The impact of this case on ATO policy is discussed in Decision Impact Statement: Waverley Council and Commissioner of Taxation (2008/2920).
WAVERLEY COUNCIL v FC of TJudges:
SE Frost M
Administrative Appeals Tribunal (sitting as the Small Taxation Claims Tribunal), Sydney
MEDIA NEUTRAL CITATION:
 AATA 442
Justice Downes, SE Frost (President, Member)
1. This case is about the GST treatment of a credit card administration fee.
2. The Applicant, Waverley Council, charges its customers an administration fee when the customers use a credit card to pay Council fees and charges. The Council says that the fee always attracts GST. The Commissioner, on the other hand, says that the fee only attracts GST when the underlying transaction attracts GST.
3. The Council asked the Commissioner to make an assessment of its GST liability. It was dissatisfied with the assessment because it thought that the amount that the Commissioner assessed was too low. It objected against the assessment, and when the objection was disallowed, the Council applied to the Tribunal for a review of the objection decision. We have decided that the Commissioner was correct.
The issues before the Tribunal
4. It is unusual for a taxpayer to assert in the Tribunal that it owes more tax than the Commissioner asks for. It is so unusual, in fact, that there is some uncertainty as to how such an assertion should be dealt with in terms of the "burden of proof" provisions in the Taxation Administration Act 1953 ("the Administration Act"). That is the first issue that we have to address.
5. The second issue concerns the proper GST treatment of the credit card administration fee. That will turn on the application of relevant provisions of the A New Tax System (Goods and Services Tax) Act 1999 ("the GST Act"), particularly Division 9, dealing with the fundamental concepts "taxable supply", "consideration" and "enterprise", and Division 81, dealing with "Australian taxes, fees or charges".
6. We will set out the background facts that led to the dispute between the parties and then deal with the issues arising before the Tribunal.
7. The Council is a local government authority under the Local Government Act 1993 (NSW) ("the LG Act") and an Australian government agency within the meaning of that term in s 195-1 of the GST Act.
8. Under the LG Act, the Council imposes fees and charges on all manner of things, ranging from the entirely expected - including dog registrations, residential parking permits, and development applications - to the entirely unexpected - such as "impounding fees" for bread, milk or chicken crates, or a fee for the replacement of a missing bar-code on a DVD borrowed from a Council library. It notifies its fees and charges by the publication of, first, a draft, and then a final, list entitled "Pricing Policy, Fees and Charges" in its Council Management Plan.
9. At the relevant time in 2006, the Council had published in its Management Plan a statement of its Pricing Policy, and a table of "Fees and Charges", which together took up some 60 pages. The types of fees and charges specified were included under general headings such as "Building Matters", "Child Care Services", "Development Applications" and "Library Services".
10. In the category of "Parking", there were particular entries for "Residential Parking Permits - First single registration Parking Permit" and "Beach Parking Permits - [For non-residents] - Permit for 12 month period". Opposite each of them was a corresponding amount under a heading "$ Fee/Charge": for
ATC 2971the former, the specified fee or charge was $20; for the latter it was $900.
11. In addition, under the heading "Payment Transactions", appeared the following entry:
" Credit Cards - for taxable supplies: Payments made by credit cards through cashier and Internet - an administration fee applies on total value of credit card payment (Visa, Master Card, Bankcard & Amex credit cards only accepted.)
Opposite that entry, under the heading '$ Fee/Charge', the table said '1.1%'."
12. The Council's taxation manager, Mr Donald Setchell, who represented the Council in the hearing before us, explained that the reference to "taxable supplies" in the Management Plan ( above) was a drafting error. In fact, he said, the fee of 1.1% was imposed not just in the case of taxable supplies, but in every case where a customer paid for a transaction by credit card, in accordance with a resolution of the Council made on 27 June 2006. There was one exception to this - namely, that the Council did not accept payments by credit card where the amount of the payment was $15 or less.
13. The effect of these entries was that a customer wishing to pay, for example, for a residential parking permit, would pay the fee shown next to that entry ($20) if paying in cash or by cheque, but would pay an additional 1.1%, or $0.22, if paying by credit card. For a beach parking permit, the customer would pay $900 if paying in cash or by cheque, or an additional $9.90 if paying by credit card. For completeness, we add that a customer who chose to pay partly in cash and partly by credit card would pay the "credit card administration fee" only on that part paid by credit card. So, for example, if a customer chose to pay for the beach parking permit by way of $500 in cash and $400 by credit card, the administration fee would be imposed only on the $400.
