, it was not necessary for the Commissioner to seek to establish affirmatively that the applicant's assessable income was at least a particular figure. The fact that the Commissioner sought so to do and failed has no bearing, at the end of the day, on the question whether the applicant has discharged the onus of showing, as he is required by s 190(b) of the Act to show, that the assessment is excessive. The Commissioner's failure to establish a positive case, if that is what he sought to do, leaves the tribunal in no different position than it would have been in if the Commissioner had not sought at all to advance a positive case." ^[18]

BACKGROUND

The taxpayer

16. Mr Harland, as the trustee of the PCS Global Trust, has been registered for GST with an Australian Business Number (ABN) 14 245 782 981 since 1 July 2003. ^[19] There was no disagreement between Mr Harland and the Commissioner that he, as trustee of the PCS Global Trust, had chosen to account for GST on a cash basis. From 24 June 2003, Mr Harland, as trustee of the PCS Global Trust, traded under the name of a company, PCS Global Pty Ltd (PCS). That company had been incorporated on 5 June 2003 with Mr Harland as its sole Director and Secretary but had been deregistered on 28 October 2007. ^[20] From 19 March 2012 and as trustee of the PCS Global Trust, he traded under the name of another company, PCS Global Discretionary Trust Pty Ltd (PCS Global Trust PL). On 2 February 2012, a discretionary trust was settled by deed. That is known as the "PCS Global Disscretionary [sic] Trust Pty Ltd" (PCS Global Trust). ^[21] Mr Harland was named as the PCS Global Trust's trustee. ^[22] There is no deed in relation to the PCS Global Trust but the parties treated that trust and the PCS Global Trust PL as one and the same. I have done the same and will, unless it is necessary to distinguish between the two names, will refer to the trust as the PCS Global Trust.

Relevant third parties

17. Two Tribes ANZ was previously known as the Two Tribes Wine Company (Two Tribes). It was known by that name from the date of its registration on 9 January 2009 as an Australian Proprietary Company Limited by Shares until 18 January 2011. ^[23] On 19 January 2011, it changed its name to Two Tribes ANZ until 3 April 2012. Since 4 April 2012, it has been known as Oenoviva (Australia & New Zealand) Pty Ltd (Oenoviva ANZ Pty Ltd). ^[24] Mr Andrew Garrett has been one of its directors. Two Tribes ANZ, and now Oenoviva (ANZ) Pty Ltd, is the trustee of the Two Tribes Wine Company (Australia & New Zealand) Hybrid Trust (Two Tribes Hybrid Trust).

Events dated 15 February 2012

A. The Heads of Agreement

18. On 15 February 2012, Mr Harland, as Director and Secretary of PCS, ^[25] and Mr Garrett as sole Director and Secretary of Two Tribes ANZ, which was itself acting as trustee of the Two Tribes Hybrid Trust, signed a document entitled "Heads of Agreement". ^[26] The document began with the heading "Background". There are other headings in the document but they are in smaller font and seem to be subordinate to the heading of "Background". The smaller headings are "Term", "Intention of the Parties to be bound", "What PCS will do", "What TTW(ANZ) will do", "Purchase Price", "Payment of the purchase price", "Cash flow of the Businesses Managed under the Rights Agreement", "Option to Issue shares in PCS", "General provisions", "No partnership", "No sharing of revenues" and "Disagreement as to the calculation of EBIT". I have set these out for Mr Gray SC with Ms Baker of counsel submitted in relation to the Vendor Finance Agreement that Recitals are not operative parts of agreements although he acknowledged that they may have some role in construing the agreement. I will deal with it here lest it be thought that the Background is the equivalent of a recital and, if there is an agreement to be found in the Heads of Agreement, the passages in the Background cannot be regarded as an operative part of that agreement. If that is the position, it would be equally true that the Background material could not be taken into account in determining whether there is an agreement.

19. Mr Gray relied on three passages from Ansett Transport Industries (Operations) Pty Ltd v Commonwealth ^[27] to support his submission. Having looked at those passages, it seems to me that the principle is not quite so straightforward for there are instances in which matters referred to in a recital may be read as part of an agreement. Certainly, Gibbs J said in that case in which recitals had been included in an agreement:

"... The fifth recital in the 1961 Agreement in my opinion indicates the general object of the parties, in the light of which the Agreements must be construed, but does not reveal an intention that the Commonwealth shall be bound to do or not do any particular act and does not constitute a covenant. The obligations of the Commonwealth are to be found in the operative provisions of the Agreements. ...". ^[28]

20. His Honour made this statement in considering a submission that a particular term should be implied in the Agreements. He was not turning his mind to the broader question whether a recital could be regarded as an operative term. This was a matter to which Mason J did turn in considering whether matters referred to in a recital will be read into an agreement:

" No doubt it is correct to say that, where in the recitals to a deed or an agreement it is acknowledged that the parties have agreed to do, or will do, certain acts, a promise to do those acts will be read into the agreement in the absence of an express promise to that effect. Then, there being no indication of a contrary intention, it may be safely inferred that the absence of a contractual provision was due to oversight or inadvertence. This is brought out in the judgment of Lord Denman CJ in Aspdin v Austin ... [(1844) 5 QB 671 at p 683 ], where he speaks of the courts in these circumstances having 'inferred' a covenant to do the acts." ^[29]

21. The passage to which I was referred in the judgment of Aickin J is to the same effect when his Honour referred to cases which:

"... establish that a recital in a deed may imply a covenant but show that in every case it must be plain on the whole deed that it was so intended ...". ^[30]

22. With these principles in mind, I summarise what was in the whole of the Heads of Agreement for the parties to it have not observed the subtleties of the law of contract. It seems to me that they have intended that the document be read as a whole with no distinction to be made on the basis of headings. I will return to its terms later in these reasons but, in the meantime, note that it set out the following events and plans:

(1)

The Andrew Garrett Family Trusts and Seraphim IP Pty Ltd had developed what was described as an "Urban Winery hospitality concept combining the roles of winemaking; wine sourcing; wine wholesale and wine retail including online applications incorporating associated bar and restaurant operation, as well as function/event operation" ^[31] (Concept). The Concept was "... based upon an innovative wine production process incorporating blast freezing and selling wine 'en primeur' ...". ^[32] Either he, or the entities associated with him, had applied for certain patents to protect their intellectual property in the Concept.

(2)

The Andrew Garrett Family Trusts and Seraphim IP Pty Ltd had exclusively licensed Oenoviva in relation to the Concept "in the territory of the World". ^[33]

(3)

Oenoviva, as Franchisor, had sold an exclusive ten year Regional Franchise to Two Tribes ANZ in its capacity as trustee for the Two Tribes Hybrid Trust (Regional Franchise).

(a)

Under that Regional Franchise, Two Tribes ANZ would sell up to 13 franchises (Master Area Franchises).

(4)

Each Master Area Franchisee could sell up to 50 franchises (Distributor Franchises).

(a)

Under each Distributor Franchise, the franchisee would distribute the product supplied to it by the Master Area Franchisee who had sold the franchise.

(5)

Two Tribes ANZ and its related entities were negotiating to purchase, lease or develop a number of commercial premises with the intention of establishing hospitality businesses that were aligned with the manufacture and means of distribution envisaged in the Concept (Hospitality Venues).

(a)

Each of the Hospitality Venues would be franchised with the Concept as either:

(i)

a Master Urban Winery Evaluation-Implementation support and development scoping consulting infrastructure and point of sale integration and financial system evaluation; or

(ii)

an Urban Winery Evaluation -Implementation support and development scoping consulting infrastructure and point of sale integration and financial system evaluation - implementation support and development and scoping consulting.

(b)

Twin Tribes ANZ was then negotiating to purchase, lease or develop a number of existing businesses with the intention of aligning them with the Concept (Hospitality Enterprises).

(6)

Among others, PCS carries on the business of implementation support and development scoping consulting infrastructure and point of sale integration and financial system development.

(7)

Twin Tribes ANZ and PCS agreed that:

(a)

"... PCS and ... [Twin Tribes ANZ] have reached agreement for PCS to purchase from ... [Twin Tribes ANZ] the rights to exclusively provide the services of PCS to franchises associated with the Concept and the Patent Pending that will be supplied to the Hospitality Enterprises and the Hospitality Venues, with the intention that such agreement be documented in detail with effect from 15th February, 2012."; ^[34]

(i)

"The parties have agreed that pending documenting detailed agreement, ANZ will commence the development of the EVALUATION - IMPLEMENTATION SUPPORT AND DEVELOPMENT AND SCOPING CONSULTING INFRASTRUCTURE AND POINT OF SALE INTEGRATION AND FINANCIAL SYSTEM to the Hospitality Venues and other clients from Friday 15th February, 2012 under the terms of this Agreement." ^[35]

(b)

PCS would

(i)

"Provide services and EVALUATION - IMPLEMENTATION SUPPORT AND DEVELOPMENT AND SCOPING CONSULTING INFRASTRUCTURE AND POINT OF SALE INTEGRATION AND FINANCIAL SYSTEM supply implement support and document train personnel associated with the concept to the Integrated Point of Sales System in the territory of the Regional Master Licensor at the direction of ... [Twin Tribes ANZ]; ^[36]

(ii)

provide expertise to the franchisees and to Twin Tribes ANZ in the operation of the franchises in the territory of the Regional Master Licensor at the direction of Twin Tribes ANZ;

(iii)

"Develop the businesses to maximise EBIT in the territory of the Regional Master Licensor taking a whole-of-term approach"; ^[37]

(iv)

"Monitor & maintain the Franchises sold in the territory of the Regional Master Licensor at the direction of ... [Twin Tribes ANZ]"; ^[38]

(v)

"Build a cost effective and efficient human and office infrastructure to sell and maintain the franchises"; ^[39]

(vi)

"Provide the personal services of Simon Haarland [sic] or a reasonably agreed alternative consultant during the term and subsequent option period.";

(vii)

"Negotiate and agree the purchase price and terms for the "EVALUATION- IMPLEMENTATION SUPPORT AND DEVELOPMENT SCOPING CONSULTING INFRASTRUCTURE AND POINT OF SALE INTEGRATION AND FINANCIAL SYSTEM, of the point of Sales and financial system and fees for services including training auditing, and security for payment, with franchisees"; ^[40]

(viii)

"Execute a preferred supplier agreement with OenoViva Limited and ... [Twin Tribes ANZ] as required by them in their capacities as the global master franchisor and regional master franchisor respectively." ^[41]

(c)

Twin Tribes ANZ would:

(i)

approve sites in the territory of the Regional Master Licensor for the operation of Master Urban Winery Franchises and Urban Winery Distribution Franchises;

(ii)

Twin Tribes ANZ would provide reasonable working capital for the acquisition and development of sites;

(iii)

give PCS the option of providing payroll and Human Resources services at cost plus 2.5% of gross wages; and

(iv)

"Grant PCS a right of refusal of, at cost, the international rights to the EVALUATION- IMPLEMENTATION SUPPORT AND DEVELOPMENT SCOPING CONSULTING INFRASTRUCTURE AND POINT OF SALE INTEGRATION AND FINANCIAL SYSTEM to all Regional Franchisees in the global territory that is the property of OenoViva Limited." ^[42]

(8)

The term of the agreement would be a period of ten years from 15 February 2012 to 15 February 2022;

(a)

provided PCS were not in breach of the agreement, it had an option to renew for a further ten years on the same terms; and

(b)

PCS might elect to terminate the agreement with effect from 30 December 2019 by giving Twin Tribes ANZ at least one month's written notice.

(9)

The agreement between Twin Tribes ANZ and PCS would be prepared and have effect from 15 February 2012.

(10)

The purchase price was stated to be "One Hundred Seven million two hundred and ninety four thousand [sic] ($ 107,293,924 ) payable as below": ^[43]

"The Purchase Price will be paid by PCS to TTWC (ANZ) [Twin Tribes ANZ] under a vendor financing arrangement. The Purchase Price is only payable by PCS to ... [Twin Tribes ANZ] from EBIT, as below, and PCS has no liability to ... [Twin Tribes ANZ] for payment of the Purchase Price other than from distributable EBIT.

•

The Purchase Price will be paid in the amount of 90% of the distributable EBIT under PCS control derived from provision of services, training franchise development and franchise sales associated with the concept as to the franchisees in the ... Venues acquired or established by ... [Twin Tribes ANZ] and related entities and other clients, paid monthly, 7 days from end of each month.

•

A portion of the Purchase Price, being 50% or $53,646,962.00 (for which an invoice has been rendered by ... [Twin Tribes ANZ] to PCS) will be paid by PCS to ... [Twin Tribes ANZ ]) from distributable EBIT as above.

•

The balance of the Purchase Price, being 50% or $53,646,962.00 will be paid by PCS to ... [Twin Tribes ANZ] from distributable EBIT as above upon the execution of the Final Purchase Price Deed and the Vendor finance agreement, unless PCS has terminated this agreement with effect from 30th December 2019.

•

Interest will be paid by PCS to ... [Twin Tribes ANZ] on the outstanding balance of the Purchase Price commencing on 15th Day of February 2012 at the 90 day bill rate most recently published in the Australian Financial Review at the payment date plus + 1.5% per annum, provided always that interest is only payable by PCS to ... [Twin Tribes ANZ] from distributable EBIT, if available, as above." ^[44]

(11)

The amounts in the Heads of Agreement were "... stated exclusive of GST. GST, where applicable, will be added to amounts identified in this agreement.' ^[45]

B. The First Tax Invoice

23. On 15 February 2012, Twin Tribes ANZ as trustee for the Twin Tribes Hybrid Trust issued an invoice numbered 023 to PCS in the sum of $53,646,962 plus GST of $5,364,696.20 being for:

"Rights associated with development of IT and POS Solutions in respect to OenoViva Business Systems and OenoViva Wine Crafting Process set out in the Heads of Agreement dated 15th February 2012." ^[46]

The financial records relating to Mr Harland in his capacity as trustee for the PCS Global Trust do not show any entries that suggest that he has paid any part of the invoiced amount to Twin Tribes ANZ. ^[47]

C. Receipt for payment of a deposit

24. On 15 February 2012, Twin Tribes ANZ as trustee for the Twin Tribes Hybrid Trust issued a receipt numbered "023" to PCS for a deposit of $10,000 described as a:

"Deposit regarding:

Rights associated with development of IT and POS Solutions in respect to OenoViva Business Systems and OenoViva Wine Crafting Process set out in the Heads of Agreement dated 15th February 2012." ^[48]

A handwritten note on the receipt reads:

"OFFSET AGAINST INV WORK completed 16TH FEB 2012." ^[49]

25. The information in the receipt is replicated in a further document produced by Twin Tribes ANZ, dated 1 March 2012 and addressed to PCS. Against the "Reference Number" is written "Rights agreement deposit". There then appears the following:

OFFSET AGAINST WORK DONE ... [illegible initials or signature] 16/2/201

This is not a legal credit note" ^[50]

Events dated 31 March 2012

A. Vendor Finance Agreement

26. Twin Tribes ANZ, as trustee for the Twin Tribes Hybrid Trust and related entities, ^[51] and PCS, as trustee of the PCS GlobalTrust, signed a Vendor Finance Agreement. The document is dated 31 March 2012. In the section headed "Background", the document referred to the:

"... Heads of Agreement pursuant to which the Lender [Twin Tribes ANZ as trustee of the Twin Tribes Hybrid Trust] sold to the Borrower [PCS as trustee of the PCS Global Trust] the exclusive rights for the provision of Evaluation and IT implementation services and systems to the Lender and all associated entities." ^[52]

The term "Heads of Agreement" was defined in cl 1 of the Vendor Finance Agreement to mean "... the agreement entered into between the Lender and the Borrower on 22 December 2011 ..." ^[53] rather than 15 February 2012 which appears on the Heads of Agreement document.

