• The impact of this case on ATO policy is discussed in Decision Impact Statement: Mackay and Commissioner of Taxation (2009/4899-4910, 4921).

MACKAY v FC of T

Members:
BJ McCabe SM

Tribunal:
Administrative Appeals Tribunal, Brisbane

MEDIA NEUTRAL CITATION: [2011] AATA 593

Decision date: 26 August 2011

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BJ McCabe (Senior Member)

1. The taxpayer is in the business of marketing hunting expeditions to foreign clients. At the relevant time, he sold packages comprised of goods and services for a fee. Each package typically included the services of a guide, transport, meals and accommodation on Australian properties, gun permits and the right to shoot big game animals like buffalo, deer and wild boar. The packages also included the right to take home the treated carcasses (or portions of the carcass, like the head) of animals that the guests had hunted down as trophies.

2. A dispute has arisen over the taxpayer's liability to pay goods and services tax ("GST") on his sales in the period 1 October 2002 through 30 June 2006. The larger part of the dispute arises out of the fact the taxpayer had treated all of his sales as if they were in substance a supply of goods (namely the trophies) for export, which meant they were GST-free. The Commissioner disagreed with this approach. He says:

• • On any analysis, only a portion of the each package was concerned with the supply of goods for export. At least 50% of each transaction was concerned with the supply of goods and services within Australia, which attracted GST; and
• • The taxpayer had failed to comply with the record-keeping obligations under the A New Tax System (Goods and Services Tax) Act 1999 ("the GST Act") so that he was unable to establish the trophies were GST-free exports.

3. The taxpayer has accepted the first contention. Most of the argument at the hearing before me focused on whether the export of the trophies was GST-free, which required careful consideration of the record-keeping obligations.

4. Some of the other criticisms of the taxpayer's tax affairs that were made in the respondent's statement of facts, issues and contentions, did not receive much attention at the hearing. In particular, there was limited discussion of the contentions that he:

• • improperly claimed deductions in respect of private or unsubstantiated expenses; and
• • incorrectly claimed input tax credits.

5. Given the absence of evidence in relation to these issues, the objection decisions must stand in these respects.

6. Administrative penalties were also imposed as a result of the shortfalls under Division 284 of Schedule one to the Taxation Administration Act 1953 ("the Administration Act"). I understand the taxpayer has effectively conceded these parts of the argument, but the absence of evidence that calls into question the Commissioner's decision in relation to these matters means the decisions would be affirmed in any event: see s 14ZZK(b) of the Administration Act.

7. There is also a dispute over the amended income tax assessments that were issued in the years ending 30 June 2003 through 30 June 2005. I will deal with those matters below.

The facts

8. The taxpayer is an experienced hunter who set up a business catering to wealthy clients from overseas who enjoyed the past-time of hunting game. Most of the clients were from the United States. They desired the opportunity to stalk and shoot a range of animals including buffalo, wild boar and various species of deer that roam on properties in Australia to which the taxpayer has arranged access. The taxpayer explained he would attend exhibitions and other events frequented by hunters to advertise his Australian hunting expeditions. He took bookings at those events from prospective guests. He entered the bookings in his diary: there was no formal reservations system.

9. I was provided with a brochure the taxpayer used at these events to promote his business. The brochure provided details of "first class lodging" at the hunting sites maintained by the taxpayer, and referred to the "best outback cuisine". The brochure was adorned with pictures of big game animals in the wild, and pictures of satisfied guests posing beside dead animals they had recently shot. The pricing structure set out in the brochure was difficult to follow. It was explained by the taxpayer in the course of his evidence. As I understand it, clients were charged a fee for the total package which typically included airport transfers, accommodation at one of the taxpayer's hunting concessions, meals, the services of a guide and some incidentals. The taxpayer said the package also included the right to take at least one animal - by which he meant the guest would stalk and shoot an animal. The carcass would then become the client's property that he or she could take home as a trophy of the hunt. The taxpayer treated and prepared the trophy for transport. In most cases, the trophy was carried by the guest in his or her checked baggage, but some of the trophies were transported at the guest's expense by a shipping company.

10. The taxpayer discussed the arrangements for transporting trophies in some detail at the hearing. He said he preferred the guest to take the trophy with him or her on the plane, either as checked baggage or in their carry-on luggage. He recalled several occasions where a trophy had been carried separately and delivered in a spoiled state. The taxpayer said he was obliged to provide a replacement in that event, which was expensive. If the trophy was carried by the guest, the taxpayer felt he was relieved of responsibility after he dropped the guest at the airport. He said it was not his practice to provide a receipt to the guest recording the transfer of the trophy. There was no other paperwork recording the despatch of the trophy.

11. The taxpayer agreed it was his practice in the period under review to provide the guest with a letter describing the trophy which could be read and understood by customs officials in the United States when the guest landed with the trophy. Before he split up with his wife, those letters were written by her, and copies were retained - but they have since been lost. After he and his wife had broken up, the taxpayer wrote the letters himself in his own handwriting. He did not have copies of those letters. In due course, he developed printed invoices but none of them were in evidence before me, and I understand they may have only come into use during a later period than the one in question.

12. I was told of some emails from guests who confirmed they had taken trophies home after a successful hunt with the taxpayer. I was also referred to some diary notes which referred to particular guests. The taxpayer had a relatively good recall of particular guests. He explained that he did not have the opportunity to complete and record paperwork: he was a small business man operating for the most part on his own. His son was involved in the business and he paid individual guides and other employees, but the taxpayer was the only one with over-arching responsibility for the business. He was often in the field with limited access to computers or the internet or even power.