14. For reasons that we will explain later, the Council (correctly) paid no GST in respect of the $20 received for the residential parking permit itself. On the other hand, the Council (again, correctly) did pay GST in respect of the $900 received for the beach parking permit. However, in any case where a payment was made by credit card, the Council treated the "credit card administration fee" as subject to GST - whether the actual thing that was being paid for (such as the residential parking permit or the beach parking permit) was subject to GST or not.
15. It is on this last point that the parties' views diverge. The Council says that GST is always payable on the credit card administration fee, no matter what the GST treatment of the actual thing paid for. The Commissioner, on the other hand, says that GST is payable on the administration fee only when the thing being paid for is itself subject to GST. In summary, the Council says that the credit card administration fee has a separate, independent existence, while the Commissioner says that the fee is not incurred as an end in itself, but exists only as an adjunct to the principal amount on which it is imposed. It should therefore take the same GST treatment as that principal amount.
16. The Council wanted its approach independently reviewed, and so it set about the task of generating a formal dispute. It asked the Commissioner, in accordance with s 105-10 in Schedule 1 to the Administration Act, to make an assessment of its GST "net amount" for the tax period 1 October 2006 to 31 October 2006. The Commissioner made the assessment, under s 105-5(1) in that Schedule. The net amount assessed by the Commissioner was $237,152/Cr - in other words, a refund of $237,152 payable to the Council. The Council was dissatisfied with the assessment because it claimed that the amount to be refunded should be $2 less than that, namely $237,150. That difference of $2 is the GST proportion (one-eleventh) of the credit card administration fee attributable to those fees received by the Council that do not themselves attract GST. Residential parking permits are only one example of such fees; development applications, companion animal registrations and "Meals on Wheels" provide other common examples of fees in respect of which GST is not payable.
17. The Council's objection against the assessment was disallowed, and then the Council applied to the Tribunal for a review of the objection decision.
ATC 2972For completeness, we mention that part of the Council's case concerned two private rulings that were made by the Commissioner, the first on 3 May 2006 and the second, although made on 17 October 2006, expressed to have effect from 31 October 2006. The first ruling said that the credit card administration fee was always subject to GST, but the second ruling sought to withdraw the first. The Council argued that the Commissioner was bound by s 357-60 in Schedule 1 to the Administration Act to make the assessment of the Council's net amount in accordance with the first of those private rulings: in other words, in accordance with the Council's view of the law.
19. This part of the Council's case cannot be sustained. Part 5-5 in Schedule 1 to the Administration Act (which includes Division 357) applies only to rulings that deal with the matters set out in s 357-55 (see the definitions of "private ruling" and "public ruling" in s 995-1 of the Income Tax Assessment Act 1997 (which definitions apply to Schedule 1 of the Administration Act by s 3AA(2) of that latter Act)), and GST is not one of those matters.
20. The relevant provision dealing with GST private rulings is not s 357-60, but rather s 105-60 in Schedule 1 to the Administration Act. But even this provision will not assist the Council because it is expressed to protect only those taxpayers who, in reliance on a ruling, have underpaid their net amount. In the circumstances of this case, the Council, by lodging a Business Activity Statement in accordance with the first ruling (but assuming that the first ruling is wrong), will not have underpaid, but overpaid its net amount. Section 105-60 provides no protection to a taxpayer in those circumstances, but perhaps that is because it does not need to.
21. Against that background, we now consider the burden of proof that the Council bears.
What is the appropriate burden of proof?
22. This matter is before the Tribunal under Part IVC of the Administration Act. Section 14ZZK of that Act, which is in Part IVC, sets out the so-called "burden of proof" provisions, as follows:
On an application for review of a reviewable objection decision:
- "(a) ...
- (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) if the taxation decision concerned is a franking assessment-the assessment is incorrect; or
- (iii) in any other case-the taxation decision concerned should not have been made or should have been made differently."
23. The "taxation decision" concerned, which led to the objection decision, is an "assessment", under s 105-5(1) of the Administration Act, of the Council's "net amount" for the tax period 1 October 2006 to 31 October 2006. The Council claims a lower refund than the Commissioner is prepared to give. In other words, the Council claims that it should pay more tax than the Commissioner has assessed.
