LANCUT (AUST) PTY LTD v FC of T

Members:
BJ McCabe M

Tribunal:
Administrative Appeals Tribunal (sitting as the Small Taxation Claims Tribunal)

MEDIA NEUTRAL CITATION: [2003] AATA 1019

Decision date: 10 October 2003

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BJ McCabe (Member)

Introduction

1. Lancut (Aust) Pty Ltd has asked the Tribunal to review the Commissioner's objection decision dated 20 March 2003. The applicant claimed an input tax credit of $1996.16 in its September 2000 BAS arising out of the acquisition of a Toyota Landcruiser motor vehicle during that period. The Commissioner said the applicant could not claim the full amount in that period - a smaller amount was claimable, with the balance being claimed in the two reporting periods that followed.

2. The applicant says it relied on information supplied by its accountant and by Suncorp- Metway, the financier of the vehicle, when claiming the input tax credit. The applicant says it was required under the terms of the finance agreement to pay the whole amount of the GST in respect of the purchase to the financier at the time it entered into the agreement.

The material before the Tribunal

3. Mr Frank Graf, a director of the applicant, attended the hearing before the Tribunal on behalf of the applicant. Mr Porter represented the Commissioner. The Tribunal was provided with the materials required under s 37 of the Administrative Appeals Tribunal Act 1975. It was also provided with a copy of a document generated by Suncorp-Metway titled ``Asset Purchase Agreement - Standard Terms and Conditions'' (another document generated by Suncorp-Metway was included in the s 37 documents: it was titled ``Asset Purchase Agreement and Schedule''. It appears the two documents must be read together). Mr Graf tendered another bundle of documents including a tax invoice from Suncorp-Metway and a copy of an extract from the Tax Examiner newsletter that was supplied to the applicant by its accountant.

The facts

4. Mr Graf was the lessee of a Toyota Landcruiser four-wheel drive vehicle. Suncorp- Metway was the lessor. As the end of the term approached, Mr Graf negotiated with Suncorp- Metway on behalf of the applicant for the applicant to acquire the vehicle. The acquisition was to be financed by Suncorp-Metway.

5. The transaction was concluded on 27 September 2000. The applicant paid Suncorp- Metway $1996.16 in respect of the GST on 29

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September 2000. Mr Michael Cowley of Suncorp-Metway confirmed in a letter to the applicant dated 1 August 2003 that the ``GST component would have been paid at point of purchase, and is financed upfront''. That is consistent with the assumption made by Mr Graf and the applicant that the applicant was required to pay the whole amount of the GST at the outset of the agreement. The applicant then sought to claim an input tax credit in respect of the whole amount of the GST payable under the sale in his BAS in September 2000.

6. The Landcruiser was subsequently sold as part of a trade-in transaction in February 2001. As part of that transaction, the applicant paid out Suncorp-Metway and acquired title to the vehicle which was then transferred to the dealer who was providing a new car.

The agreement and the law

7. The Commissioner says the result in this case turns on the interpretation of the provisions of the A New Tax System (Goods and Services Tax) Act 1999. In particular, the respondent says the Tribunal must consider the meaning of s 29-10(2) of the Act. That section deals with input tax credits in respect of creditable acquisitions where the acquisitions are made by businesses that keep their records on a cash (as opposed to accruals) basis, as in this case. There is no dispute that the purchase of the vehicle was a creditable acquisition in respect of which the applicant was entitled to claim an input tax credit; the only dispute is over the timing and amount of those claims.

8. Section 29-10(2)(a) says the applicant would be able to claim the whole of the amount of the GST it was required to pay on the purchase if it had provided all of the consideration for the creditable acquisition - in other words, if it had bought the asset outright. But that is not what happened here. The Commissioner says the applicant entered into a financing arrangement so that it only paid a portion of the acquisition cost in the first tax period. Section 29-10(2)(b) says the taxpayer may only claim an input tax credit in respect of that portion which was paid during the period. The Commissioner says the applicant should only have claimed $181 in the September 2000 BAS. It was acknowledged the applicant was entitled to claim an amount in the two tax periods that followed, which it did not.

9. The applicant says it did what it was required to do by Suncorp-Metway: that is, it paid the full amount of the GST in advance. Mr Graf says the applicant should therefore be able to claim the full amount of the credit in that period. He referred to an extract from the Tax Examiner newsletter provided by his accountant that suggested goods acquired by way of a chattel mortgage were effectively paid for in full using cash provided by a financier. Since the whole of the purchase price was paid at once, the full amount of the input tax credit would be available pursuant to s 29-10(2)(a).

10. The decision of the House of Lords in
Helby v Matthews [1895] AC 471 makes it clear that one must examine the documents that record the terms and conditions of the transaction in order that it might be characterised. Is it a mortgage, which involves the applicant acquiring title and then conveying that title to Suncorp-Metway as security for the advance, as the applicant contends? Or is it a sale, albeit one in which title does not pass until the goods have been paid for?

11. Clause 3.4 of the Asset Purchase Agreement - Standard terms and Conditions puts the issue beyond doubt. It provides for the applicant to pay instalments during the term of the agreement and says:

``Upon expiration of the Term,... all the Owner's [ie, Suncorp-Metway] right title and interest in and to the Goods shall pass to the Purchaser [ie, the applicant]...''

12. Clause 5.2 permits the purchaser to pay out the agreement and acquire good title before the expiration of the term.

13. It follows the agreement is in substance a sale with payments made in regular instalments. While property does not pass until the final instalment is paid or the loan is paid out, it is clearly a sale and only part of the consideration for the sale was paid during the September tax period. Section 29-10(2)(b) applies to limit the amount of the input tax credit that can be claimed.

Conclusion

14. The Commissioner has not imposed any penalties on the applicant. That is fair enough as the applicant has been the victim of a misunderstanding. Mr Graf is upset because he said the applicant did what it was required to do by the financier. It may be that the financier has itself misunderstood the position, but it would not be fair to reach a conclusion about that without giving Suncorp-Metway the

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opportunity to be heard. But even if the financier contributed to the misunderstanding, a private agreement does not trump the statute and cannot bind the Commissioner. The objection decision is affirmed.