13. I accept the taxpayer was a truthful witness who did his best to assist the Tribunal. His recollection of what occurred in the period under review was generally very good. I accept he was labouring under considerable difficulty when it came to the task of record-keeping. He struck me as an intelligent and hard-working man who was endeavouring to make a go of his business. I accept that he was conducting the business and that he did provide the trophies to departing guests as he claimed. I also accepted he honestly attempted to comply with his obligations under the taxation laws as he understood them.

The relevant law

14. I turn to the legislation. It is accepted the taxpayer is liable to pay the GST on taxable supplies: s 9-40 of the GST Act. I think it is agreed the supply of services and the trophies constitutes a taxable supply within the meaning of s 9-5. The important question here is whether the supply of the trophies which would otherwise be taxable is GST-free because of another provision of the legislation.

15. The key provision for the purposes of these proceedings is 38-185 of the GST Act. It deals with the GST treatment of exports. At the relevant time, the section provided for the export of goods in general terms (item 1) and the export of goods that were carried by travellers as accompanied baggage (item 7). I will deal with item 1 first.

16. The Commissioner submits there must be some doubt over whether the taxpayer can be said to be the exporter of the goods who is entitled to the exemption. It appears from the evidence that a guest assumes ownership of a trophy when he or she shoots the animal in question. While the taxpayer plays a role in preparing that property for export, the property is really exported by the guest at his or her own expense. If that is so, item 1 in the table in s 38-185(1) prevents the taxpayer from claiming he exported the goods.

17. I think the Commissioner is right about that. The taxpayer might still succeed if he could establish s 38-185(3) had the effect of deeming him to be an exporter. It is at this point that the absence of documentation becomes a problem. Section 38-185(3) imposes a number of requirements which must be met before the deeming provision operates. Sub-section 38-185(3)(c) refers to the goods being "entered for export within the meaning of s 113 of the Customs Act 1901" and sub-section 38-185(3)(e) requires that the "supplier has sufficient documentary evidence to show that the goods were exported …".

18. I do not think the taxpayer is able to satisfy the requirements of s 38-185(3)(c). Section 113 of the Customs Act describes the process by which goods are entered for export. The section requires that certain documents be generated. If they were generated, copies have not been provided to the Tribunal. There is an exception to the documentation requirements which applies to some household and personal goods and other goods worth less than $2,000, but once again the evidence that would enable me to conclude that the exception is available has not been provided.

19. The taxpayer has provided little in the way of documentary evidence that corroborates his claim. While there have been some emails provided from guests who confirm they took home trophies after successful hunts, there is little of the detail one would expect in evidence of this nature that corroborated the fact of export of particular items of particular value on particular occasions by particular individuals. I agree the content of the taxpayer's diaries, bank statements and other books and records are consistent with his oral evidence that the goods were exported, but I do not think they provide the level of detail contemplated by the legislation.

20. I turn to item 7. That item refers to exports of goods as accompanied baggage if "the supply is made in accordance with the rules specified in the regulations …". Regulation 38.185.01 of the A New Tax System (Goods and Services Tax) Regulations 1999 ("the regulations") establishes a set of rules (set out in schedule 5 to the regulations) which apply to supplies to a "relevant traveller". For present purposes, I need to focus on the so-called "sealed bag rules" in the schedule. The taxpayer has not complied with these rules in a number of respects. In particular, he has not sighted or retained a copy of the sealed bag declaration, nor has he retained invoices in the appropriate form in respect of the exported goods.

21. That leaves the taxpayer in a difficult situation. I do not disbelieve his oral evidence to the effect that he despatched the goods and thought he had done everything required of him. But the legislation imposes an obligation to account for transactions in a particular way. That expectation creates difficulties for a small business-man like Mr Mackay engaged in an unusual business without ready access to online resources or professional advice. He was simply unaware of the extent or seriousness of the obligations to account for transactions for GST purposes.

22. The taxpayer is required to pay GST on the sale of the trophies on the basis that they were taxable supplies. I affirm the objection decisions in the relevant periods to that extent. I note there was some dispute over the value of those supplies. The Commissioner conceded that, in light of fresh information about the value of the supplies that was furnished by the taxpayer's account, there may have been an overstatement of the value of the sales. I propose to set aside and remit for reconsideration those parts of the objection decisions that relate to the assessment of net amount so that a final view can be reached having regard to the most up to date information supplied by the accountants.

23. The Commissioner also issued amended income tax assessments in the years ended 30 June 2003 to 30 June 2005. The Commissioner proceeded on the basis that the amount of the taxpayer's taxable supplies was equal to the amount of his taxable income, and his creditable acquisitions could be treated as deductions. That sounds arbitrary, but I was not given any real reason to call that approach into question. In those circumstances, I accept it was appropriate for the Commissioner to proceed on that basis. Having reached that view, I note the Commissioner accepts the final assessment may require further amendment in light of the uncertainty over the Assessments of Net Amount. That uncertainty, as I have just explained, is the product of fresh information about the true value of the supplies. Once those decisions have been reconsidered as I have directed, the final figures in the amended income tax assessments can be reconsidered, albeit on the same approach adopted by the Commissioner and referred to in [22] of these reasons.

Conclusion

24. The taxpayer has been largely unsuccessful in relation to these appeals. While the objection decisions must be set aside and remitted to the Commissioner for reconsideration of the information that has recently come to light about the true value of the taxpayer's sales, the decisions are otherwise affirmed.