24. Because the taxation decision is an assessment, one imagines that s 14ZZK(b)(i) will apply. The difficulty, of course, is that the Council does not assert that the assessment is "excessive"; instead, it asserts that the assessment is too low. Does s 14ZZK(b)(i) apply in such a case?
25. At the Tribunal's request, the Commissioner provided written submissions on this point after the hearing. We quote paragraphs 10 and 11 of those submissions below:
- " It is implicit in s 14ZZK(b)(i) that the purpose of the provision is to put the onus on the applicant when the applicant is asserting that the assessment is excessive. The provision is only intelligible in that context. It would not be consistent with the purpose of providing an avenue of review through the Tribunal to apply the onus contained in s 14ZZK(b)(i) in cases where the applicant is not asserting the assessment is excessive but rather that the assessment is too low.
ATC 2973 Hence, in circumstances where the applicant is asserting that the assessment is too low, the Commissioner submits that the question of onus of proof falls to be considered under s 14ZZK(b)(iii). The onus in such cases falls on the applicant to prove to the Tribunal that the taxation decision concerned should not have been made or should have been made differently." (emphasis in the original)
26. We agree with the Commissioner's submissions. Section 14ZZK(b)(i) applies in the case of an assessment where the taxpayer asserts that the assessment is excessive. It has no application in the case of an assessment where the taxpayer asserts that the assessment is too low. In the latter category of case, the taxpayer must prove, in accordance with s 14ZZK(b)(iii), that the assessment should not have been made or should have been made differently - or, to paraphrase, that the assessment is wrong (
CTC Resources NL v Commissioner of Taxation 94 ATC 4072;  FCA 947; (1994) 48 FCR 397 at ; page 433A).
27. The Council must prove that the assessment is wrong. It will do that by proving that the credit card administration fee is always subject to GST, no matter what the GST treatment of the thing being paid for.
How is the administration fee to be treated?
28. The GST treatment of the administration fee depends largely on the effect of Division 81 of the GST Act. However, before we consider that provision, we need to explain the context in which Division 81 sits.
29. The GST Act is arranged into six chapters. The two chapters that are relevant to this application are Chapter 2 (The basic rules) and Chapter 4 (The special rules).
30. The basic rules in Chapter 2 explain that GST is a tax on "taxable supplies". Provided other conditions are satisfied, there will be a "taxable supply" when there is a "supply for consideration ... made in the course or furtherance of an enterprise" (s 9-5). An enterprise includes an activity "done ... by a body corporate ... established for a public purpose by or under a law of ... a State" (s 9-20). The activities of Waverley Council are an enterprise.
31. The special rules in Chapter 4 are particularly relevant to such enterprises. They override the basic rules in Chapter 2 "to the extent of any inconsistency" (s 45-5).
32. Division 81, which is in Chapter 4, makes special provision relating to consideration. Section 81-5 provides that, unless the Treasurer specifies otherwise by legislative instrument, the payment of any Australian tax, fee or charge is to be treated as the provision of consideration, to the payee, for a supply that the payee makes to the person making the payment. Section 81-5 is expressed to have effect "despite section 9-15 (which is about consideration)".
33. The expression "Australian tax, fee or charge" is defined in s 195-1 of the GST Act to include "a fee or charge (however described) imposed under an Australian law and payable to an Australian government agency". As mentioned at  above, the Council is an "Australian government agency" as defined. Therefore, unless otherwise specified by the Treasurer, the Council's parking fees involved a supply for consideration.
34. During the relevant period, there was in force, under Division 81, a legislative instrument known as the A New Tax System (Goods and Services Tax) (Exempt Taxes, Fees and Charges) Determination 2006 ("the Treasurer's Determination"). Many of the Council's fees and charges were specified in the Treasurer's Determination. Specified fees and charges are not subject to GST. One fee that was specified was "Resident parking permits", the effect of which is that the residential parking permits referred to in  above were not subject to GST. On the other hand, beach parking permits were not specified in the Treasurer's Determination, and so they were subject to GST. The Treasurer's Determination did not specify anything in the nature of a "credit card administration fee".
35. The Council's proposition in relation to the GST treatment of the credit card administration fee is very straightforward. It points to the Treasurer's Determination, and says this:
- • The Council's Management Plan lists all the fees and charges, including the credit card administration fee, imposed by the Council;
- • Many of the fees and charges listed in its Management Plan are specified in the Treasurer's Determination, but the credit card administration fee is not;
- • The credit card administration fee is an "Australian tax, fee or charge";
- • Since that fee is not specified in the Treasurer's Determination, it must, in all cases, be treated as consideration for a taxable supply made by the Council;
- • The Commissioner's assessment must therefore be wrong.
