BJ McCabe SM

Administrative Appeals Tribunal


Decision date: 29 April 2004

BJ McCabe (Senior Member)


1. The taxpayer is a body corporate registered under the Body Corporate and Community Management Act 1997 (Qld). Its members are the owners of lots in an apartment complex in Cleveland. Each of the members makes contributions into the sinking and administration funds administered by the body corporate. The Commissioner says the contributions attract GST. The body corporate disagrees. It objected to the Commissioner's decision. The taxpayer has appealed the objection decision to the Tribunal.

2. The taxpayer was represented at the hearing by two of its officers. They were not legally qualified but they did a good job of presenting the taxpayer's case. They wrote extensive submissions to assist me.

3. For reasons I will explain, I am unable to accept their arguments that were based in part on a common misperception of bodies corporate. The taxpayer is a separate legal entity from its members and contributions made by the proprietors to the taxpayer attract GST.

The material before the Tribunal

4. The respondent tendered the documents required under s 37 of the Administrative Appeals Tribunal Act 1975. The parties did not call any witnesses or provide any other documentary evidence. The applicant was represented by Mr Ron Burke, the chairman of the body corporate. He was assisted by Mr Don McDonald. The respondent was represented by Mr Logan, SC and Mr Porter of counsel.

A brief overview of the facts

5. The facts were not in dispute. Villa Edgewater (CTS 23092) is a body corporate registered under the Queensland Body Corporate and Community Management Act 1997 (the BCCM Act). It is also registered for GST purposes. The members of the entity are the proprietors of the various lots in the apartment complex. The governance arrangements of the entity are set out in the Body Corporate and Community Management (Standard Module) Regulation 1997 (the Regulation). The proprietors elected a body corporate committee. Mr Burke is the chairman.

6. The general functions of the body corporate are set out in s 87 of the Act. In particular, it is responsible for maintaining the common property that is owned by the lot owners as tenants in common: s 114 of the Act and s 109 of the Regulation. Section 114 says the body corporate must administer, manage and control the common property and its own assets for the benefit of lot owners. Section 120 permits the body corporate to supply or arrange for the supply of services to individual lot owners, but the applicant says that does not occur at Villa Edgewater.

7. The entity's financial arrangements are dealt with under the regulations. Regulation 94 requires the general meeting of the entity to approve a budget in respect of the sinking fund and the administration fund for each financial year. The funds are established pursuant to s 100. Broadly speaking, capital items are funded out of the sinking fund and expenditure on recurrent items is funded out of the administration fund: s 101. The general meeting is also required to determine the amount of the contribution to the funds that is to be levied on each lot owner: s 95.

8. The body corporate has levied contributions on its members. It has collected in excess of $50,000. It has also incurred a range of expenses in carrying out its functions that were paid out of the administration and sinking funds. The taxpayer accepts its expenditures attract GST, but argues the contributions do not.

The taxpayer's argument

9. The essence of the taxpayer's argument is as follows: the body corporate is composed of its members. The membership thinks and acts on behalf of the body corporate, either through the medium of the general meeting or through an executive committee. The body corporate is simply a legal artifice to assist the members to organise what are essentially private affairs, namely the maintenance of the common property in which they reside. When members of the group make contributions to the body corporate, it is like a flatmate giving her co- habitant a share of the money required to hire a cleaner retained to clean the common areas of the home. It is an internal transfer that does not attract GST.

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Is the taxpayer a separate legal entity?

10. The applicant's argument is based on a misunderstanding of the effect of separate legal entities. The representatives of the applicant say the applicant is a legal device designed to facilitate the convenient management of the affairs of the members. They say the Commissioner and the Tribunal should look past the legal structure established under the state legislation and consider the reality of the situation - which is a group of people acting together towards a common end. They point out the members (especially the committee members) think for the applicant, and act on its behalf. When money is transferred into the funds administered by the body corporate, it is an internal transfer amongst group members. While the artifice of the body corporate is imposed on the membership by the Act, they argue it does not change the nature of the relationships between the members. They are effectively asking that the veil of incorporation be lifted to reveal those behind the entity. That is inappropriate, for reasons I will explain.