27. The Vendor Finance Agreement quantified the amount of GST payable on the purchase price of $107,293,924.00 as the sum of $10,729,392.40 and then summarised terms of the Vendor Finance Agreement said to have been included in the Heads of Agreement. That amount was known as the "Loan Amount". That term covered the amount advance by way of loan by Twin Tribes ANZ to PCS or so much as remained outstanding from time to time. ^[54] Clause 5 of the Vendor Finance Agreement provided:

"At the Commencement Date the Lender will loan the Loan Amount to the Borrower under this agreement to pay the Purchase Price which shall be treated as paid in full and all obligations of the Borrower in respect thereof shall be taken as discharged." ^[55]

The "Commencement Date" was defined in cl 1 to mean "... the date of this Vendor Finance Agreement being 22 December 2011." ^[56]

28. Clause 8 of the Vendor Finance Agreement provided:

"a.

The Borrower will repay the Lender the Loan Amount in a Payment Period.

"b.

The amount of each payment shall not exceed sixty per cent (60%) of the Distributable EBIT received by the Borrower in any Payment Period." ^[57]

The "Payment Period" is the:

"... period of one month ending 7 days from the end of each month commencing Monday, 2 April 2012 and ending on 21 December 2021 or the date on which the Heads of Agreement is terminated, whichever is earlier." ^[58]

The "Distributable EBIT" is the:

"... total amount of legal [sic] fees received by the Borrower from the Lender during a Payment Period for the provision of legal [sic] services under the Heads of Agreement calculated under the Costs Agreement and Disclosure Statement entered into between the parties and which formed schedule 4 to the Heads of Agreement. For the avoidance of doubt, Distributable EBIT excludes all disbursements and refers to fees received by the Borrower in any Payment Period." ^[59]

29. Clause 7 provided that PCS would pay interest on the Loan Amount. Interest would commence to accrue from the first Payment Period in which the Distributable EBIT exceeded $50,000.00. It was repayable at the same time and in the same manner as the Loan Amount and was payable at the rate set out in cl E(v) of the Vendor Finance Agreement. Clause E(v) provided:

"Interest will be paid by the Borrower to the Lender on the outstanding balance of the Purchase Price commencing on 15th Day of February 2012 at the 90 day bill rate most recently published in the Australian Financial Review at the payment date plus + 1.5% per annum, provided always that interest is only payable by the borrower to the Lender from the distributable EBIT."

30. Clause 10 of the Vendor Finance Agreement is headed "Non-Recourse" and provides:

"a.

if this agreement is terminated or ends on the End Date, the lender has no recourse against the Borrower for any outstanding Loan Amount and any accrued interest at that date.

b.

b. The lender's rights of recourse against the Borrower are limited to Ninety per cent (90%) of the Distributable EBIT in any Payment Period.

c.

The liability of the Borrower to pay the Loan Amount and interest under this agreement is limited to ninety per cent (90%) of the Distributable EBIT in any Payment Period.

d.

The Performance Security is limited to ninety per cent (90%) of the Distributable EBIT and any capitalised interest in any Payment Period." ^[60]

B. The Second Tax Invoice

31. On 31 March 2012, Twin Tribes ANZ, as trustee for the Twin Tribes Hybrid Trust, issued a Tax Invoice numbered 0054 to the trustee of the PCS Global Trust, Mr Harland, for "IT & POINT OF SALES RIGHTS". Those rights were further described as:

"Management Rights associated with IT implementation/software development in respect to Contract dated 15th February 2012." ^[61]

The Tax Invoice was issued for the amount of $53,500,000.00 plus GST at the rate of 10% being $5,350,000.00.

Exclusive Master Regional Licence Purchase Deed: not executed

32. A document entitled " Exclusive Master Regional Licence Purchase Deed" appears in the T documents but is marked "Draft" and is not signed. ^[62] It is expressed to be between Twin Tribes ANZ, as trustee for the Twin Tribes Hybrid Trust, and PCS, as trustee of the PCS Global Trust. ^[63] Reference is made to the Heads of Agreement and to the Vendor Finance Agreement and to the parties' intention to be bound by the terms of the Heads of Agreement but to have them "... restated in a formal deed in a fuller, more comprehensive and precise form but not different in effect." ^[64] Despite that statement, the draft Exclusive Master Regional Licence Purchase Deed relates to the sale by Twin Tribes ANZ of the Master Sub-Regional License to PCS in the Asia Pacific Region for the period commencing on 15 February 2011 and ending on 30 December 2021 or the date on which the Heads of Agreement ended or were otherwise terminated, whichever was earlier. ^[65] Clause 6b states that, with effect from 15 February 2011, Twin Tribes ANZ would grant to PCS the exclusive rights to sell and develop franchises and licences related to the Concept in the Asia Pacific Region for that period. Furthermore:

"The parties agree that the consideration paid by PCS to ... [Twin Tribes ANZ] in relation to the matters referred to in clauses 6 a. and 6 b. of this Agreement was the Purchase Price [i.e. the amount of $107,293,924.00 in the Heads of Agreement]." ^[66]

33. Clause 6d of the Exclusive Master Regional Licence Purchase Deed noted that:

"as at the date of this agreement TTWC [Twin Tribes] has paid a deposit equivalent to 10% of the Purchase Price due under the Heads of Agreement and the Vendor Finance Loan Amount will be reduced by that amount." ^[67]

Tax Invoices and Statements issued by PCS

34. The following tax invoices and statements have been issued by PCS:

 

Business Activity Statement, Audit, Assessments and Objection

A. Lodgement of the BAS

35. On 13 April 2012, Mr Harland, as trustee of the PCS Global Trust and under ABN 14 245 782 891, lodged a BAS for the quarterly tax period ended 31 March 2012. ^[77] He declared capital purchases of $53,646,962.00 00 in respect of the acquisition of the exclusive right to provide IT services and, after making other adjustments set out in FN2, claimed an input tax credit of $5,359,891. ^[78]

B. Processing the BAS

36. On receiving the BAS, the Australian Taxation Office (ATO) wrote to Mr Harland on the same day, 13 April 2012, to tell him there would be an audit of the transactions used to prepare his BAS for the period 1 January 2012 to 31 March 2012. The records of income and expenditure for the PCS Global Trust and associated individuals would be examined. The ATO asked Mr Harland to provide certain information including evidence of all payments made to the supplier of the rights. That evidence might include bank statements and receipts. It asked him to provide that information by 4:00pm on 13 April 2012. ^[79] An officer of the ATO also telephoned Mr Harland on 13 April 2013 to convey the same information. ^[80]

37. Mr Harland replied to the ATO by email on 13 April 2012. He noted that the time he had been given to provide the material had been unrealistic and that he would provide it on Monday, 16 April 2012. He then wrote:

"Therefore I seek and request that there is no allowable control by you to disallow processing and that any Audit and or documentation that would be provided outside these mandated processes are not in conjunction but merely additional to comply with an Audit.

Please acknowledge that this is correct and that it will be processed accordingly within the 14 days from lodgement which should have been the 3rd of April." ^[81]

38. On the morning of 16 April 2012, an officer of the ATO wrote to Mr Harland accepting that he could not lodge the material on the previous Friday and extending the time until 2:00pm on that day. In the meantime:

"Your activity statement lodged for the period ending 31 March 2012 will continue to be processed within the reasonable time allowed under section 35-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). We are endeavouring to complete the audit as quickly as possible and in order to do this we confirm our request that the following documents and information be provided by 2:00pm today ...". ^[82]

39. Mr Harland replied stating, among other things, that he was sending the information shortly and that "Having provided that information I request you release the refund immediately without delay." ^[83] He concluded by asking why it had taken the ATO ten days to process his BAS. The ATO responded that Mr Harland's BAS was being processed and would be released unless the Commissioner determined that he was not entitled to GST credits for the period and issued an assessment accordingly. The response was sent at 2:08pm and the ATO had not yet received any documents from Mr Harland. ^[84]

40. At 3:03pm on 16 April 2012, Mr Harland wrote a further email to the ATO. It reads, in part:

"My understanding is that by law the ATO is instructed to process irrespective of documentation. It is not relevant in the processing of the BAS statement but relevant to an audit after the fact. The processing of the refund is mandatory and it is stated and clarified on your website. As discussed I request you release the refund. Irrespective of the documents the fact is as follows and there is no allowable connection to the processing of my BAS and documentation. I would expect you to reply and agree to this statement by return email.

...

In Multiflex Pty Ltd v The Commissioner of Taxation (2011) FCA 789 the taxpayer challenged the Commissioner's ability to withhold goods and services tax (GST) refunds pending the completion of verification or audit activity.

..." ^[85]

A few minutes later, Mr Harland sent a number of documents to the ATO.

C. The assessments

41. On 16 April 2012, an officer of the ATO told Mr Harland that his claim for an input tax credit of $5,364,696.00 would be disallowed by the Commissioner. ^[86] In addition, the officer told Mr Harland that the Commissioner had assessed his behaviour as reckless as the transaction was the largest that the PCS Global Trust had undertaken in the previous two years. Therefore, Mr Harland should have taken more care in lodging the BAS. Penalty was imposed at the rate of 50% of the shortfall amount. ^[87] Also on 16 April 2012, the Commissioner issued a Notice of Assessment for the period 1 January 2012 to 31 March 2012. It was an assessment of his net amount under s 105-5(1) of Schedule 1 to the TAA for that tax period. ^[88] On the following day, 17 April 2012, the Commissioner issued a Notice of Assessment to pay penalty in the sum of $2,682,348.00. ^[89]

D. The objection

42. On 8 June 2012, Mr Harland, as trustee of the PCS Global Trust, lodged an objection to both the assessment of net amount and assessment of penalty. ^[90] In addition to specific heads of objection, Mr Harland made the general claim that he was:

"... entitled to, in addition to the input tax credits claimed in the period 31 March 2012, a further input tax credit in the amount of $5,350,000 referable to the tax invoice issued on 31 March 2012. That amount was not claimed in the business activity statement filed by the Taxpayer for the period ended 31 March 2012." ^[91]

THE SUBMISSIONS: the assessment of net amount

43. I have set out the parties' submissions in some detail throughout these reasons and will only summarise them in the broadest terms at this point. Mr Harland is not contesting the Commissioner's decision that he, as trustee of the PCS Global Trust, is not entitled to the input tax credit he claimed. In essence, he submitted that, when his claim for input tax credit is viewed from his standpoint at the time he made it, his act in making that claim should not be viewed as a reckless act. Not until after he made the claim and after it was disallowed did he realise the reasons why it would be disallowed. Neither he nor the PCS Global Trust has received a cent for any of the work that he has done under the Heads of Agreement. He believed that he had done the right thing and had not been looking for a golden rainbow. Noting that his claim was refused within 24 hours without an audit, Mr Harland asked whether he had been reckless or whether he was being fined because of someone else's actions. That someone else was Mr Garrett and the actions were his business dealings. Mr Harland said that he should not be sitting in this position because of the actions of Mr Garrett. Mr Harland submitted that regard should be had to the fact that he had assisted the ATO in its investigation of Mr Garrett's activities. He had flown to Queensland at his own expense to do that on 15 February 2013.

44. Mr Harland submitted that he had entered two contracts to provide point of sale and IT resources on vendor finance terms. His written submissions refer to his having done so rather than his having done so as the trustee of the PCS Global Trust. Therefore, in summarising his submissions, I will refer to Mr Harland without reference to his being the trustee of the PCS Global Trust but on the understanding that the documents refer to his having done so as the trustee.

45. In his written submissions, Mr Harland made a submission to the effect that the assessments made by the Commissioner are unlawful, void and of no force or effect. Consequently, they should be cancelled or withdrawn or, alternatively, the amounts assessed should be reduced to a lesser amount and any penalties remitted in full or in part. Mr Harland submitted that he was entitled to claim a further $5,350,000.00 referable to the Tax Invoice issued on 31 March 2012. He had not claimed that amount in the Business Activity Statement he had lodged for the tax period ending on 31 March 2012.

46. At the hearing, Mr Harland did not develop his contention that the Commissioner's assessments are unlawful, void or of no force or effect and I will not consider that matter further. He pointed to the Heads of Agreement as establishing that he had made a creditable acquisition. Mr Harland said that he had discharged his obligation to pay the purchase price under the Heads of Agreement when Twin Tribes ANZ loaned him an amount equal to the full purchase price and he used that loan to pay that purchase price. That was 31 March 2012 and both Tax Invoices were issued in that period with one issued on 15 February 2012 and the other on 31 March 2012. Therefore, any input tax credits to which he was entitled were attributed to the tax period ending 31 March 2012. His consequent acquisition of the IT and support rights under the Heads of Agreement was done so in the course of his carrying on an enterprise.

47. On behalf of the Commissioner, Mr Gray of counsel submitted that Mr Harland, as trustee of the PCS Global Trust, has not made any creditable acquisitions because he has not made an acquisition from Twin Tribes ANZ as trustee of the Twin Tribes Hybrid Trust for five reasons. First, he had not acquired the exclusive IT rights or anything else for a creditable purpose. Second, if he had acquired it, the supply was not a taxable supply. Third, if it was a taxable supply, he had not provided any consideration for the supply and was not liable to pay any. Even if Mr Harland, as trustee of the PCS Global Trust, has made a creditable acquisition and is entitled to an input tax credit, it is not attributable to the tax period ended 31 March 2012, for which he has claimed it. It is not attributable because he did not provide any of the consideration for its acquisition in that tax period.

48. In view of Mr Harland's decision not to pursue the review of the assessment of the net amount and to focus on the assessment of penalty, Mr Gray did not pursue the submission made in the written submissions that a declaration should be made under s 165 of the GST Act on the basis that the Heads of Agreement, the Vendor Finance Agreement and Invoices were part of a scheme within the meaning of s 165-10(2).

LEGISLATIVE FRAMEWORK: the assessment of net amount

49. The GST Act provides for the imposition of GST and its payment and for the time at which, and the way in which, input tax credits arise. The fundamental proposition is that GST is payable on what are called "taxable supplies" and "taxable importations". ^[92] The general rule is that an entity that makes a taxable supply must pay the GST on that supply. ^[93] Special rules qualify that general rule but they are not relevant in this context. ^[94] An entitlement to an "input tax credit" arises on "taxable acquisitions" and "taxable importations". ^[95] Only "taxable acquisitions" are relevant. Amounts of GST and amounts of input tax credits are set off against each other in each tax period. ^[96] Generally, a tax period is a three month period ending on 31 March, 30 June, 30 September and 31 December in each year. ^[97] Each entity that is registered or is required to be registered, has tax periods applying to it. ^[98]

50. The amount that remains after the amounts of GST and of input tax credits are set off against each other is known as the "net amount for a tax period". ^[99] That amount, which may be adjusted, is either the amount that the relevant entity must pay to the Commonwealth or that the Commonwealth must refund to the entity. ^[100] Section 35-5 applies in the situation in which the Commonwealth must refund an entity. Section 35-10 provides:

"Your entitlement to be paid an amount under section 35-5 arises when you give the Commissioner a *GST return."

51. Chapter 4 contains special rules relating to refunds. Division 165 deals with ant-avoidance, Division 54 with GST branches, Division 51 with GST joint ventures and Division 168 with the tourist refund scheme. Section 105-65 of the TAA may also be relevant in certain circumstances in restricting a GST refund. These provisions are referred to in s 35-99 of the GST Act but other provisions of the TAA may also be relevant in withholding a refund. The Full Court of the Federal Court referred to them in Federal Commissioner of Taxation v Multiflex Pty Ltd ^[101] (Multiflex appeal) in considering the scope of the obligation imposed by s 35-5 of the GST Act. In dismissing an appeal from Multiflex Pty Ltd v Federal Commissioner of Taxation ^[102] (Multiflex), the Court analysed the relevant interlocking provisions of the GST Act and of the TAA and concluded:

" It may readily be accepted that the imperative language of s 35-5 of the GST Act as to the making of a refund is at least attended with the implication that the refund must be made within a time which is reasonable in the circumstances. However, these circumstances must attend what is necessary to discharge the duty concerned, which is to make the refund, not to undertake an investigation which may or may not result in the raising of a GST assessment by the Commissioner. ... The system of taxation for which the GST Act, read with the TAA, provides envisages that, depending on the calculation of the net amount which the entity makes it will either pay that net amount to the Commissioner within the time fixed by the GST Act or, as the case may be, receive a refund from the Commissioner within a time fixed by what is reasonably necessary to make that refund. The only other qualifications upon the Commissioner's obligation are those expressed in the GST Act itself or in the TAA, as already mentioned.