36. The Council therefore argues that the credit card administration fee should be treated in the same way as all the other fees that the Council lists in its Management Plan. They are all to be determined by reference to the Treasurer's Determination - if they are specified in the Determination, there is no GST payable; if they are not specified, then GST is payable.
37. The Commissioner's response is that the credit card administration fee is not itself an "Australian tax, fee or charge". It is an extra part of the payment that the customer makes for one of the Council's other taxes, fees or charges, and it is to be treated in the same way as the other tax, fee or charge of which it forms a part. So, for example, if a credit card is used to pay for a residential parking permit (which is not subject to GST), the part of the payment that is attributable to the credit card administration fee is also not subject to GST.
38. One of the consequences of accepting the Council's argument is that the $20 paid by a customer for a residential parking permit has no GST on it, but the additional 1.1%, or $0.22, paid because of the use of a credit card, does. And that, on the Council's argument, would be because the credit card administration fee was listed as a separate entry on the Council's Management Plan, and should be treated as a stand-alone fee for a stand-alone service.
39. However, the Council could have listed its fees in a different way. In relation to the residential parking permit fee, as an example, it could have listed it as follows:
|Residential parking permit - if paid in cash or by cheque||$20.00|
|Residential parking permit - if paid by credit card||$20.22|
40. If it had done it that way, there is no doubt that there would have been no GST on either payment, because of the effect of the Treasurer's Determination.
41. Seen in that light, it is clear that the Council's argument, if successful, would amount to a triumph of form over substance. It would be an outcome that does not appeal to the practical and common sense approach to the interpretation of the GST law that the Federal Court and this Tribunal have recommended in cases such as
Saga Holidays Limited v Commissioner of Taxation 2006 ATC 4841;  FCAFC 191; (2006) 156 FCR 256 (per Young J at ), see also
Sterling Guardian Pty Limited v Commissioner of Taxation 2005 ATC 4796;  FCA 1166; (2005) 220 ALR 550 (per Stone J at ; ALR at 562-563); and
Re AGR Joint Venture and Commissioner of Taxation 2007 ATC 2692;  AATA 1870 (per Downes J and Senior Member Sweidan at ). It would not promote the "practical and fair business operation" of the tax commended by the Full Court (Heerey, Goldberg and Dowsett JJ) in
Brady King Pty Ltd v Commissioner of Taxation 2008 ATC ¶20-034;  FCAFC 118; (2008) 168 FCR 558. It would not accord with the commercial reality of the arrangements, which is that the "underlying" tax, fee or charge is higher for a customer who pays by credit card than it is for a customer who pays in cash or by cheque. On the Council's approach, the determinative factor would be the way that the fee is listed, rather than the substance or the commercial reality of the imposition of the fee.
42. The question comes down to one of characterising the credit card administration fee - either as a stand-alone fee in itself, or as part of the "underlying" tax, fee or charge that the credit card is being used to pay. We think that the fee is correctly characterised as part of the fee for the underlying supply. The person
ATC 2975procuring the supply is buying, for example, a parking permit. There is one payment. In a practical sense there is one supply. This is the "practical" (see
Saga Holidays Limited v Commissioner of Taxation 2006 ATC 4841;  FCAFC 191; (2006) 156 FCR 256 at ;
Sterling Guardian Pty Limited v Commissioner of Taxation 2005 ATC 4796;  FCA 1166 at ; (2005) 220 ALR 550; and
Re AGR Joint Venture and Commissioner of Taxation 2007 ATC 2692;  AATA 1870 at ) application of the tax. This is the interpretation which is not "unduly technical or overly meticulous and literal" (see
Saga Holidays Limited v Commissioner of Taxation 2006 ATC 4841;  FCAFC 191; (2006) 156 FCR 256 at ; and
Re AGR Joint Venture and Commissioner of Taxation 2007 ATC 2692;  AATA 1870 at ). The approach adopted by the Commissioner is therefore correct.
43. The Council has failed to prove that the Commissioner's assessment of its net amount for the tax period 1 October 2006 to 31 October 2006 is wrong.
44. The objection decision under review is therefore affirmed.