11. The basic actors in our legal system - the bearers of rights and obligations - are persons. The adult human of sound mind who is not a bankrupt is a legal person with capacity to enter into legal relationships, exercise rights and incur obligations.

12. While all humans are legal persons, and all adults of sound mind have unlimited capacity to enter into contracts, not every legal person is a human. As Dixon J observed in
Bank of New South Wales v The Commonwealth (1948) 76 CLR 1, the law is able to recognise other things as legal persons when it is necessary or convenient to do so. His Honour pointed out (at 361) that some legal systems recognise ``an abstraction or even an inanimate physical thing'' as a juristic or legal person.

13. The best example of this process can be found in the opinion of the Judicial Committee of the Privy Council in
Pramatha Nath Mullick v Pradyumma Kumar Mullick (1925) LR 52 Ind App 245 (referred to in Welling, Corporate Law in Canada: The Governing Principles (2 ed 1992), Butterworths, Toronto, at pp 100ff). In that Indian case, the parties were fighting over the disposition of a stone idol - a household God. Under Hindu customary law, a household idol was recognised as a legal person, complete with its own guardian (the shebait). The common law incorporated that aspect of the customary law. The Judicial Committee said the entity could not therefore be treated as personal property to be disposed of under a will. Persons are not property, after all. Moreover the idol had rights that had to be protected. Since the shebait in that case was compromised because he had his own views about what should happen to the idol, the Judicial Committee said the idol must be represented before the courts by an independent person so the idol's (admittedly limited) interests could be consulted and protected.

14. The result is startling to the lay person, but it worked. The parties were forced to argue their cases before the court without one of them (the shebait) taking advantage of his position of control over the idol to force an inappropriate outcome.

15. The law often adapts or enlarges legal personality to fit special circumstances. For example, the law may vest the holder of an office with a legal personality that is additional to his or personality as an individual. Consider the Commissioner of Taxation: the natural person who holds the office of Commissioner from time to time performs functions, exercises rights and incurs obligations in his role as Commissioner, not as an individual. While occupants of the office come and go, the office and the personality attached to it remains. The law also vests groups of individuals acting collectively with a single personality in some circumstances. For example, the Roman Catholic bishops of Queensland are a single legal entity as a result of the provisions of the Queensland Roman Catholic Church (Incorporation of Church Entities) Act 1994. While membership of the group may change over time as individuals die or retire and new individuals are appointed, the entity recognised by the law lives on unchanged (s 7). This has real benefits: the property of the group can be vested in one entity that will not die, and outsiders dealing with the group can negotiate their relationship with the one entity, rather than attempting to deal with everyone.

16. Dixon J emphasised in Bank of New South Wales v The Commonwealth (at 361) that it was not necessary to identify individuals - or even things - with an entity before it can be said to have a legal personality. The parliament may create a legal person that exists independently of any individual. It may simply declare a legal entity has come into being.

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17. Where the entity does have members and officers, those individuals are separate from the entity itself - even though in a practical sense the entity acts through them. That is the lesson of
Salomon v A. Salomon & Co Ltd [1897] AC 22. In that case, Mr Salomon decided to incorporate a company to take over and carry on a business he had operated as a sole trader. The company subsequently became insolvent and the creditors wanted to sue Mr Salomon. The House of Lords held that the debts were those of the company. Mr Salomon was not responsible for them, even though he had continued to run the business in his capacity as a corporate officer in much the same way as he had prior to the incorporation of the entity. Lord Macnaghten explained (at 51):

``The company is at law a different person altogether from the subscribers to the memorandum; and, though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustees for them.''