Such potential as there may be for abuse by an entity of an obligation to make a refund promptly ... did not lead out Parliament to subject that obligation to the express qualification found in the New Zealand legislation. In the face of the express terms of the scheme of taxation as found in the GST Act and the TAA it is not, for the reasons given, open to find any qualification of that kind by implication." ^[103]

When is an entity registered or required to be registered?

52. An entity is required to be registered under the GST Act if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold. ^[104] A person may be registered if carrying on an enterprise if carrying on an enterprise or intending to do so at a particular date. ^[105] In the latter case, it does not matter whether the GST turnover meets the registration turnover threshold. An "enterprise" has the meaning given in s 9-20. ^[106] That means that it "... is an activity, or series of activities, done ..." among other ways "in the form of a *business ...". ^[107] A "business includes any profession, trade, employment, vocation or calling but does not include an occupation as an employee." ^[108]

What is a "creditable acquisition"?

53. I will begin with those provisions of the GST Act relating to creditable acquisitions for Mr Harland claims to have made creditable acquisitions leading to his having, as trustee of the PCS Global Trust, input tax credits. Section 11-5 sets out the circumstances in which an entity makes a creditable acquisition:

"You make a creditable acquisition if:

(a)

you acquire anything solely or partly for a *creditable purpose; and

(b)

the supply of the thing to you is a *taxable supply; and

(c)

you provide, or are liable to provide, *consideration for the supply; and

(d)

you are *registered, or *required to be registered."

A. What is an "acquisition"?

54. The meaning of that expression is set out in s 11-10 of the GST Act. It provides:

(1)

"(1) An acquisition is any form of acquisition whatsoever.

(2)

Without limiting subsection (1), acquisition includes any of these:

(a)

(a) an acquisition of goods;

(b)

an acquisition of services;

(c)

a receipt of advice or information;

(d)

an acceptance of a grant, assignment or surrender of *real property;

(e)

an acceptance of a grant, transfer, assignment or surrender of any right;

(f)

an acquisition of something the supply of which is a *financial supply;

(g)

an acquisition of a right to require another person:

(i)

to do anything; or

(ii)

to refrain from an act; or

(iii)

to tolerate an act or situation;

(h)

any combination of two or more of the matters referred to in paragraphs (a) to (g).

(3)

However, an acquisition does not include an acquisition of *money unless the money is provided as *consideration for a supply that is a supply of money."

B. What is a " creditable purpose "?

55. What is meant by a "creditable purpose" is the subject of s 11-15. In so far as it is relevant, it provides:

(1)

You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.

(2)

However, you do not acquire the thing for a creditable purpose to the extent that:

(a)

the acquisition relates to making supplies that would be *input taxed; or

(b)

the acquisition is of a private or domestic nature.

(3)-(4)

...

(5)

An acquisition is not treated, for the purposes of paragraph (2)(a), as relating to the making of supplies that would be *input taxed to the extent that the supply is made through an *enterprise, or a part of an enterprise, that you *carry on outside Australia."

C. When is a supply a "taxable supply"?

56. What is meant by the expression "taxable supply" is the subject of s 9-5:

"You make a taxable supply if:

(a)

you make the supply for *consideration; and

(b)

the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c)

the supply is *connected with Australia; and

(d)

you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed."

57. Section 9-10 explains what is meant by "supply". In so far as it is relevant, it provides:

"(1)

A supply is any form of supply whatsoever.

(2)

Without limiting subsection (1), supply includes any of these:

(a)

a supply of goods;

(b)

a supply of services;

(c)

a provision of advice or information;

(d)

a grant, assignment or surrender of *real property;

(e)

a creation, grant, transfer, assignment or surrender of any right;

(f)

a *financial supply;

(g)

an entry into, or release from, an obligation:

(i)

to do anything; or

(ii)

to refrain from an act; or

(iii)

to tolerate an act or situation;

(h)

any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

(3)

It does not matter whether it is lawful to do, to refrain from doing or to tolerate the act or situation constituting the supply.

(3A)

...

(4)

..."

C.1 When is a supply made "in the course or furtherance of an enterprise"?

58. Section 9-20 is concerned with the meaning of an "enterprise". Only s 9-20(1) is relevant:

"(1)

An enterprise is an activity, or a series of activities, done:

(a)

in the form of a *business; or

(b)

in the form of an adventure or concern in the nature of trade;

(c)

on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

(d)

by the trustee of a fund that it covered by, or by an authority or institution that is covered by, Subdivision 30-B of the Income Tax Assessment Act 1997 and to which deductible gifts can be made; or

(da)-(g)

...

(h)

by a trustee of a fund covered by item 2 of the table in section 30-15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN."

What is "consideration"?

59. A person making a taxable supply must make it for consideration and the person claiming the creditable acquisition must provide, or be liable to provide, consideration for the supply. The word "consideration" is defined in inclusionary terms when s 9-15 provides:

"(1)

Consideration includes:

(a)

any payment, or any act or forbearance, in connection with a supply of anything; and

(b)

any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

(2)

It does not matter whether the payment, act or forbearance was voluntary, or whether it was by the *recipient of the supply.

(2A)

It does not matter:

(a)

whether the payment, act or forbearance was in compliance with an order of a court, or of a tribunal or other body that has the power to make orders; or

(b)

whether the payment, act or forbearance was in compliance with a settlement relating to proceedings before a court, or before a tribunal or other body that has power to make orders.

(2B)

For the avoidance of doubt, the fact that the supplier is an entity of which the *recipient of the supply is a member, or that the supplier is an entity that only makes supplies to its members, does not prevent the payment, act or forbearance from being consideration.

(3)

However:

(a)

if a right or option to acquire a thing is granted, then:

(i)

the consideration for the supply of the thing on the exercise of the right or option is limited to any additional consideration provided either for the supply or in connection with the exercise of the right or option; or

(ii)

if there is no such consideration - there is no consideration for the supply; and

(b)

making a gift to a non-profit body is not the provision of consideration; and

(c)

a payment made by a *government-related entity to another government entity is not the provision of consideration if the payment is specifically covered by an appropriation under an *Australian law."

You are registered, or required to be registered

60. An entity is required to be registered under the GST if carrying on an enterprise and that entity's GST turnover meets the registration turnover threshold. ^[109] For an entity that is not a non-profit body, the registration turnover threshold is $50,000.00 or such higher amount as is specified in the regulations. ^[110] An entity may choose to be registered under the GST Act if carrying on an enterprise or intending to do so from a particular date. ^[111]

Accounting for taxable supplies and creditable acquisitions

A. Taxable supplies

61. The Attribution Rules found in Division 29 of Part 2-6 of Chapter 2 of the GST Act determine the tax period in which a person reports, or accounts for, taxable supplies and creditable acquisitions. In so far as they relate to an entity which accounts on a cash basis, as does Mr Harland as trustee of the PCS Global Trust, any input tax credit to which he might be entitled for a creditable acquisition is attributable to a tax period worked out as follows:

"(a)

if, in a tax period, you provide all of the *consideration for a *creditable acquisition - the input tax credit for the acquisition is attributable to that tax period; or

(b)

if, in a tax period, you provide part of the consideration - the input tax credit for the acquisition is attributable to that tax period, but only to the extent you provided the consideration in that tax period; or

(c)

if, in a tax period, none of the consideration is provided - none of the input tax credit for the acquisition is attributable to that tax period." ^[112]

62. Had he not accounted on a cash basis, any input tax credit to which he would have been entitled would have been attributable to:

"(a)

the tax period in which you provide any of the *consideration for the acquisition; or

(b)

if, before you provide any of the consideration, an *invoice is issued relating to the acquisition - the tax period in which the invoice is issued." ^[113]

63. The attribution rules relating to the payment of GST on a taxable supply are to the same effect; ^[114] so too are those relating to adjustments. ^[115] In so far as they relate to entities other than those accounting on a cash basis, GST payable by an entity on a taxable supply is attributable to the tax period in which any consideration was received for the supply or, if before the consideration is received an invoice is issued relating to it, the tax period in which the invoice is issued. ^[116] The contents of a "tax invoice" are specified in s 29-70. It must include information to enable matters such as what is supplied and its price and the extent to which each supply to which the document relates is a taxable supply. ^[117] In the case of those who account on a cash basis, consideration must be provided for an acquisition or, in the case of a taxable supply, received. It is only attributable to a tax period, and so in the calculation of the net amount in that tax period, to the extent that it has been received or provided in that period. There is no room for a promise or a liability that comes to fruition at a later date.

CONSIDERATION: assessment of net amount

Has Mr Harland, as trustee of the PCS Global Trust, made a creditable acquisition?

A. Did Mr Harland as trustee of PCS Global Trust make an acquisition?

A.1 The submissions

64. On behalf of the Commissioner, Mr Gray submitted that Mr Harland, as trustee of the PCS Global Trust, did not, within the meaning of s 11-10 of the GST Act, make an acquisition from Twin Tribes ANZ under the Heads of Agreement or under the Vendor Finance Agreement. He submitted that this was the case because:

(a)

Mr Harland did not, within the meaning of s 11-10 of the GST Act, make an acquisition from Twin Tribes ANZ under the Heads of Agreement or under the Vendor Finance Agreement because:

(i)

Mr Harland, as trustee of the PCS Global Trust, was not a party to either agreement;

(ii)

each agreement was executed by PCS, which had ceased to exist on deregistration: Corporations Act 2001 (Corporations Act); s 601AD; and

(iii)

the subject matter of each agreement was so broad and ill-defined, it cannot be said that anything was acquired by anybody under either of them.

65. Mr Harland submitted that he had entered a contract with Twin Tribes ANZ "... to provide point of sale and IT resources on a contract Vendor finance terms". ^[118] He acquired the exclusive IT and support rights under the Heads of Agreement and was an "acquisition" within the meaning of s 11-10.

A.2 Consideration

A.2.1 Has the entity registered for GST acquired anything?

66. The effect of s 11-20 of the GST Act is that a person is entitled to input tax credits for that person's creditable acquisitions. A person is not entitled to input tax credits for another person's creditable acquisitions. In order to make a creditable acquisition, the person must meet the four criteria set out in s 11-5 of the GST Act. ^[119]

67. Mr Harland, as trustee of the PCS Global Trust, meets the fourth criteria for he is registered in that capacity under the GST Act and has been since 1 July 2003. He does not, however, meet the first three criteria. Beginning with the first two criteria, I am not satisfied on the evidence that he acquired the IT and support rights for any purpose, be it a creditable purpose or otherwise, or that was anything were supplied to him in his capacity as trustee of the PCS Global Trust, whether as a taxable supply or otherwise. He neither provided nor was liable to provide consideration for the IT and support rights as trustee of the PCS Global Trust as required by the third criterion. I will now explain why I have reached that conclusion.

68. There is no evidence that he was a party to the Heads of the Agreement under which Mr Harland claims to have acquired the IT and support rights. Certainly, he signed the Heads of Agreement but he did so as Director and Secretary of PCS without using a common seal. In doing so, PCS was taken to be executing the Heads of Agreement in accordance with s 127(2) of the Corporations Act. He did not do so as trustee of the PCS Global Trust but as the Director and Secretary of PCS. Although the same individual, Mr Harland is regarded as acting in different capacities and so being different legal entities when he acts as the Director and Secretary of PCS and as the trustee of the PCS Global Trust. This is underlined by s 184-1 of the GST Act which is concerned with the meaning of "entities" generally. Those described as an "entity" are an individual, a body corporate and a trust as well as a corporation sole, a body politic, a partnership, any other unincorporated association or body of persons and a superannuation fund. Section 184-1(3) illustrates one set of circumstances in which an individual may have multiple entities for the purposes of the GST Act. It provides:

"A legal person can have a number of different capacities in which the person does things. In each of those capacities, the person is taken to be a different entity.

Example: In addition to his or her personal capacity, an individual may be:

• sole trustee of one or more trusts; and

• one of a number of trustees of a further trust.

In his or her personal capacity, he or she is one entity. As trustee of each trust, he or she is a different entity. The trustees of the further trust are a different entity again, of which the individual is a member." ^[120]

69. This is an end of the matter for Mr Harland, as trustee of the PCS Global Trust, cannot satisfy the criteria in s 11-5 and so cannot be regarded as having made a creditable acquisition. As he has not made a creditable acquisition, he cannot be entitled to input tax credits. Despite that, I will look at a number of other matters for they will be relevant in considering the assessment of penalties.

A.2.2 The status of PCS

70. Before I do that, I will look at PCS, which appears on its face to be a party to the Heads of Agreement. On the evidence that I have, I find that it was never the trustee of the PCS Global Trust. That evidence is the Trust Deed dated 2 February 2012. ^[121] Mr Harland was described as the "Trustee" in that document and consented to being the trustee of the PCS Global Trust. When the document described as the Heads of Agreement was signed on 15 February 2012, PCS had been deregistered for almost five years having been deregistered on 28 October 2007. ^[122] Just as a company registered under the Corporations Act comes into existence on registration, ^[123] it ceases to exist on deregistration. ^[124] Assumptions that a person is entitled to make about a company and its compliance with such things as its constitution and the provisions of the Corporations Act and that its officers and agents properly perform their duties to the company do not arise because the company does not exist. ^[125] Mr Harland could not sign the Heads of Agreement as its Director and Secretary - positions he no longer held - and his doing so had no legal effect. ^[126]

A.2.3 Has PCS acquired " anything "?

71. In its ordinary usage, the word "anything" is "... a thing of any kind ...". ^[127] The word "thing" is defined equally broadly to encompass "... any object ... any fact, quality or idea etc that can be thought about or referred to ...". ^[128] The GST Act does not define either the word "anything" or the word "thing", both of which it uses in ss 11-5(a) and (b) but it does define the word "acquisition". It does so in terms that are also broad enough to include both the tangible and the intangible. Included is the "... grant ... of any right" in s 11-10(2)(e) and "an acquisition of a right to require another person ... to do anything ..." in s 11-10(2)(g). That might be thought to be broad enough to encompass any right that Twin Tribes ANZ and PCS agreed in the Heads of Agreement will be given to PCS in exchange for $107,293,924.00. ^[129] I must first be able to ascertain what that right is in order to be able to find whether it has been acquired by PCS. That takes me to any agreement between Twin Tribes ANZ and PCS because it is on that agreement that Mr Harland relies to establish both propositions.

72. In the Heads of Agreement, Twin Tribes ANZ and PCS have "... reached agreement for PCS to purchase from TTWC(ANZ) [Twin Tribes ANZ] the rights to exclusively provide the services of PCS to Franchises associated with the Concept and the Patent Pending that will be supplied to the Hospitality Enterprises and the Hospitality Venues, with the intention that such agreement be documented in detail with effect from 15th February, 2012." ^[130] Read alone, this clause of their agreement suggests that Twin Tribes ANZ and PCS have reached an agreement that is binding between them but that they have also agreed to execute a formal document at a later time.

73. An agreement that includes an agreement to execute a formal document at a later time has been held to be a binding agreement in three classes of case but not in a fourth. The first two were described by the High Court in Masters v Cameron: ^[131]

"... It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. ..." ^[132]

74. The High Court went on to describe a third class of case in which the agreement is not held to be binding and I will return to that later. That is usually described as the third class and a qualification to the first class introduced later as the fourth. The qualification was introduced by McLelland JA in Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd ^[133] by reference to Sinclair Scott & Co Ltd v Naughton. ^[134] His Honour noted:

"... There is in reality a fourth class of case additional to the three mentioned in Masters v Camero n, as recognised by Knox CJ, Rich J and Dixon J, in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317, namely, '... one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms'. ..." ^[135]

75. The class of case in which the courts have found an agreement to execute a formal document at a later time not to be a binding contract - or third class of case - has been described by the High Court in Masters v Cameron as "... one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract." ^[136]

76. While the four classes of case into which agreements contemplating further agreement may be grouped, the task is not so much one of classification or categorisation but one of finding what agreement the parties came to. As Giles JA, with whom McColl JA and Young CJ in EQ agreed on this point, said in Tasman Capital Pty Ltd v Sinclair: ^[137]

"... Categorisation does not greatly contribute to the decision in the particular case, which is concerned with finding what agreement, if any, the parties came to.

27 A binding agreement can be reached with the contemplation, even intention, that what is agreed will later be recorded in a formal document; it can also be reached with the contemplation or intention that what is agreed will later be supplemented by refinement or by agreement on matters which have been left for future agreement. That lies behind the reference in Sinclair, Scott & Co v Naughton at 317 to a case where the parties 'were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms', and the numerous cases which have recognised the so-called fourth category. If the parties have come to a binding agreement, it does not matter that there may be later refinement or additional agreement. Thus in John R Keith Pty Ltd v Multiplex Constructions (NSW) Pty Ltd [2002] NSWSC 43 Einstein J felicitously said at [224] that -

' ... regardless of classification, the principle that is now recognised is that there can be an informal contract with the expectation that other terms will be negotiated and by consent included in the formal document. That is, to say that such further negotiations and activity regarding other terms is still to take place does not mean the existing informal contract is not binding: Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101 (per Ipp J at 110-111).'

28 The passage from Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd to which his Honour referred included at [25] -

'It is well recognised that parties may enter into a valid contract containing a limited number of terms comprising those terms essential to the bargain that they wish to conclude, in the expectation that at a later date a further contract will be arrived at containing additional terms that would facilitate and clarify the initial contract. That is to say, a binding contract may be arrived at even though it leaves unresolved many matters which might arise in future. As Kennedy J said in Terrex Resources NL v Magnet Petroleum Pty Ltd (1988) 1 WAR 144 at 159:

"An agreement does not have to be worked out in meticulous detail. A bargain can be made containing certain terms, regarded as essentials, whilst the parties recognise that a formal document will eventually be drawn up in the full expectation that a number of additional terms will, by consent, be included in that document".'

29 Whether a binding agreement has been reached, albeit subject to later refinement or additional agreement, must be decided on the facts of the particular case. Uncertainty and incompleteness in what has been agreed and the prospect of refinement and future agreement are material to whether the parties intended to make a concluded bargain, but once the intention be found the court will seek to uphold the bargain by resolving the uncertainty and fulfilling the incompleteness; although if that can not be done by accepted principles of construction and implication, the intention as found may fail." ^[138]

77. The Heads of Agreement does not fit either of the first two classifications identified in Masters v Cameron. It does not fit the first because Twin Tribes ANZ and PCS have not identified all of the terms of their bargain. They have not, for example, identified with particularity what it is that PCS "is to purchase" from Twin Tribes ANZ. At one point in the document, it is described as "the rights to exclusively provide the services of PCS to Franchises associated with the Concept and Patent Pending that will be supplied to the Hospitality Enterprises and the Hospitality Venues ...". ^[139] At another, it is described as "... the exclusive rights to EVALUATION - IMPLEMENTATION SUPPORT AND DEVELOPMENT AND SCOPING CONSULTING INFRASTRUCTURE AND POINT OF SALE INTEGRATION AND FINANCIAL SYSTEM associated with the Concept and Patent Pending to the Hospitality Venues acquired or established by TTWC(ANZ) and related entities along with other clients to be identified throughout the term of this agreement and throughout the duration of the option period. ...". ^[140]

78. In a third, set out at [22(7)(b)] above, it is apparent that PCS is undertaking to do more than developing and scoping the consulting infrastructure and point of sale integration and a financial system. It is required to develop the businesses to maximise EBIT in the territory of the Regional Master Licensor. Returning to the developing and scoping the consulting infrastructure and point of sale integration and a financial system, it is clear that its scope is yet to be developed for the Heads of Agreement provides that Twin Tribes ANZ had yet to work out what was encompassed in that notion. As the Heads of Agreement stated:

"The parties have agreed that pending documenting and executing detailed agreement, ANZ [sic] will commence the development of the EVALUATION - IMPLEMENTATION SUPPORT AND DEVELOPMENT AND SCOPING CONSULTING INFRASTRUCTURE AND POINT OF SALE INTEGRATION AND FINANCIAL SYSTEM to the Hospitality Venues and other clients from Friday 15th February, 2012 under the terms of this Agreement." ^[141] (emphasis added)

79. The lack of particularity in the Heads of Agreement is a reflection of the circumstances set out in the Background at the beginning of the document. Those circumstances reveal a mixture of aspiration and expectation without any concrete arrangements in place. The statement that the Regional Master Franchisor would sell a maximum of 13 Master Urban Winery Franchises and that each of those would sell a maximum of 50 Distributor Franchises must be regarded as aspirational on the evidence that I have. The statement that there were then negotiations to purchase, lease or develop a number of commercial premises was, at its highest, one of expectation at best. Twin Tribes ANZ could not know how many franchises of either type that it would be able to sell.

80. Coupled with the lack of firm arrangements, the lack of particularity and the recognition that further developmental work needs to be undertaken on what it is that PCS is to provide, the statement in the Heads of Agreement that PCS and Twin Tribes ANZ have "... reached agreement for PCS to purchase from TTWC(ANZ) [Twin Tribes ANZ] the rights to exclusively provide the services of PCS to Franchises associated with the Concept and the Patent Pending that will be supplied to the Hospitality Venues ..." (emphasis added) suggests that there is an agreement to purchase those rights but that is an agreement to do so at a future time. That suggestion gains support when it is realised that nowhere in the Heads of Agreement is there to be found any statement of what it is that Twin Tribes ANZ is actually selling to PCS.

81. I have also looked to the Vendor Finance Agreement in order to see whether there is an agreement that can be drawn by reading it and the Heads of Agreement together. There are occasions on which an agreement may be found in more than one document. That may happen, Isaacs J said in Toohey v Gunther: ^[142]

"... The true principle of construction in such cases is stated by Knight Bruce LJ, when delivering the judgment of the Privy Council in Shaw v Jeffery ... [[1860] EngR 888; (1860) 13 Moo PCC 432, 456-7] as follows: 'When the same parties execute contemporaneously several instruments relating to different parts of the same transaction all must be considered together; all must be examined in order to understand each; apparent inconsistencies are to be reconciled; and where there are real inconsistencies, the governing intention of the parties is still to be collected from the consideration of the language of all the instruments, and effect given to it. ...'" ^[143]

82. This is not a situation in which the documents were executed contemporaneously for the Vendor Finance Agreement was executed some six or so weeks later. It may be that the documents are not contemporaneous but it would seem that lack of contemporaneity may not be fatal to a proposition that an agreement is to be found in more than one document. The case of Harvey v Edwards, Dunlop & Co Ltd ^[144] centred on an oral agreement whereby the respondent would refrain from signing judgment against him, the appellant would execute a power of attorney authorising the attorney to sell his property in Scotland and, from the proceeds, to pay an amount to the respondent. There was a question whether the agreement had to be in writing or at least a written memorandum of it under the Statute of Frauds. Knox CJ, Gavan Duffy and Starke JJ said:

"... It is well settled that any document signed by the party to be charged or by some person authorized by him which contains all the essential terms of the agreement is a sufficient memorandum. It is also well settled that the memorandum 'need not be contained in one document; it may be made out from several documents if they can be connected together.' They may be connected by reference one to the other; but further, 'if you can spell out of the document a reference in it to some other transaction, you are at liberty to give evidence as to what that other transaction is, and, if that other transaction contains all the terms in writing, then you get a sufficient memorandum within the statute by reading the two together' (Stokes v. Whicher ...[(1920) 1 Ch 411 at p. 418 ])." ^[145]

83. When I turn to the Vendor Finance Agreement, I find that it is not a document that dovetails with the Heads of Agreement so that the terms of each can be read together to form a consistent whole. It begins with a section described as "Background", in which it purports to state what has already been agreed. The statements are, however, inconsistent as is apparent from the examples I give below:

84. I have chosen only these four examples but it is clear that there has been a restatement in each of three areas to which they relate. The first is to restate an agreement to purchase to a statement that the rights have been sold when my previous analysis shows that would not seem to have been the case. The second is to change any obligation under the Heads of Agreement to pay the purchase price from EBIT and only from EBIT to an obligation to pay the whole of the Purchase Price in one amount. The terms on which the purchase price was to be repaid from EBIT under the Heads of Agreement is changed in the Vendor Finance Agreement to an obligation to repay the loan from EBIT in the same way. Furthermore, no reference is made in the Heads of Agreement to PCS's having paid a deposit of $10,000.00 but reference is made to that in the Vendor Finance Agreement.

85. The discrepancies between the Heads of Agreement and the Vendor Finance Agreement are such that I am not satisfied that the two documents can be read together as reflecting an agreement between Twin Tribes ANZ and PCS. Therefore, I am left with the Heads of Agreement as reflecting any agreement between them. Given my findings regarding its terms, I am also satisfied that all that can be said of that document is that the parties agreed that PCS would enter an agreement under which it would acquire from Twin Tribes ANZ the right to supply certain services to the franchisees, Hospitality Venues and other clients. Beyond a very general description of that right as "the services of PCS" or as an "EVALUATION - IMPLEMENTATION SUPPORT AND DEVELOPMENT AND SCOPING CONSULTING INFRASTRUCTURE AND POINT OF SALE INTEGRATION AND FINANCIAL SYSTEM to the Hospitality Venues", there is insufficient detail in the agreement to identify the nature and parameters of any right that it would acquire. All that can be said is that the Heads of Agreement amounts to an agreement to enter a further agreement in which the right will be detailed. The parties are bound by the agreement to enter the further agreement but, until that is done, the right does not pass from Twin Tribes ANZ to PCS until it has been developed by Twin Tribes ANZ and the further detailed agreement has been entered between them.

86. That is enough to decide that neither PCS nor Mr Harland as trustee of the PCS Global Trust has acquired anything and so does not meet the criterion in s 11-5(a) of the GST Act. For the sake of completeness, I will note that, even if I had found that there had been an agreement between Twin Tribes ANZ and PCS about a right that was described and certain, there would have been a question whether the contract was a valid contract. The question would have arisen because s 47 of the Competition and Consumer Act 2010 (CC Act), to which Mr Gray referred. Section 47(1) provides that:

"Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing."

87. What amounts to "exclusive dealing" is the subject of ss 47(2) to (11) when read with the qualifications in ss 14(12) and (13) but I will refer only to s 47(6) as an example. It provides:

"A corporation engages in the practice of exclusive dealing if the corporation:

(a)

supplies, or offers to supply, goods or services;

(b)

supplies, or offers to supply, goods or services at a particular price; or

(c)

gives or allows, or offers to give or allow, a discount, allowance, rebate or credit in relation to the supply or proposed supply of goods or services by the corporation;

on the condition that the person to whom the corporation supplies, or offers or proposes to supply, the goods or services or, if that person is a body corporate, a body corporate related to that body corporate will acquire goods or services of a particular kind or description directly or indirectly from another person not being a body corporate related to the corporation." ^[155]

88. In Pampered Paws Connection Pty Ltd v Pets Paradise Franchising (Qld) Pty Ltd (No. 10), ^[156] Mansfield J made the following points regarding the operation of s 47:

(1)

Citing Re Ku-ring-gai Cooperative Building Society (No 12) Ltd: ^[157]

"... The practice of exclusive dealing does not necessarily involve the imposition of any condition. It involves supply upon a condition. The condition may well have been suggested by the recipient of supply. It may have been imposed by some third party. It may arise, by implication, from all the circumstances in which the goods or services were supplied. ... The section does not look to the origin of the condition upon which there is a supply of services. The section looks to the supply of services upon that condition." ^[158]

(2)

"The authorities indicate that the condition need not be a legally enforceable one, but may be drawn from the facts: see eg Australian Competition and Consumer Commission v Bill Express Ltd (in liquidation) (2009) 180 FCR 105 at [64]. ...". ^[159]

(3)

"... [I ]t does not matter whether the condition was legally binding or not: see s 47(13)(a) of the Act, provided that the condition has some attribute of compulsion: per Northrop J in SWVB Family Credit Union Ltd v Parramatta Tourist Services Pty Ltd (1980) 48 FLR 445. ..." ^[160]

89. It would seem that the Heads of Agreement contemplated that each of the franchisees would be required to acquire their IT and support rights from PCS. Unless that was so, it is difficult to understand the price that PCS would pay for the right to supply those services. At the same time, it is equally difficult to see how any attempt to require franchisees to do that would not be seen as exclusive trading within the meaning of s 47(6) of the CC Act. If the right that was contemplated in the Heads of Agreement were to be seen in that light, it would be arguable that any such right required the parties to act contrary to the law. If that were so, it is arguable that any agreement to sell and purchase such a right would be void to the extent that it contained that term and, if that term could not be severed from the rest of the agreement, as a whole. ^[161] I do not propose to take that matter any further for, although Mr Gray touched upon it, there was no need to develop the argument at the hearing.

B. Was the supply to Mr Harland as trustee of PCS Global Trust a taxable supply?

B.1 The submissions

90. Mr Gray submitted that no supply, capable of being a taxable supply, as required by the criterion in s 9-5(b) of the GST Act, was made by Twin Tribes ANZ as trustee of the Twin Tribes Hybrid Trust to Mr Harland, as trustee of the PCS Global Trust, or to anyone else. This was so because Mr Harland, as trustee of the PCS Global Trust, had neither provided, nor was liable to provide, any consideration for a supply made by Twin Tribes ANZ as trustee of the Twin Tribes Hybrid Trust. Neither the Heads of Agreement nor the Vendor Finance Agreement imposed either an absolute or a contingent liability on Mr Harland, as trustee of the PCS Global Trust, to provide the purchase price of $107,293,924.00, or any other amount. He went on to develop these points.

91. Mr Harland submitted:

"The second requirement is satisfied because the heads of agreement specifies the purchase price to be $107,293,924. The first tax invoice for the relevant period contains an amount equal to half of the purchase price of $53,646,962 and adds GST of $5,364,696.20, which is the proportion of the purchase price was increased by 10%. The second invoice for the relevant period contains an amount equal to half of the purchase price of $53,500,00 [sic] and adds GST of $5,350,000, which is the proportion of the purchase price was increased by 10%. It is clear that ... [HANZPL] made the supply (contained in the two tax invoices) and calculated the price upon the basis that the supply was a taxable supply and that it would have to account for any GST liability in respect of that supply."

B.2 Consideration: General

92. The second criterion that must be met in order for a person to make a creditable acquisition is set out in s 11-5(b) and found at [53] above. It is that the supply of the thing to that person is a taxable supply. At [56] above, I have set out the four criterion prescribed in s 9-5 as those that must be met if a person is to make a "taxable supply" to another. Only the first is relevant and it is set out in s 9-5(a) of the GST Act i.e. "you make the supply for *consideration". The "you" referred to in that provision must, in this case, be Twin Tribes ANZ on the assumption (for I have found that it was not) that it was supplying an exclusive right to PCS to supply IT and other services to franchisees. Section 9-5(a) does not stipulate who paid the consideration. Section 11-5(b) provides that "the supply of the thing to you is a *taxable supply". The "you" in that provision is the person who is registered or required to be registered and the person claiming to have made a creditable acquisition. At first glance, it might be thought that the "you" who provides, or is liable to provide consideration for the supply in order to meet the third criterion in s 11-5(c) for a creditable acquisition, must be the person who provided the consideration for the purpose of s 9-5(a). Further reflection brings to mind s 9-15(2), which provides that it does not matter whether the payment, act or forbearance was by the recipient of the supply i.e. the entity to which the supply was made. ^[162]

93. In this case, that had to be Mr Harland as trustee of the PCS Global Trust for he is the only entity who meets the fourth criterion of registration. As I have already found, that is not the entity that entered any agreement with Twin Tribes ANZ. Therefore, the criterion in s 11-5(b) cannot be met. Despite that, I will consider whether the supply could have been a taxable supply if PCS had been registered under the GST Act rather than Mr Harland as trustee of the PCS Global Trust.