18. The lesson from Salomon is clear, but it is often neglected. There is a tendency to treat the corporation as if it were a mere artifice or as an offshoot of its members or management. It is not. It exists, and Salomon makes it clear the corporation is a civil actor in its own right. It has rights and obligations of its own. It has relationships - typically contractual - with its members and officers through whom it thinks and acts. The principle holds even where the individuals in charge of the entity are negotiating with themselves in their capacity as individuals: see
Lee v Lee's Air Farming [1961] NZLR 325.

19. The decision in Salomon was reaffirmed by the House of Lords in
Maclaine Watson v Department of Trade and Industry [1989] 3 All ER 523. That case arose out of the collapse of the International Tin Council (the ITC), a body corporate established pursuant to a treaty between Britain and other countries to market tin. The British government had conferred ``the legal capacities of a body corporate'' on the entity pursuant to the International Organisations Act 1968 (UK). The creditors of the ITC wanted to recover its debts from the member countries. The House of Lords rejected the claim because the ITC was a legal personality distinct in law from its membership and capable of entering into contracts as principal. The members were not parties to the contracts with the creditors, so they could not be held liable on those contracts: Lord Templeman at 528 and Lord Oliver at 549. The fact the members might incidentally benefit from those contracts was beside the point.

20. The decision in Maclaine Watson has not been widely discussed in Australia. That is puzzling. The decision explains why the expression ``limited liability'' is inappropriate. A member or an officer of the corporation does not have limited liability. He or she has no liability for the corporation's debts and obligations in the absence of a statutory rule or an agreement to make a contribution. The decision also makes it clear the no liability rule is an incident of incorporation - it is not the product of an extraordinary concession.

21. Some commentators wrongly suggest that limitation of liability was created by the 1855 Act (indeed, the statute is often known as the ``Limited Liability Act''). The 1855 Act merely removed a special rule that imposed liability on joint stock companies notwithstanding incorporation. That special rule was included in the earlier legislation when parliament baulked at allowing companies to avail themselves of all the incidents of incorporation. In the absence of that rule, the members of the joint stock company would have (and ultimately did) enjoy the same protection as members of any other body corporate that did not expressly provide for liability for the corporation's obligations to be visited upon members or officers.

22. As it happens, the body corporate in this case is created under s 30 of the Body Corporate and Community Management Act 1997. Its membership is composed of the lot owners. There is nothing in the legislation to suggest parliament did not intend the entity to be separate from its membership in the manner envisaged in Salomon and Maclaine Watson. The entity can enter into contracts, deal in property and employ staff in its own name. It has obligations imposed on it - not on the members - by the Act. It also has limits on its ability to carry on business activities that are not imposed on the individual members. In the circumstances, I am satisfied the body corporate is a separate legal entity with an existence that is independent of its membership.

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23. I note the High Court of New Zealand reached a similar view after considering comparable legislation in
Taupo Ika Nui Body Corporate v Commissioner of Inland Revenue (1997) 18 NZTC 13,147 at 13,149.

24. Once I have reached that conclusion, it is impossible for me to look behind the corporation and examine what the applicant's representatives say was the real situation. At law, the real situation is clear: each of the members has a legally enforceable relationship with the entity. The statute makes the body corporate responsible for certain tasks. The members are required to make contributions to the central funds administered by the body corporate so it may carry out its responsibilities. These payments are not internal transfers, like those occurring within a household. They are made pursuant to the relationship provided for in a statute. It is difficult to imagine a more formal arrangement in that sense. Regardless of how they see themselves, the members of this entity are for the most part in the same position with respect to the body corporate as the members of A. Salomon & Co Ltd were with respect to that entity.

25. There is one distinction. It arises out of ss 78 and 261 of the Act. Those provisions say members are liable for the debts of the body corporate. The representatives of the applicant said the special liability rule means the parliament intended the Tribunal should look behind the corporation. I disagree. The inclusion of a special liability rule like that which was removed by the 1855 Imperial Act with respect to joint stock companies is consistent with parliament's intention to establish a separate body, albeit one whose liabilities could be visited on its membership for policy reasons that are peculiar to community title schemes.

Are the contributions subject to GST?

26. It is necessary to determine whether there is a taxable supply within the meaning of s 9 of A New Tax System (Goods and Services Tax) Act 1999 (``the GST Act''). Section 9-5(a) says the taxpayer must make a supply for consideration, and s 9-5(b) says the supplies must be made in the course or furtherance of an enterprise carried on by the taxpayer. (There was no dispute that there was a connection with Australia, and the applicant is registered.) I will deal with each part of those provisions in turn.

27. The definition of supplies is set out in s 9-10. It is very wide. Section 9-10(1) says ``A supply is any form of supply whatsoever.'' Section 9-10(2)(b) says the expression includes ``a supply of services'', and s 9-10(2)(g) says relevantly that supply includes ``an entry into... an obligation... to do anything...''

28. There is clearly a supply within the meaning of the Act. The applicant is obliged to perform a variety of tasks in the course of administering the common property and assets. The body corporate must clean, mow and tend to the gardens, change the light bulbs and repair damage resulting from wear and tear or accidents: see regulation 109, for example. It is the lot-owners who pay for these tasks to be performed, and the tasks are performed for their benefit: ss 87 and 114 of the BCCM Act. The lot-owners are in that sense the recipients of the service provided by the applicant. It makes no difference whether the entity discharges the obligation through servants or agents, as it is the entity's obligation.

29. It follows I accept the activities in question (cleaning, mowing, repairs etc) are services within the meaning of the GST Act. The term is undefined in the legislation, but it clearly comprehends the performance of obligations like those imposed on the applicant.

30. The next question is whether the supply is made for consideration. The High Court of New Zealand held in
Taupo Ika Nui Body Corporate v Commissioner of Inland Revenue (1997) 18 NZTC 13,147 that the supply of services by a body corporate in similar circumstances to this case did not amount to a supply for consideration. The Court held the services were supplied gratuitously. Gallen J said the definition of consideration in the New Zealand GST legislation required an element of reciprocity, and he concluded there was no reciprocity in that case.

31. I take a different view of the relationship between the body corporate and its membership. The entity is established by the legislation and interposed into the relationship that would otherwise exist between the lot- owners and the third parties who supply services precisely because there is an economic advantage accruing to them all to do so. It appears the House of Lords takes that view as well: see
Nell Gwynn House Maintenance Fund Trustees v Customs and Excise Commissioners [1999] 1 All ER 385 at 392 per Lord Slynn.

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32. In any event, the definition of consideration in the Australian legislation is subtly different. Section 9-15 says:

``(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.''

Section 9-15(2) adds:

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

33. The contributions made by the lot-owners to the applicant are clearly payments. But are they made in connection with the supply of services?

34. The High Court made clear in
Berry v FC of T (1953) 10 ATD 262; (1953) 89 CLR 653 that a payment may be made in connection with something even though the payment is not made in return for that thing: per Kitto J at ATD 264-265; CLR 657-659. So long as the payment is related to or has to do with a contemplated event or outcome, that will be enough: see
Claremont Petroleum NL v Cummings (1992) 10 ACLC 1,685 at 1,706-1,707; (1992) 110 ALR 239 at 280 per Wilcox J. In this case, the contributions of the lot-owners under the levy are clearly made in connection with the services (the cleaning, repairs, expenditure on capital items, etc) provided by the body corporate. The connection is made through the budgets for the administration and sinking funds issued each year. The budgets identify anticipated expenditures and determine the amount of contribution required from lot-owners to fund those expenditures. Not all of the expenditures - especially those referred to in the sinking fund budget - will necessarily occur in the budgetary period. Money may be put aside to fund expenditures in future periods. But that does not change the fact that contributions are made in relation to those expenditures. The body corporate will still seek to explain and justify the collection of a particular contribution from the lot-owners by reference to what is contained in the budgets - which include a series of references to services to be provided by the body corporate. The committee members will say: ``We need the contributions for these things''. That, I think, is enough. When it comes to levying the GST, any timing issues can be dealt with through the process of attribution under s 29-5.