B.2.1 Consideration: Did Twin Tribes ANZ " make the supply "?

94. Mr Harland's submission does not recognise that, in order to be a taxable supply, a supply must, among other things, be made for consideration. ^[163] It seems to me that a person can only "make the supply for *consideration" as required by s 9-5(a) if what is to be supplied is actually supplied "for consideration". That follows from the relevant meaning of the word "make" i.e. "... to cause, bring about or create something by one's actions, etc ...". ^[164] If there is any supply in this case, it is the assignment of the IT and support rights by Twin Tribes ANZ to PCS. As I have already found, though, there was no passing of any rights from Twin Tribes ANZ to PCS under the Heads of Agreement whether read alone or otherwise. That is enough for me to be satisfied that s 9-5(a) cannot be satisfied and there was no taxable supply. Despite that, I will proceed to consider whether, if there had been a supply, it would have been made for consideration.

B.2.2 Consideration: What is " consideration "?

95. In considering this question, I have not walked away from my decision that any supply that was made by Twin Tribes ANZ was not made to Mr Harland as trustee of the PCS Global Trust but to PCS and that PCS was not a legal entity at the time.

96. Section 9-15 has defined the word "consideration" in terms of what it "includes". Generally speaking, when Parliament defines a term in inclusive terms, it is taken to have intended to enlarged the ordinary meaning of the word ^[165] but that is not necessarily so. ^[166] Whether it is so depends on an understanding of the meanings that may be attributable to the word "consideration" and an analysis of GST Act to understand what Parliament intended. In this case, I do not think that the analysis is necessary for meanings other than those specified in the definition do not raise themselves for consideration on the evidence I have.

97. In understanding those meanings, I would observe that the GST Act is legislation concerned with the imposition of a tax. It is not legislation regulating contracts or seeking to vary the law of contract but it is a law that operates in a world in which contracts are entered and agreements reached whether undertaking the shopping for the household or entering a major commercial undertaking. It has to operate at both ends of the spectrum. I have already referred to the relevance of principles of contract law in determining whether or not Twin Tribes ANZ and PCS entered a contract at all for the purposes of determining whether nor not there was an acquisition of the sort required for a "creditable acquisition". Principles of that sort are certainly relevant in determining factual issues but, except to the extent permitted by the legislation itself, they do not have a place in determining the interpretation of the GST Act.

98. That does not mean, however, that the definition of "consideration" should be read narrowly. So, for example, there is nothing in the GST Act that suggests that "payment" must be in the form of money and, indeed, the provisions in Subdivision 9-C of Part 2-2 of Chapter 2 suggest that it is not required. Provision is made in s 9-75, for example, to work out the "price" used in the calculation of the value of a taxable supply when the consideration is not expressed in an amount of money. The definition of "consideration" refers to a "payment", among other forms of consideration. The word "payment" is not confined to payment in money. As Lord Evershed Mr said in White v Elmdene Estates Ltd: ^[167]

"... the word 'payment' in itself is one which, in an appropriate context, may cover many ways of discharging obligations. It may even (as is well known, although it does not arise in this case) include a discharge, not by money payment at all, but by what is called 'payment in kind'." ^[168]

99. When payment is in money, the source of that money is not relevant. Therefore, it may be that the person making the supply is also the person who gives the person acquiring the thing the money with which to acquire it. If the evidence supports their having entered a vendor financing arrangement of that sort, there is nothing to prevent a finding that consideration has passed and the obligation to pay is no longer under any agreement relating to the supply and acquisition but under the vendor financing agreement. This was the conclusion reached in Re Rod Mathieson Truck Hire Pty Ltd as trustee of the Mathieson Family Trust and Commissioner of Taxation. ^[169]

100. Before leaving this section of my reasons, I note that the definition of "consideration" is cast in terms of a payment, an act or forbearance and not in terms of a promise of liability to pay, act or forbear. It seems to me that a promise or liability to do those things cannot be read into the definition for the GST Act itself distinguishes between consideration and liability to provide consideration. If a promise or liability to do those things were intended to be understood to comprise consideration, there would be no need to distinguish between the two. I refer to s 9-5(a), which requires that a taxable supply have been made "for *consideration", and contrast s 11-5(c), which provides that a the person making a creditable acquisition "provide, or ... [be] liable to provide, *consideration for the supply".

B.2.3 What is " supply for consideration "?

101. The use of the word "for" signifies that there must be a connection between the supply and the consideration. The connection is such that the supply was made "in order to have, get, etc" ^[170] the consideration. ^[171] Although I do not want to suggest that any words should be suggested for the word "for" in s 9-5(a), I draw on the law of contract to illustrate the type of link that must exist between the supply and the consideration in order for a supply to have been made for consideration.

102. I will refer to the case of Australian Woollen Mills Pty Ltd v The Commonwealth ^[172] (Australian Woollen Mills), in which the High Court explained:

"... It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty. ..." ^[173]

That assumption is made by each party to a contract and may equally be a promise as an act. If an act, it may equally be an act requiring some action as an act of forbearance. ^[174] There must be a relationship or connection between the act or promise of one and that of another before there can be said to be a contract. That is to say, there must be "quid pro quo" between the parties to a contract. As the High Court said in Australian Woollen Mills in the context of a unilateral contract but it is equally applicable to a contract such as Mr Harland submits exists in this case: ^[175]

" In cases of this class it is necessary, in order that a contract may be established, that it should be made to appear that the statement or announcement which is relied on as a promise was really offered as consideration for the doing of the act, and that the act was really done in consideration of the potential promise inherent in the statement or announcement. Between the statement or announcement, which is put forward as an offer capable of acceptance by the doing of an act, and the act which is put forward as the executed consideration for the alleged promise, there must subsist, so to speak, the relation of a quid pro quo. ..." ^[176]

103. That notion of quid pro quo is present in that notion of a supply being for consideration. When regard is had to the Attribution Rules in Division 29 of Part 2-6 of Chapter 2 and summarised at [61]-[63] above, the link between the supply and the receipt and provision of consideration becomes even clearer. Generally, the GST payable by an entity is based on the "consideration ... received for the supply" (emphasis added) in the relevant tax period. It is not consideration that the entity is entitled to receive or that another entity is liable to give but the consideration received. The only exception applies to an entity not accounting on a cash basis. That arises when, before consideration is received, an invoice is issued relating to the supply.

104. An "invoice" is defined in s 195-1 to mean "... a document notifying an obligation to make a payment" (emphasis added). Generally, an input tax credit is attributable to the tax period in which an entity provided consideration for the acquisition. Again, an exception arises when an entity, which does not account on a cash basis, is given an invoice relating to the acquisition and, again, an invoice is a document notifying an obligation to make a payment. An obligation to make a payment is a reference to a current obligation. It is not a reference to a promise to pay at some time in the future or on the happening of some event. Putting aside other factors that might be relevant in a particular matter, a promise of that sort does not crystallise into an obligation to pay until the time has come or the event has happened. ^[177]

B.2.4 Consideration: Did Twin Tribes ANZ make the supply for consideration?

105. The answer to this question must be that Twin Tribes ANZ did not make a "supply for consideration". I have already found that there was no agreement between Twin Tribes ANZ and Mr Harland as trustee of the PCS Global Trust for the sale and purchase of the IT and support rights. Even if there were, Twin Tribes ANZ must have made the supply of the IT and support rights for consideration i.e. for some form of payment, act or forbearance either by some entity. The entity providing the consideration does not have to be Mr Harland as trustee of the PCS Global Trust because s 9-15(2) provides that it does not matter whether the payment, act or forbearance was by the recipient of the supply i.e. the entity to which the supply was made. ^[178]

106. The Heads of Agreement makes mention of a "Purchase Price" but, even if that is taken as a promise to pay that purchase price and even if Twin Tribes ANZ is taken to have supplied the IT and support rights, there is nothing in the evidentiary material that leads me to be satisfied that the purchase price, or any part of it, has been received by Twin Tribes ANZ at all let alone for the supply of the IT and support rights. The Heads of Agreement set out the manner in which the purchase price is to be paid and I have already decided that the Vendor Finance Agreement executed at a later time cannot be read as altering any agreement. The Heads of Agreement clearly states that the purchase price is payable to Twin Tribes ANZ by PCS only from "EBIT" which I understand to mean earnings before interest and tax. It clearly states that PCS has no liability to Twin Tribes ANZ for the payment of the purchase price otherwise than from distributable EBIT derived from the provision of services, training franchise development and franchise sales associated with the Concept. Even then, it was only to be paid from 90% of distributable EBIT under PCS control.

107. There is no evidence to suggest that there was any distributable EBIT in the relevant tax period let alone sufficient to lead to PCS's being obliged to pay Twin Tribes ANZ over $53 million. In the absence of any EBIT, PCS was not under any liability to pay any part of the purchase price.

108. Twin Tribes ANZ as trustee for the Twin Tribes Hybrid Trust has issued two Tax Invoices with one dated 15 February 2012 and the other 31 March 2012. They were for similar, but different, amounts in the order of $53,000,000 with the first addressed to PCS and the second to Mr Harland as trustee of the PCS Global Trust. Tax Invoices may be relevant under the Attribution Rules for those accounting otherwise than on a cash basis but they do not determine that a supply has been made for consideration.

109. The Vendor Finance Agreement does not lead me to the conclusion that the supply has been made for consideration. Even if money were lent by Twin Tribes ANZ to PCS under that agreement, it does not change the fact that PCS was not under any obligation to give Twin Tribes any consideration for the supply of the IT and support rights and would never be if it never received distributable EBIT derived from the provision of its services, training franchise development and franchise sales associated with the Concept. I have already set out my reasons for deciding that the Vendor Finance Agreement cannot change the terms of any agreement reflected in the Heads of Agreement. In particular, it cannot create a liability to pay the whole purchase price of $107,293,924.00 when there was no such liability under the Heads of Agreement. Even if that sum were lent under the Vendor Finance Agreement, PCS was not liable to pay that amount under the Heads of Agreement at the time of the loan. Therefore, one cannot be set off against the other.

110. Not only could they not be set off against each other in law, there is no evidence that the transactions occurred in fact. There is nothing in the material even in the form of book entries that would reflect and lead to substantive evidence of the transactions such as entries in bank accounts representing a movement of funds from Twin Tribes ANZ to PCS and from PCS back again. If it had occurred, Twin Tribes would have been required to account for that as a taxable supply and would have been required to pay the GST payable on that taxable supply according to s 9-40 of the GST Act. There is nothing in the material that satisfies me that Twin Tribes ANZ ever accounted for the GST on either the whole purchase price or half of it. Any failure by it to do so supports a finding that there never was a loan of money by Twin Tribes ANZ to PCS let alone a set off of loan monies against any obligation to pay the purchase price under the Heads of Agreement. Had the Vendor Finance Agreement represented something that was to be implemented in fact rather than notionally on paper, Twin Tribes ANZ would have had to put aside an amount of cash to pay the GST it would have been liable to pay. That would have been the GST on an amount of $107,293,924.00 that it received as consideration for the IT and support rights.

111. Certainly, the sum of $107,293,924.00 it received as consideration under the Heads of Agreement would have been the same $107,293,924.00 it lent PCS. The source, however, of the moneys PCS used to give consideration for the supply of the IT and support rights does not alter the fact that it would have given consideration for the supply of the IT and support rights. Twin Tribes ANZ would have made the supply of those IT and support rights to PCS for consideration and the liability to pay GST and the entitlement to input tax credits would have fallen as I have said. PCS would have no continuing liability to pay Twin Tribes ANZ anything under any agreement reflected in Heads of Agreement. ^[179] Twin Tribes ANZ could have been said to have made the supply of the IT and support rights for consideration.

112. That, I find though, is not the case. There is no evidence that Twin Tribes ANZ had funds to meet that obligation or even the GST on half of that amount or that it accounted for the taxable supply. If, for some reason, Twin Tribes ANZ was not required to account for GST, that would be because it was neither registered nor required to be registered under the GST Act. If that is the case, any supply it makes cannot be regarded as a taxable supply for registration or a requirement to be registered is an essential criterion for a taxable supply. If the supply was not a taxable supply, PCS could not make a creditable acquisition and would not be entitled to input tax credits.

113. Mr Gray explored a proposition that PCS's merely entering the Vendor Finance Agreement might constitute the provision of consideration for the purposes of the GST Act. He did not concede that it could but, on the basis that it might, refuted the proposition. By its terms, the Vendor Finance Agreement created no more than the possibility of debt. Mr Gray referred to the judgment of Latham CJ in Bakewell v Deputy Federal Commissioner of Taxation (SA). ^[180] That case concerned an annuity that Mr Bakewell had promised to pay his wife. The annuity was to be paid from Mr Bakewell's share of the profits from a partnership and, on his leaving the partnership, from £40,000.00 he would pay to a trustee from the moneys he received from his share of the partnership. When he died while still a member of the partnership, the remaining partners paid £57,738.00 to his executors as purchase moneys for his share of the partnership. The question then became whether a value, and if so what value, should be assigned to the annuity when valuing Mr Bakewell's estate for the purposes of the imposition of estate duty.

114. Latham CJ dissented on the issue of the time at which any beneficial interest in the sum of £40,000.00 passed to Mr Bakewell's wife but not on the issue of whether the annuity represented a debt or charge on the estate. He said:

"... The liability may, it is true, be described as a contingent debt, but the phrase 'contingent debt' merely means the possibility of a debt. Until the possibility becomes an actuality there is no debt (See Commissioner of Stamp Duties (N.S.W.) v. Permanent Trustee Co. of New South Wales Ltd. (Hill's Case ... [1933] 49 CLR 293]; Barnett v. Eastman ...[(1898) 67 LJQB 517])- a debt 'must be debitum -that is, due. It must be a debt, the time for payment of which, although it is future, will certainly arrive.' The debt may be debitum in praesenti, solvendum in futuro, but such a debt is to be distinguished from what can only be described as something which will probably or possibly ripen into a debt. This view is in accordance with the decision of the Full Court of the Supreme Court of New South Wales in In re Robertson ... [(1897) 18 LR (NSW) (L) at p 24 4], where the court said: 'In the ordinary grammatical meaning of the words a future contingent liability is not 'a debt due and owing-it not only is not due, but being contingent, never may become due.' ...". ^[181]

Applying the principle to the facts before the Court, Starke J explained:

"... The debts of a deceased certainly include all sums payable by him at future dates (Master in Equity of the Supreme Court of Victoria v. Pearson ... [[1897] AC 214 at pp 216, 217]). But sums which are only payable on the contingencies that a person lives and remains the wife or widow of a given person cannot, in the ordinary signification and use of the English language, be called debts, or even sums payable at a future time. It follows that the annuity of £2,500 given to the wife of the deceased cannot be deducted from his estate under the Estate Duty Assessment Act 1914-1928. Further, it cannot be regarded as a charge upon the estate, for it was only payable out of profits of the partnership so long as the deceased remained a member of the firm." ^[182]

115. Applying these principles in this case, there could never be anything more than the possibility of PCS's owing a debt to Twin Tribes ANZ until Twin Tribes ANZ lent the money to PCS in the first place. Entering the Vendor Finance Agreement could not be seen as consideration for entering any agreement evidenced by the Heads of Agreement. To the extent that there is an agreement, it is clear that, in contractual terms, the grant of the IT and support rights is consideration for the purchase price and vice versa. A vendor financing arrangement is expressly referred to in the Heads of Agreement as is the fact that the purchase price will be paid under such an arrangement. There is nothing in that document to suggest that PCS's entering the Vendor Finance Agreement is consideration for Twin Tribe ANZ's supplying the IT and support rights under any agreement evidenced by the Heads of Agreement. The Heads of Agreement document sets out when the purchase price becomes payable and that time is linked to the time at which PCS receives distributable EBIT. It is not linked to the receipt of PCS's entering a vendor finance agreement of any kind.

116. I note that the Vendor Finance Agreement suggests to the contrary but I have already found that its terms do not alter any agreement that is reflected in the Heads of Agreement document. It is the purchase price that is the consideration for any IT and support rights that would pass under any agreement; not the fact of having entered the Vendor Finance Agreement. In view of that conclusion, I am not satisfied that Twin Tribes ANZ made a supply of the IT and support rights for a consideration that took the form of PCS's entering any agreement in which Twin Tribes ANZ provided finance.

117. I also note that cl 1 of the document described as the "Exclusive Master Regional License Purchase Deed" (EMR Licence Purchase Deed) ^[183] refers to a Deposit being 10% of the purchase price and the purchase price as $107,293,924.00. ^[184] Clause 6.d states that "as at the date of this agreement TTWC has paid a deposit equivalent to 10% of the Purchase Price due under the Heads of Agreement and the Vendor Finance Loan Amount will be reduced by that amount." ^[185] The EMR Licence Purchase Deed does not appear to have been executed. Even if it has been, the mere statement that a deposit has been paid does not mean that Twin Tribes ANZ has made a supply for consideration of some amount being part of the consideration.

118. That brings me to a deposit of $10,000.00. Reference is made to in a receipt numbered 023 and issued by Twin Tribes ANZ on 15 February 2012. In broad terms, it was described as a deposit regarding "Rights associated with development of IT and POS Solutions" in respect of the Concept set out in the Heads of Agreement. There is, though, no mention made of a deposit in the Heads of Agreement. Mention is made of a "Deposit" in the Definitions in cl 1 of the Vendor Finance Agreement as "... the amount set out in the Rights Agreement". ^[186] The "Rights Agreement" is defined in cl 1 as "... the agreement dated 31st March 2012 executed between the Lender and the Borrower". ^[187] Those references suggest that there is another agreement executed on 31 March 2012. It cannot be the Heads of Agreement for that was executed on 15 February 2012. It may be that the reference is to the "Exclusive Master Regional License Purchase Deed". ^[188] That is written in terms suggesting that a deposit of $10,000.00 has been paid.

119. As I have said, the word "consideration" does not contemplate a promise to pay an amount, do an act or forbear from doing an act. It requires payment, action or forbearance when used without qualification as it is in s 9-5(a). On the evidence that I have, I have found no record of PCS's having paid the sum of $10,000.00 to Twin Tribes ANZ as a deposit or otherwise. There is no entry to that effect in a bank statement and no reference to its having been paid from some other source of funds other than those held by a bank. There is no reference to Twin Tribes ANZ's having received such an amount from PCS. It follows that I am not satisfied that Twin Tribes ANZ made a supply of the IT and support rights for consideration of which a $10,000.00 deposit was part. ^[189]

B.2.5 Did Twin Tribes ANZ make a supply for consideration to PCS?

120. In view of the findings I have made and for the reasons I have given, I must answer this question in the negative.

C. Did Mr Harland as trustee of PCS Global Trust provide, or liable to provide, consideration?

C.1 The submissions

121. Mr Gray's submissions on this point are consistent with those made in response to the issue I have considered in the previous section of my reasons. Again, Mr Harland as trustee of the PCS Global Trust did not provide any consideration and was not liable to provide any consideration for the supply of the IT and support rights. That is fatal to Mr Harland's submission that he is entitled as trustee of the PCS Global Trust to input tax credits.

122. In his Statement of Facts and Contentions, Mr Harland submitted:

"The final requirement that the Taxpayer must provide consideration for the supply may be dispensed with easily. The word consideration is defined in section 9-15 to include any payment or any act or forbearance in connection with, in response to or for the inducement of the supply of anything. Upon entering into the heads of agreement, the Taxpayer incurred an obligation to pay to Two Tribes as the supplier the purchase price. The obligation to pay the purchase price was an absolute rather than a contingent obligation. Upon entering the vendor finance agreement that purchase price was paid in full using the loan amount. It follows that the Taxpayer provided consideration for the supply within section 9-15." ^[190]

123. Earlier in the document, Mr Harland had referred to the Heads of Agreement stating:

"... Page five of that agreement contains a clause that imposed an obligation upon the Taxpayer to pay half of the purchase price upon issue of the first tax invoice and the balance, being the other half, upon executions of the vendor finance agreement." ^[191]

C.2 Consideration

124. Putting aside that problem, I have already found that I am not satisfied that any consideration has been provided by PCS to Twin Tribes ANZ. I am also satisfied that any liability to provide consideration, or any part of it, does not arise until PCS has derived distributable EBIT. On the evidence that I have, I am not satisfied that it has derived any distributable EBIT. Therefore, it is not liable to provide any consideration under any agreement evidenced by the Heads of Agreement for the supply of the IT and support rights. Having returned to page five of the Heads of Agreement, I do not agree with Mr Harland that there is any suggestion that PCS would pay Twin Tribes ANZ half of the purchase price on the issue of the first tax invoice. Reference is certainly made in the relevant passage that I have set out at [23] above, to an invoice having already been issued by Twin Tribes ANZ to PCS for 50% of the purchase price but the clause goes on to provide that the sum would "... be paid by PCS to TTW(ANZ) from distributable EBIT as above". There is nothing that renders half the purchase price immediately payable. The same is true of the remaining half of the purchase price. It too is only payable only from distributable EBIT and the issue of a tax invoice does not alter that obligation.

D. Conclusion

125. For the reasons I have given, I am not satisfied that Mr Harland as trustee of the PCS Global Trust has made a creditable acquisition within the meaning of s 11-5 of the GST Act in relation to the IT and support rights. As he has not done so, he is not entitled to input tax credits in relation to those rights and, in particular, is not entitled to input tax credits amounting to $5,359,991.00. As that was the only matter in issue in relation to the BAS he lodged with the Commissioner for the period 1 January to 31 March 2012, I affirm the Commissioner's assessment of the net amount dated 16 April 2012. ^[192]

SUBMISSIONS: assessment of penalties

126. Mr Harland submitted that he is not liable to an administrative penalty as his statement to the Commissioner was neither false nor misleading in a material particular. He was entitled to claim, and correctly claimed, an input tax credit in the tax period to which the relevant BAS related. If he had made an incorrect statement, which he did not concede, he had not done so because of a failure to take reasonable care or because of recklessness as to the operation of the law.

127. At the hearing, Mr Harland said that, at the time he entered the agreement, he believed that he was entering a credible business. He had done the due diligence and saw the arrangement as a way of expanding his business. While he now sees that he should have obtained legal advice, he never believed that he was being reckless in view of the information he was given. Not until he was denied the input tax credit, did he realise why his claim was being disallowed. His actions up until that time should not, however, be viewed as reckless. He was never paid a cent even though he did work for Oenoviva and tried to do everything he was required to do under the Heads of Agreement. About six weeks after he had signed the Heads of Agreement, Mr Harland said that he started to realise that all was not as it should be. He began to realise that the Concept was flawed but, at the time he submitted the BAS, he believed that he had a creditable acquisition.

128. Mr Gray submitted that Mr Harland, as trustee of the PCS Global Trust, is liable to an administrative penalty under s 284-75(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) on the basis that he made a false or misleading statement when he lodged the BAS for the tax period ending 31 March 2012. It is of no consequence whether he knew that it was false or misleading at the time. ^[193] As a consequence, Mr Harland as trustee of the PCS Global Trust had a shortfall amount under Item 2 of s 284-80 of Schedule 1 to the TAA. Citing authorities to which I will return, Mr Gray submitted that the recklessness had resulted from Mr Harland's being reckless in lodging the BAS or, in the alternative, that it had arisen from his failing to take reasonable care.

LEGISLATIVE FRAMEWORK: assessment of penalties

129. The penalty provisions are found in Schedule 1 to the TAA. Those relating to the 2000 income year are found in Part VII of ITAA36. The substance of the provisions remains the same. Therefore, I have set out the provisions from the TA Act relating to 2001 and 2002 and referred to those of ITAA36 in the footnotes.

130. A taxpayer is liable to an administrative penalty if one of the four circumstances set out in s 284-75 of Schedule 1 to the TAA applies. Only that in s 284-75(1) is relevant in this case. In so far as it is relevant in this case, it applies if a taxpayer:

"(a)

... make[s] a statement to the Commissioner ...; and

(b)

the statement is false or misleading in a material particular, whether because of things in it or omitted from it." ^[194]

131. In the context of this case, a taxpayer has "a shortfall amount if an item in this table applies to ... [that taxpayer]. That amount is the amount by which the relevant liability, or the payment or credit, is less than or more than it would otherwise have been." ^[195] Only item 2 of the table set out in the section is relevant to the circumstances in this case. It provides that a taxpayer has a shortfall amount in the following situation:

"An amount that the Commissioner must pay or credit to you under a *taxation law (other than the *Excise Act) for an accounting period, or under a tourist refund scheme under Division 168 of the *GST Act or Division 25 of the A New Tax System (Wine Equalisation Tax) Act 199 9, worked out on the basis of the statement is more than it would be if the statement were not false or misleading."

132. The Excise Acts have no application in this case. In the context of these provisions, the reference to "taxation law" is a reference to an Act administered by the Commissioner and regulations made under such an Act and to the Tax Agents Services Act 2009 and regulations. ^[196] It includes the TAA as well as ITAA36 and the Income Tax Assessment Act 1997 (ITAA97).

133. Section 284-85 specifies the way to work out the amount of the penalty. It requires the base penalty to be worked out under s 284-90 first and then either increase that figure under s 284-220 or reduced it under s 284-225 of Schedule 1 to the TA Act. The base penalty amount is worked out by determining the appropriate Item in s 284-85 applicable to the taxpayer's circumstances. ^[197]

134. In this case, the Commissioner has relied on Item 2 of s 284-90, which provides that the base penalty amount is 50% of the shortfall amount or part when the taxpayer has:

"... a *shortfall amount as a result of a statement described in sub-section 284-75(1) or (4) and the amount, or part of the amount, resulted from recklessness by ... [the taxpayer] or ... [taxpayer's] agent as to the operation of a *taxation law (other than the *Excise Acts)". ^[198]

135. In the alternative, Mr Gray submitted that regard might also be had to Item 3. It provides that the base penalty amount is 25% of the shortfall amount or part when the taxpayer has:

"... a *shortfall amount as a result of a statement described in sub-section 284-75(1) and the amount, or part of the amount, resulted from a failure by ... [the taxpayer] or ... [taxpayer's] agent to take reasonable care to comply with a *taxation law (other than the *Excise Acts)". ^[199]

CONSIDERATION: assessment of penalties

When is a "statement false or misleading in a material particular"?

136. In the case of Pearson v Deputy Commissioner of Taxation ^[200] (Pearson), Spender J considered s 223(1)(a)(i) of the Income Tax Assessment Act 1936 (ITAA36). It too was predicated, in part, on a taxpayer's having made "... a statement to a taxation officer, or to a person other than a taxation officer for a purpose in connection with the operation of this Act or the regulations, that is false or misleading in a material particular". Justice Spender said:

" The word 'false' in the former s 223 means 'wrong': Reliance Finance Corporation Pty Ltd v FCT (1987) 18 ATR 224; 87 FLR 305; 87 ATC 4146. It is not necessary for the respondent to show that the statement was deliberate or fraudulent: FCT v Turner (1984) 15 ATR 379; 73 FLR 24; 84 ATC 4161.

In my opinion, the omission of assessable income derived by the appellant ... is to be treated as a false statement within the meaning of s 223(1)(a)(i).

...

The provisions of s 223 apply even if the appellant was ignorant of the accounting matters giving rise to the additional income ...". ^[201]

137. In Revlon v Manufacturing Limited v Federal Commissioner of Taxation ^[202] (Revlon), the Full Court of the Federal Court considered s 45(2) of the Sales Tax Assessment Act (No 1). That provision is similar to s 284-75(1) in that it applies in situations in which, among others, a taxpayer has made "... a statement to a taxation officer ... in connection with the operation of a relevant sales tax law, that is false or misleading in a material particular". In his judgment, Wilcox, with whom Tamberlin J agreed, referred to the authorities to which Spender J had referred in Pearson saying:

" Turner and Reliance both seem to assume that the operation of s 45(2) is not limited to cases of intentional falsity. The word 'wilfully' does not appear in the subsection. To read it in, would seriously undermine the effectiveness of a provision as a 'protection of the revenue', to use Fullagar's phrase. It would often, perhaps usually, be impossible for the Commissioner to demonstrate that a particular false statement was wilfully false. Moreover, to read 'false' as 'wilfully false' would lead to the strange result that the Commissioner bore a greater evidentiary burden in collecting additional tax than in prosecution for an offence. Part III of the Taxation Administration Act 1953 (Cth) relates to prosecutions and offences in relation to a 'taxation offence'. The term 'taxation offence' is defined in s 8A of that Act as including 'an offence against a taxation law'; and 'taxation law' is defined by s 2 as including the Taxation Administration Act itself. Section 8K(1) of that Act makes it an offence to make a statement to a taxation officer - this includes a statement in a taxation return: see s 8J(2) - 'that is false or misleading in a material particular'. Section 8K(2) deals with onus of proof:

'In a prosecution of a person for an offence against sub-section (1), it is a defence if the person proves that the person -

(a)

did not know; and

(b)

could not reasonably be expected to have known, that the statement to which the prosecution relates was false or misleading.'

I conclude that it was not necessary for the Commissioner to demonstrate to the Tribunal that Revlon knew that the values for sales tax returned by it were false. Once it is established that they were wrong by virtue of s 18A(4), additional tax is payable by force of s 45(2). ..." ^[203]

138. What is meant by the expression "false or misleading in a material particular" (emphasis added) was considered by the Full Court of the Federal Court in Minister for Immigration v Dela Cruz ^[204] (Dela Cruz) in the context of s 20(1) of the Migration Act 1958. In summary, that section applied to a person who had made a statement to an officer or person exercising powers under that legislation in respect of an entry or visa that was false or misleading in a material particular. The Full Court said:

"... The term 'material' requires no more and no less than that the false particular must be of moment or of significance, not merely trivial or inconsequential.

... In the context of s 20(1), a statement will be false or misleading in a material particular if it is relevant to the purpose for which it is made .... A statement will be relevant to that purpose if it may - not only if it must or if it will - be taken into account in making a decision under the Act as to the grant of the visa or entry permit in respect of which the statement is made.

For present purposes, it is sufficient to say that a statement made to an immigration official by a person seeking to enter Australia, which conveys a false or misleading impression of the person or of his or her circumstances, would be false or misleading in a material particular. Immigration officials are entitled to seek and to be told the truth about a person applying to enter Australia, so that they may be in a position to evaluate the application made to them. They may consider it desirable to ask further questions about the subject matter of the statement made to them and, with answers to further questions, the statement may be more useful. But it does not follow that, without further questions, the statement is not material in the sense in which the word is used in s 20(1)." ^[205]

139. The principles established in Dela Cruz seem equally applicable in this case. A statement claiming an input tax credit when none is claimable is incorrect and so false. Information that is required to calculate the net amount must be regarded as material information. That includes information regarding creditable acquisitions and taxable supplies for the information relating to both is required to determine any input tax credits and any GST, which the taxpayer is liable to pay.

Has Mr Harland as trustee of the PCS Global Trust made a statement that is false or misleading in a material particular?