35. For the sake of completeness, I am satisfied one cannot draw a distinction between contributions to the administration fund (out of which non-capital works are funded) and contributions to the sinking fund (which pays for capital works). In each case, the lot-owners are paying for services to be rendered. Only the nature and timing of the services is different.

36. That leaves only the requirements in s 9-5(b) that the taxpayer make the supply in the course of or furtherance of an enterprise it carries on. Section 9-20 defines enterprise for these purposes. I note s 9-20(3) says a taxpayer may still be conducting an enterprise even though it only deals with its own membership. That is the situation here. Section 9-20(1) says an enterprise is an activity or series of activities done in a variety of circumstances - most obviously, in the form of a business. A business, according to the dictionary in s195, ``includes any profession, trade, employment, vocation or calling, but does not include occupation as an employee.'' The other examples of an enterprise given in s 9-20(1) - such as charities and religious institutions - means that intention to make profits is not an essential feature of a business under this legislation. The position under this statute can be contrasted with the usual (but not universal) expectation that businesses are conducted with a view to profit: see
White v FC of T (1968) 15 ATD 173 at 174-175; (1968) 120 CLR 191 at 216 per Barwick CJ.

37. I also note the statute says the activities must be carried on in the form of a business. This unusual form of words suggests the parliament intended decision- makers to concentrate on whether the activities of the entity are carried on in a business-like way, rather than on the ends of the activities. That distinction was recognised in a different context in
State Superannuation Board (NSW) v FC of T 88 ATC 4382 at 4389, 4391-4392; (1988) 19 ATR 1264 at 1273, 1276 per Sheppard J.

38. What should the Tribunal look for when considering whether the activities of the applicant have been carried on in a business- like way? Sheppard J considered a number of the authorities in State Superannuation Board (NSW). His Honour noted that Lindley LJ

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observed in
Rolls v Miller (1884) 27 Ch D 71 at 88:

``The word means almost anything which is an occupation, as distinguished from a pleasure - anything which is an occupation or duty which requires attention is a business...''

39. There were also references to ``system, repetition and continuity'' (see
Edgelow v MacElwee [1918] 1 KB 205 at 206) in the course of the decision in State Superannuation Board (NSW), although his Honour said these formulations have been criticised: see, for example,
Hungier v Grace (1972) 127 CLR 210 at 217 per Barwick CJ.

40. Mason J explained in
FC of T v Whitfords Beach Pty Ltd 82 ATC 4031 at 4044; (1982) 150 CLR 355 at 378-379 that words like ``business'' exhibit ``a chameleon-like hue, readily adapting themselves to their surroundings...''. I take his Honour to mean it is impossible to settle a definitive list of characteristics that must be present in every case before one can describe the activity in question as a business. One must instead have regard to the statute in question.

41. This legislation imposes a tax on the provision of goods and services. Although some types of transactions are exempt (many food sales do not attract the tax, for example), the tax is meant to be broad-based. I have already concluded the taxpayer provides services, and that contributions made by the lot-owners are connected with those services. I have also noted the applicant has the capacity to enter into contracts with employees and other contractors in its own right. It prepares a budget and spends the money. It has a managing committee and rules of association and conducts meetings of lot-owners to approve certain activities. The entity has statutory responsibilities with respect to the common areas that it must discharge. It does not matter that many of these activities are provided for in the statute and regulations.

42. I am satisfied in all the circumstances that the activities are carried out in the form of a business. The body corporate is therefore an enterprise, and the contributions are clearly made in the course or furtherance of the enterprise. It follows that the requirements of s 9-5(b) are satisfied.


43. The respondent's objection decision must be affirmed. That means the appeal is unsuccessful.

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