140. In this case, I am satisfied that Mr Harland as the trustee of the PCS Global Trust made a statement that is false or misleading in a material particular when he lodged the BAS for the tax period ending 31 March 2012. On the findings I have made, it is incorrect, and so false, to the extent that he claimed that PCS had made "Capital purchases" of $53,646,962. For the reasons I have given, that statement was incorrect and so false. PCS had not made a capital purchase because no consideration had passed from it to Twin Tribes ANZ and it was not yet liable to pay any consideration until it was in receipt of distributable EBIT.

141. The statement is also a false statement in a material particular for Mr Harland's statement has had a material bearin g on the amount that the Commissioner was required to credit to him as trustee of the PCS Global Trust. The consequence of that finding is that I find that Mr Harland as trustee of the PCS Global Trust has a shortfall amount under Item 2 of s 284-80 of the TAA. Therefore, he is liable to an administrative penalty under s 284-75(1) of the TA Act.

The base penalty: what is at is meant by "recklessness" and "failure to take reasonable care"?

A. " Recklessness ... as to the operation of a taxation law "

142. The word "recklessness" has been considered in a number of cases. Some were gathered together by Senior Member McCabe in Re Dixon ATF the Dixon Holdsworth Superannuation Fund and Federal Commissioner of Taxation ^[206] when considering Item 2 of the TAA:

"24. The taxpayer is liable to pay the penalty in this case if either he or his agent was reckless. Recklessness is not defined in the TAA, but it is has been discussed in a number of cases. In Reed (Albert E) and Co Ltd v London and Rochester Trading Co Ltd [1954] 2 Lloyds Rep 463, Devlin J said (at 475) recklessness 'means deliberately running an unjustifiable risk'. In Shawinigan Ltd v Vokins and Co Ltd [1961] 3 All ER 396 at 403, Megaw J said 'recklessness is gross carelessness' or 'a high degree of carelessness'. His Honour continued:

The only test, in my view, is an objective one. Would a reasonable man, knowing all the facts and circumstances which the doer of the act knew or ought to have known, describe the act as ' reckless ' in the ordinary meaning of that word in ordinary speech?

25. That approach has been followed by the Tribunal in other cases. In Jones and Commissioner of Taxation [2003] AATA 84, I suggested at paragraph 26: 'recklessness means more than mere carelessness. It incorporates an element of rashness or heedlessness': see also Re Taxpayer and Commissioner of Taxation [2004] AATA 1304 at paragraph 94; Arrow Pearl Co Pty Ltd and Commissioner of Taxation [2005] AATA 340 at paragraph 98. Recklessness falls short of a finding of intentional disregard, where the taxpayer or the agent presses a claim they know to be wrong. Similarly, a finding of recklessness does not imply the applicant or his agent were dishonest: see Hart v Commissioner of Taxation (2003) 131 FCR 203 at 214 per Hill and Hely JJ." ^[207]

143. In Hart v Commissioner of Taxation ^[208] (Hart), Hill and Hely JJ considered these concepts and adopted the observations that had been made by Cooper J about the notion of recklessness in the context of s 226H of ITAA36. ^[209] That section equated with what is now Item 2 in s 284-90 of ITAA97. Justice Cooper had said of that section in BRK (Bris) Pty Ltd v Commissioner of Taxation ^[210] (BRK):

"... Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful risk, that the material may be incorrect, or be grossly indifferent as to whether or not material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness." ^[211]

144. Their Honours also added in Hart that:

" There is a line between recklessness and dishonesty, and as the Explanatory Memorandum for the Taxation Laws Amendment (Self Assessment) Bill 1992 (Cth) (at p 89) confirms, a finding of dishonesty is not necessary for a taxpayer to be subject to a s 226H penalty. Wherever a tax return includes deductions that are not allowable, a foreseeable consequence is that there will be a tax shortfall, particularly in a system of self assessment. But, in the ordinary case, the mere fact that a tax return includes a deduction which is not allowable is not of itself sufficient to expose the taxpayer to a penalty. Negligence, at least must be established although there are some sections (eg s 226K) which impose a liability in particular circumstances even if the taxpayer has not been negligent. The context makes it clear that recklessness means something more than failure to exercise reasonable care (s 226G), but less than intentional disregard of the Act (s 226J)." ^[212]

145. Even if it is established that a taxpayer has been reckless, that is not enough. Before a taxpayer will come within Item 2 of s 284-90(1) of Schedule 1 to the TAA, it must be established that the shortfall amount resulted from the recklessness of the taxpayer or of the taxpayer's agent "as to the operation of a *taxation law". The "operation of a *tax law" must be understood as a reference to how a taxation law works. It may be recklessness as to how it works generally or how it works, or applies, in a particular factual matrix.

B. " Failure to take reasonable care "

146. Failure to take reasonable care is at the heart of Item 3. The shortfall amount, part of it, must have resulted from a failure by a taxpayer or a taxpayer's agent to take reasonable care to comply with a tax law. The expression "reasonable care" is not defined in the TAA but it has been considered in other contexts. They include the law of torts in which the care that is reasonable may be determined not only by a person's own actions in a particular situation but the actions of others. ^[213] Although all of the circumstances will be relevant, Item 3 is a situation in which a taxpayer's actions, or those of the taxpayer's agent, are assessed alone.

147. Of more relevance are those cases concerning extensions of time to institute legal proceedings. In Peco Arts Inc v Hazlitt Gallery Ltd, ^[214] for example, Webster J considered a related expression. The question for his Honour was when the plaintiff could, "with reasonable diligence", have discovered that the drawing she had bought from the defendant was not an original by a famous nineteenth century artist as both she, a specialist in nineteenth century drawings whom she consulted and the defendant had understood it to be at the time of the sale. Time under the Limitation Act 1980 began to run from the time that she could, with reasonable diligence, have made that discovery. Webster J reviewed the authorities and said:

" Taking into account these authorities I conclude, first of all, that it is impossible to devise a meaning or construction to put on those words which can be generally applied in all contexts because, as it seems to me, the precise meaning to be given to them must vary with the particular context in which they are to be applied. In the context to which I have to apply them, in my judgment, I conclude that reasonable diligence means not the doing of everything possible, not necessarily the using of any means at the plaintiff's disposal, not even necessarily the doing of anything at all, but that it means the doing of that which an ordinarily prudent buyer and possessor of a valuable work or art would do having regard to all the circumstances, including the circumstances of the purchase." ^[215]

148. The issue was considered in the context of s 226G of ITAA36, which is in substantively the same terms as Item 3 of s 284-90(1) of the TAA, by Dowsett J in Weyers & Anor v Federal Commissioner of Taxation. ^[216] He first repeated its effect:

"... For the purposes of s 226G it is necessary to identify conduct falling short of that expected of a reasonable person in the circumstances. ..." ^[217]

149. Further consideration to this issue has been given by Greenwood J in Aurora Developments Pty Ltd v Federal Commissioner of Taxation (No 2). ^[218] His Honour said:

" It follows as a matter of principle that the reasonable care test calls upon a taxpayer to exercise the care that a reasonable person would be likely to have exercised in the circumstances of the taxpayer in fulfilling the taxpayer's tax obligations. The test looks to whether such a person would have foreseen, as a reasonable probability or reasonable likelihood, the prospect that the action or step or the failure to act or to take an affirmative step would result in a shortfall amount and in determining that question, a relevant factual enquiry is whether the taxpayer made the reasonable attempts a person in the position of the taxpayer ought to have taken so as to comply with the provisions of a taxation law. At para 1.75 of the Explanatory Memorandum, the observation is made that a taxpayer who prepares his or her own Business Activity Statement would usually be taken to have exercised reasonable care if the taxpayer relies upon the advice of an accountant or lawyer (or both) whom the taxpayer could reasonably expect to provide competent advice on the relevant matter in issue.

At para 1.76, the observation is made that a taxpayer would be at risk of a penalty if the taxpayer was careless (that is to say, did not act reasonably) in presenting all of the relevant facts to an adviser and such failure materially affected the advice upon which the taxpayer sought to rely." ^[219]

150. The failure to take reasonable care with which Item 3 is concerned is the failure to take care to "comply with a *taxation law". To "comply" is to "... act in obedience to ..." it. ^[220] That is language that is different from that used in Item 2 where it is recklessness as to the operation of a tax law. When applied in the particular circumstances of a case, I do not consider that there is any difference between the practical application of the two expressions. Both require a consideration of the taxpayer's actions, or those of the taxpayer's agent, with reference to what the taxation law requires.

Has the shortfall amount resulted from recklessness as to the operation of a taxation law or from failure to take reasonable care to comply with a taxation law?

151. A person registered under the GST Act, is required to give the Commissioner a GST return for each tax period. ^[221] A BAS is the approved form in which that GST return is given to the Commissioner. In general terms, the Commissioner has regard to the information in the BAS in deciding whether the net amount for a tax period is less or greater than zero. If it is less than zero, s 35-5 provides that the Commissioner must pay an amount equal to the amount by which it is less than zero to the person. By virtue of s 35-10 and as confirmed in the Multiflex appeal, the person's entitlement to be paid that amount arises on giving the GST return, and so the BAS, to the Commissioner. It is imperative, therefore, that the information in the BAS is accurate.

152. For the reasons I have given above, the information that Mr Harland wrote in the BAS for the tax period ending 31 March 2012 was not correct. Beginning with the form itself, the ATO had sent it to PCS but, as its former Director and Secretary, Mr Harland could reasonably be expected to have known that PCS was no longer registered as a corporation. He should also have known that, as it was no longer registered, it could no longer be regarded as an entity capable of being registered under the GST Act. Furthermore, as its former Director and Secretary he could reasonably be expected to have known that it was no longer capable of being an entity with legal capacity to enter a contract with Twin Tribes ANZ or at all. As trustee of the PCS Global Trust, he could reasonably be expected to know that it had not entered, or purported to enter, an agreement with Twin Tribes ANZ.

153. I have set out the findings I have made regarding the failure to meet the four criteria specified in s 11-5 of the GST Act in order to make a creditable acquisition. Although Mr Harland focused on the penalties at the hearing, his written submissions set out in a Statement of Facts and Contentions illustrates that he had a very unsophisticated approach to what those criteria meant and what was required to meet them. Take, for example, the issue of consideration. He appeared to equate the amount stated in Heads of Agreement as the purchase price with the making of a supply for consideration and with the provision of, or liability to provide consideration for that supply. Certainly, it must be acknowledged that he did seek to rely on the terms of the Vendor Finance Agreement and the reference to tax invoices to establish that consideration did pass or, at least, a liability to provide it did arise. For the reasons I have already given regarding Mr Harland's understanding of page 5 of the Heads of Agreement, I also find that he is reading it how he would like it to be understood. He wants liability to pay half the purchase price on the issue of the first tax invoice but, even if it does, ignores the fact that the sum is only payable from distributable EBIT. Until there is distributable EBIT, there is no liability to pay that amount. In reading it in this way, he is also forgetting that he, as the trustee of the PCS Global Trust, reports on a cash basis and that the provision of a tax invoice is not relevant for the purposes of the GST Act.

154. Bearing these matters in mind and the bases on which I have found the criteria have not been met, I am satisfied that the shortfall amount that resulted from the statement by Mr Harland as trustee of the PCS Global Trust resulted, in the first instance from his failure to take reasonable care. He has not checked matters such as registration and the identity of the entities entering the agreement as would be expected of a person in his position. ^[222]

155. As to recklessness, I accept that Mr Harland initially thought that he had a sound business opportunity but I also find that only some six weeks after he signed the Heads of Agreement on 15 February 2012, he had doubts about the venture. Those doubts were brought about by what might be generally described as Mr Harland's perception that Mr Garrett was failing to deliver on what he had promised in relation to the venture. Despite those doubts and despite not having been paid for any of the invoices for work PCS had performed under any agreement, Mr Harland lodged the BAS on 13 April 2012.

156. By this time, I find, a reasonable person in Mr Harland's position would have thought that there was a real risk that all was not as it should be. A reasonable person would have thought that, in the absence of any evidence that Twin Tribes ANZ or entities associated with Mr Garrett had any hard cash, for none had passed under the Heads of Agreement or Vendor Finance Agreement and none had been received on the invoices issued by PCS for other work, that there was a real risk that no consideration had been provided at all. A reasonable person in his position would have sought advice. Despite that, Mr Harland lodged the BAS. In doing so, I find that he had persuaded himself that all was well because he wanted the business opportunity to work for him. He had persuaded himself to such an extent that he was grossly indifferent to whether what he stated in the BAS was true or not. That amounts to his being reckless as to the operation of a tax law within the meaning of Item 2 of s 284-90 or the TAA. Therefore, I am satisfied that the base penalty is worked out using Item 2 and not Item 3 of that provision.

Should any part of the penalty be remitted?

157. Mr Harland submitted that the penalty should be remitted because he has assisted the ATO in its enquiries about the activities of Twin Tribes ANZ, Mr Garrett and related entities. He travelled to Queensland at his own expense to do so and will continue to do so in order to try to prevent other people from being in his position. He first met with the ATO on 15 February 2013.

158. Section 298-20(1) of the TAA provides that "The Commissioner may remit all or part of a penalty." ^[223] Parliament has not set out any of the matters to which the Commissioner must have regard in deciding whether to exercise power under that provision. That does not mean that the Commissioner's powers are without boundaries for they are to be identified by reference to the subject matter of the enactment under which the decision is made as well as from its object and underlying policy. ^[224] When, as in this case, the discretion relates to the imposition of a penalty that is determined by reference to conduct that occurs in the context of an enactment other than the TAA, the subject matter and the object and underlying policy of that other enactment must also be relevant.

159. Identification of the boundaries of the discretion by reference to these matters does not mean that they are so inflexible that they cannot accommodate the infinite number of circumstances in which people find themselves. What identification does, though, is to ensure that there is a consistency and certainty of approach and outcome in that decisions are not made on arbitrary grounds and are not perceived to have been made on such grounds. As Kirby J recognised in Minister for Immigration and Multicultural Affairs v Yusuf, ^[225] proceedings between parties in administrative merits review proceedings of this sort:

"... not only dispose of the rights of particular parties. They lay down the standard for thousands of others which may never get to the Tribunal or a court." ^[226]

160. I have already referred to the scheme of the GST Act. It imposes a burden in the form of the imposition of GST and that burden is intended to fall according to the terms of that enactment. In the case of the acquisition of rights of the sort contemplated in this case, its payment falls on the entity acquiring the rights but is acquitted by the entity supplying those rights. An input tax credit does not amount to some form of bounty to be recovered by any entity acquiring the rights in any circumstances. It can only be recovered by an entity which has made a creditable acquisition and so by an entity which, among other things, has provided, or is liable to provide, consideration for their acquisition. Such an entity will have provided an amount representing the appropriate amount of GST together with the purchase price to the entity supplying those rights. The entity making the taxable supply will acquit the GST to the Commissioner but the entity making the creditable acquisition can alleviate the burden of having paid the GST by claiming an input tax credit of the same amount. That is to say, an input tax credit is an alleviation of the burden that the entity has borne in acquiring the rights and paying their price together with the appropriate amount of GST. That is so only if it is a creditable acquisition for the GST Act intends that the burden of paying the GST falls on an entity which does not acquire those rights for a creditable purpose and so does not acquire it in carrying on its enterprise. ^[227]

161. The penalty scheme set out in Schedule 1 to the TAA is intended to ensure that the revenue is protected. Its protection requires that taxpayers and those liable to pay tax are open and honest in their dealings with the Commissioner. The system of penalties is a graduated system recognising that errors and omissions may occur for a variety of reasons. There are three categories recognised in the assessment of the base penalty: intentional, recklessness and failure to take reasonable care. Inherent in those three categories is a recognition that some errors and omissions arise from mistakes that happen even though reasonable care is taken and that there are matters on which minds might differ as to how the law would apply to the particular facts. Those gradations have to be given appropriate recognition in any system of remission of penalties.

162. Recognition also has to be given to s 284-225(1) which provides for a reduction of 20% in the base penalty amount if, after the Commissioner has told the taxpayer that an examination is to be made of his or her affairs, he or she voluntarily discloses the shortfall and disclosure can reasonably be expected to have saved the Commissioner a significant amount of time or significant resources in the examination. If disclosure is made before the Commissioner tells the taxpayer about an examination, the base penalty amount may be reduced by 80% if the shortfall amount is greater than $1,000.00 or reduced to nil if less than $1,000. ^[228] There may be circumstances in which the Commissioner may treat a taxpayer as having made a disclosure of a shortfall amount before being told of an examination even though the taxpayer has made the disclosure after being told of an examination. ^[229]

163. At the same time, s 284-220 provides for an increase in the base penalty amount. It does so in circumstances in which a taxpayer took steps to prevent or obstruct the Commissioner from finding out about a shortfall amount or about the false or misleading nature of a statement in relation to which the base penalty amount was calculated. ^[230] It also provides for an increase when a taxpayer becomes aware of a shortfall amount after a statement has been made to the Commissioner about a relevant tax-related liability or becomes aware of a false or misleading statement made to the Commissioner or another entity and did not tell either the Commissioner or other entity within a reasonable time. ^[231] Sections 284-220(1)(c) to (e) also provide for an increase in the base penalty amount where a taxpayer has previously been subject to a base penalty amount.

164. This brief outline of the penalty scheme established by the TAA shows that the imposition of the penalty is determined by reference to the reasons for a taxpayer's having a shortfall amount and by reference to the taxpayer's actions in telling the Commissioner about that shortfall amount, the timing of those actions and, in some instances, any impact that the taxpayer's actions have in reducing the Commissioner's workload. Regard is not had to a taxpayer's actions in informing on other taxpayers. The focus is entirely upon a particular taxpayer.

165. That is not to say that regard could not be had to a taxpayer's informing on another taxpayer in considering a remission but that action would have to be seen against the background of the whole of the taxpayer's actions. That background would then be the background against which consideration is given to whether remission is consistent with a legislative scheme for the imposition of a tax, the protection of the revenue that is gleaned from the imposition of that tax and a scale of penalties imposed by reference to the behaviour that led to a taxpayer's having a shortfall amount.

166. In this matter, Mr Harland as trustee of the PCS Global Trust has persisted in his claim that he was entitled to claim an input tax credit up until at least shortly before the hearing. Even at the hearing, he did not concede that he was not entitled to it although he no longer wished to pursue that argument. While I accept that he has made disclosures to the ATO regarding what he knows of the activities of Twin Tribes ANZ and of those associated with it and will continue to do whatever is asked of him, those disclosures have not reduced the effort and resources that the Commissioner has had to put towards identifying the shortfall amount and to putting his case in support of his position. As late as August 2013, Mr Harland was maintaining in his written Statement of Facts and Contentions not only that he was entitled to an input tax credit in the amount of $5,359,991.00 but that he was also entitled to a further input tax credit of a similar amount. That was some months after he had made voluntary disclosures to the ATO in February 2013 regarding the activities of Twin Tribes ANZ. Remission of a penalty by reducing the base penalty amount in those circumstances is not consistent with the penalty scheme that I have outlined or with protection of the revenue. Therefore, I decline to exercise the discretion to reduce the base penalty amount.

DECISION

167. For the reasons I have given, I affirm the Commissioner's objection decision dated 26 November 2012 disallowing the objections made by Mr Harland as trustee of the PCS Global Trust on 8 June 2012 against the assessment of net amount for the tax period ended 31 March 2012 dated 16 April 2012 and against the administrative penalty assessment dated 17 April 2012.

ATTACHMENT A

LEGEND

The Names

168.

169.

The relationships

ATTACHMENT B

ONE APPLICATION OR TWO WHEN REVIEW IS SHOUGHT OR TWO?

The Federal Court authorities

170. In written submissions dated 29 November 2012, Mr Gray and Ms Baker submitted, on behalf of the Commissioner, that a taxpayer may lodge one application in the Tribunal for review of multiple reviewable objection decisions. They cited a judgment of Lee J in < HP1 > McDermott Industries ( Aust ) Pty Ltd v Federal Commissioner of Taxation </ HP1 > ^[232] . That case concerns a single appeal to the Federal Court under s 14ZZ of the TAA from multiple appealable objection decisions made by the Commissioner. In essence, his Honour concluded that O 29 r 5 of the Federal Court Rules provided:

" ...for the Court to order that separate proceedings , even if involving different applicants , be consolidated as a single proceeding where a common question of law or fact is raised in those proceedings . Such a rule recognises a public interest in the elimination of the unnecessary multiplicity of legal proceedings . It may be noted that in O 6 r 1 the Rules also provide that an applicant may claim relief in respect of more than one cause of action in the one proceeding .</ HP1 >

7 It follows that unless the TAA, in clear terms, provides otherwise, a proceeding in the original jurisdiction of this Court, albeit described by the TAA as an appeal', may be commenced by an applicant in respect of several 'objection decisions' of the Commissioner where common questions of law or fact are involved in those decisions. That is to say, if, implicitly, the TAA acknowledges that several 'appeal' proceedings may be consolidated as a single 'appeal' by order of the Court, it follows that the TAA also accepts that if the Rules so provide, a single 'appeal' proceeding may be commenced by an applicant in respect of several 'objection decisions' where appropriate. Furthermore, for the reasons stated by Ryan J in Krampel Newman Partners Pty Ltd v Federal Commissioner of Taxation [2001] ATC 4473, no contrary intention appears in O 52B of the Rules relating to the institution of 'appeal' proceedings under the TAA, nor in the TAA, so as to exclude the operation of s 23 of the Acts Interpretation Act 1901 (Cth) which would permit a single 'appeal' proceeding to be commenced in respect of several 'objection decisions'." ^[233]

171. The case of Krampel Newman Partners Pty Ltd v Federal Commissioner of Taxation ^[234] (Krampel), to which Lee J referred, considered whether a single application lodged by a number of applicants seeking review of an appealable objection decision was a nullity. In Krampel, Ryan J turned to Order 52B of the Federal Court Rules as it then applied. That specifically addressed appeals against appealable objection decisions and the procedure to be followed. While Order 52B required that an application be in writing, for example, there was nothing in it that suggested that only one objecting applicant could be an applicant in a single application. Ryan J could find nothing implicit in s 14ZZ of the TAA to that effect. He noted that:

"16. It is true that a practice has grown up of confining applications under s 14ZZN to a single taxpayer and, indeed, to a single objection decision in respect of one taxpayer, so that several applications are filed on behalf of the same taxpayer in relation to successive tax years. The practices is recognised by sub-regs (2)(2A) and (2B) of the Federal Court Regulations to which Mr Steward of Counsel for the Commissioner referred. Those sub-regulations provide:

' 2(2A) A fee is not payable in relation to:

(a)

an appeal under section 14ZZ of the Taxation Administration Act 1953; or

(b)

an appeal from a decision of the Administrative Appeals Tribunal in its Taxation Appeals Division; or

(c)

an appeal from a single Judge to the Full Court in relation to an appeal under section 14ZZ of the Taxation Administration Act 1953;

if the Registrar who receives the appeal is satisfied that the appeal (in this regulation called 'the relevant appeal') meets the criteria set out in subregulation (2B).

2(2B) The criteria are that:

(a)

the person lodging the relevant appeal has lodged another appeal and has paid a fee in relation to it; and

(b)

the same paragraph of subregulation (2A) described both appeals; and

(c)

the relevant appeal concerns an issue (other than a procedural issue) that is substantially the same as an issue raised in the other appeal.

17. However, the existence of a practice which has grown up before the enactment of a particular statutory provision like s 14ZZN, cannot govern the interpretation or effect of that provision. Nor can delegated legislation like rules of court, which an Act like the Taxation Administration Act might contemplate as existing, but does not enable to be made. Moreover, O 52B finds its place in a body of procedural rules which, even though some of them are cast in imperative or peremptory terms, does not evince an intention that any non-compliance will render the resultant act null and void. Thus, O 1 r 8 provides;

'The Court may dispense with compliance with any of the requirements of the Rules either before or after the occasion for compliance arises.'

18 On the other hand, non-compliance with s 14ZZN itself, either by exceeding the time limit or by failing to lodge with this Court anything answering the description of an appeal, will nullify the right of appeal conferred by s 14ZZ(a)(ii) of the Taxation Administration Act. An illustration of an exercise in interpretation giving effect to this distinction is afforded by the reasoning of Dixon CJ, McTiernan, Taylor and Windeyer JJ in Clayton v Heffron [1960] HCA 92; (1960) 105 CLR 214 at 247. ..." ^[235]

The inter-relationship of the AAT Act and the TAA

A. The scheme of the legislation

172. Although the TAA deals consistently with appealable objection decisions and reviewable objection decisions, there is a very important difference between the two. Whereas Ryan J in Krampel could have regard to the fact that delegated legislation such as the Rules of Court cannot govern the interpretation or effect of a provision such as 14ZZ of the TAA, I must have regard to the fact that the AAT Act may be relevant in interpreting s 14ZZ in so far as it provides for an application to be made to the Tribunal for review of a reviewable objection decision. That follows from the fact that the Tribunal's power to review an application made under s 14ZZ of the TAA arises from s 25(4) of the AAT Act and that power is, in turn, dependent on a reading s 25(1) and s 14ZZ together. This is not a situation in which the AAT Act is something that might have been contemplated by Parliament when it enacted s 14ZZ(a)(i). It was the foundation stone on which s 14ZZ(a)(i) was enacted and it works this way.

173. Section 25(1) of the AAT Act provides:

"(1) An enactment may provide that applications may be made to the Tribunal:

(a)

for review of decisions made in the exercise of powers conferred by that enactment; or

(b)

for the review of decisions made in the exercise of powers conferred, or that may be conferred, by another enactment having effect under that enactment."

174. Where an enactment:

"... makes provision in accordance with subsection (1) ..., that enactment:

(a)

shall specify the person or persons to whose decisions the provision applies;

(b)

may be expressed to apply to all decisions of a person, or to a class of such decisions; and

(c)

may specify conditions subject to which applications may be made." ^[236]

175. Section 25(5) provides for the situation in which a decision-maker does not make a decision within a prescribed time limit:

"For the purposes of an enactment that makes provision in accordance with this section for the making of applications to the Tribunal for review of decisions, a failure by a person to do an act or thing within the period prescribed by that enactment, or by another enactment having effect under that enactment, as the period within which the person is required or permitted to do that act or thing shall be deemed to constitute the making of a decision by that person at the expiration of that period not to do that act or thing."

176. Provisions of the AAT Act may be added to, excluded or modified by the enactment providing for an application to be made to the Tribunal:

"If an enactment provides for applications to the Tribunal:

(a)

that enactment may also include provisions adding to, excluding or modifying the operation of any of the provisions of sections 27, 29, 32, 33 and 35 or of subsection 41(1) or 43(1) or (2) in relation to such applications; and

(b)

those sections and subsections have effect subject to any provisions so included." ^[237]

177. None of these provisions gives the Tribunal power to review a decision. That is left to s 25(4), which provides:

"The Tribunal has power to review any decision in respect of which application is made to it under any enactment."

B. An analysis

178. While it is true that s 23(b) of the Acts Interpretation Act 1901 (AI Act) provides that "words in the singular number include the plural and words in the plural number include the singular", that provision must be read subject to s 2(2) of that same legislation. Section 2(2) provides that its application is subject to a contrary intention. When I look at s 25 of the AAT Act, it seems to me that Parliament is evincing a contrary intention. It has used both the singular and plural forms of the words "application" and "decision" and it seems to me that it has done so deliberately. When making provision for other enactments to permit applications to be made to the Tribunal, it uses the plural form of both words. It does so when outlining modifications that may be made to the AAT Act by those other enactments. When it comes to the Tribunal's power to review, though, it adopts the singular form of both words and continues to do so when it further provides in s 25(4A) that:

"The Tribunal may determine the scope of the review of a decision by limiting the questions of fact, the evidence and the issues that it considers."

The use of the singular continues in s 29 of the AAT Act when it sets out what is required to make an "... application to the Tribunal for review of a decision" and in s 30(1) when it makes provision for those who are parties to "... a proceeding before the Tribunal for a review of a decision ...". The obligation imposed by s 37 to give reasons and provide documents is imposed on "... a person who has made a decision that is the subject of an application for a review by the Tribunal .... That person is obliged to give "... reasons for the decision" and to provide documents "... relevant to the review of the decision by the Tribunal." These are but a few examples but they illustrate that Parliament has consciously chosen when to use the words in their singular sense and when in their plural sense. There is no room for the operation of s 23(b) of the AI Act in this context.

179. That means that an enactment may provide that applications may be made to the Tribunal for the review of decisions but each application that is in fact made to the Tribunal is for review of a particular decision for the Tribunal's powers relate to a single application of that sort as do a decision-maker's obligations when that application has been made.

180. That interpretation is entirely consistent with the approach taken by Parliament in Part IVC of the TAA. Section 14ZZ(a)(i) provides that a person dissatisfied with the "Commissioner's objection decision" may apply to the Tribunal for review of "a reviewable objection decision". The modifications made to the operation of certain provisions of the AAT Act are entirely consistent with the expression of those provisions in the singular form and with their application to individual decisions. That in turn is consistent with the scheme of the TAA leading to the Commissioner's making an objection decision. An objection decision is made in response to a taxation objection. ^[238] A "taxation objection" is made when a provision of an Act or of regulations permits it and by "... a person who is dissatisfied with an assessment, determination, notice or decision, or with a failure to make a private ruling ...". ^[239] That means that the person wanting to object to a decision, however described, must look for the particular provision permitting a taxation objection to be made. In this case, the provision permitting a taxation objection against a reviewable indirect tax decision, ^[240] including assessment of the net amount is found in s 105-40 of Schedule 1 to the TAA and that permitting a taxation objection against the assessment of penalty under Division 284 is found in s 298-30(2) of the TAA. Each taxation objection is made in relation not only to a different decision but to a particular decision.

181. Given the focus on an application for review of a decision in the AAT Act and the same focus in the TAA, it seems to me that it is intended that an application be made for review of each reviewable objection decision.

C. Practical application

182. The Tribunal's practice reflects this interpretation but takes a practical approach to what might otherwise amount to an excessive use of paper and effort in filing it. Where review is sought in one application of a number of reviewable objection decisions relating to assessments of, say income tax for various years and each raises the same issues, but only one application, the Tribunal has treated that single application as if it were a series of applications. It has treated each application in the series as relating to a particular reviewable objection decision relating to an objection to an assessment relating to a particular year. Each application is given a separate file number but material lodged is lodged in relation to all of the applications and recorded in a single file.

183. That practical approach is consistent with the Tribunal's obligations arising under the Administrative Appeals Tribunal Regulations 1976 (AAT Regulations) in relation to the imposition of application fees. Where two or more applications relate to the same applicant and may, in the opinion of the Registrar, District Registrar or Deputy Registrar, be conveniently heard together, he or she may order that only one application fee is payable.

184. The practical approach is also consistent with a situation such as this in which the reviewable objection decisions, of which Mr Harland seeks review, are not of the same kind. That is to say, one relates to an assessment of GST, another to an assessment of penalty and a third to the Commissioner's decision to refuse to remit the penalty under s 298-20. A single application for review might be lodged but it should be understood as three and given three separate application numbers. The applications arise out of the same circumstances, though, and findings of fact made in reviewing one are relevant in reviewing the others. It is to be presumed that an order that only one application fee is payable would be made under r 19(5) of the AAT Regulations and that, as happened in this case, the three would be heard together.

D. A qualification

185. The practical application should not be permitted to override the statutory requirement that there is in fact a reviewable objection decision. ^[241] If, for example, the Commissioner's objection decision had not addressed penalties, the application for review could not be taken to have sought its review. As it is, the reviewable objection decision did apply to an assessment of the amount of administrative penalties under Division 284 and that decision was made in response to an objection made under s 298-30(1).