-
The impact of this case on ATO policy is discussed in Decision Impact Statement: Ian Mark Collins & Mieneke Mianno Collins ATF The Collins Retirement Fund and Commissioner of Taxation (2020/6491-3).
Collins & Anor ATF The Collins Retirement Fund v FC of T
Members:R Olding SM
Tribunal:
Administrative Appeals Tribunal, Sydney
MEDIA NEUTRAL CITATION:
[2022] AATA 628
R Olding (Senior Member)
WHAT IS THIS CASE ABOUT?
1. This case concerns whether the applicant is liable for GST on sales of land it caused to be subdivided into 11 lots (' the Sales '). The answer to that question turns upon whether the applicant was required to be registered for GST when the Sales occurred.
2. The applicant says that the Sales were the mere realisation of a capital asset and thus, under s 188-25(a) of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ('
GST Act
'),[1]
3. Alternatively, the applicant submits that s 188-25(b) applies to require the Sales to be disregarded because each Sale was made solely as a consequence of the applicant ceasing to carry on an enterprise or substantially and permanently reducing the size or scale of an enterprise.
4. The Commissioner submits that the Sales were not supplies of capital assets and that neither limb of s 188-25(b) applies.
5. In the income tax context, the capital vs revenue distinction is well-traversed. However, s 188-25 has not been the subject of judicial consideration. This case raises previously untested issues concerning the extent to which the income tax jurisprudence is relevant for
ATC 10473
GST purposes and the proper application of s 188-25(b).DECISION UNDER REVIEW
6. On 8 August 2019, the Commissioner issued notices of assessment of the applicant's net amounts for the tax periods ended 30 June 2017, 30 September 2017 and 31 December 2017, in the amounts of $136,859, $489,008 and $66,612 respectively, on the basis that the Sales were subject to GST calculated under the margin scheme.
7. The applicant objected to these assessments on 21 October 2019. The Commissioner disallowed the objection on 17 August 2020 It is that objection decision which is before the Tribunal for review.
LEGISLATIVE FRAMEWORK
8. GST is payable on taxable supplies. For a supply, including a sale of land, to be a taxable supply, the supplier must be registered or required to be registered for GST.[2]
9. The applicant was registered for GST and paid GST on rental receipts from the unsubdivided land. However, it applied to have its registration cancelled before the Sales occurred. In response to the application, the Commissioner cancelled the applicant's registration.
10. The applicant would have been required to be registered for GST only if it carried on an enterprise and its GST turnover met the registration turnover threshold. It is common ground that the applicant, as the trustee of a superannuation fund, is taken to have carried on an enterprise. That is because s 9-20(1) relevantly defines an 'enterprise' as follows:
An enterprise is an activity, or 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; or
- . . .
- (da) by a trustee of a *complying superannuation fund[3]
It is common ground that the applicant is a complying superannuation fund the activities of which are carried on by Mr and Mrs Collins as trustees of the fund. . . .
11. The issue for determination is whether the applicant's turnover met the annual registration turnover threshold (currently $75,000 pa), which is one of a number of turnover thresholds provided for in the GST Act.
12. Under s 188-10(1), an entity has a GST turnover that meets a turnover threshold if:
- (a) your [that is, the entity's] *current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your *projected GST turnover is below the turnover threshold; or
- (b) your projected GST turnover is at or above the turnover threshold.
13. Under s 188-10(2), an entity has a GST turnover that does not exceed a turnover threshold if:
(a) your *current GST turnover is at or below the turnover threshold, and the Commissioner is not satisfied that your *projected GST turnover is above the turnover threshold; or
(b) your projected GST turnover is at or below the turnover threshold.
14. The value of the subject sales is such that the applicant's current GST turnover at the relevant times exceeded the registration turnover threshold. The question therefore becomes whether the Tribunal is satisfied that the applicant's projected GST turnover is below the registration turnover threshold.
15. Subject to exceptions that are not relevant to this case, s 188-20 defines an entity's projected GST turnover at a time during a particular month as 'the sum of the *values of all supplies that you have made, or are likely to make, during that month and the next 11 months'. However, in working out an entity's projected GST turnover, s 188-25 requires the following to be disregarded:
- (a) any supply made, or likely to be made, by you by way of transfer of ownership of a capital asset of yours; and
- (b) any supply made, or likely to be made, by you solely as a consequence of:
- (i) ceasing to carry on an * enterprise; or
- (ii) substantially and permanently reducing the size or scale of an enterprise.
BURDEN OF PROOF AND ISSUES FOR DETERMINATION
16. The applicant has the burden of proving the assessments are excessive and what are the correct net amounts: Taxation Administration Act 1953 (Cth), s 14ZZK.
17.
ATC 10474
The parties have confined the issue in dispute to whether the applicant was required to be registered for GST, which in turn is determined by whether, by force of s 188-25, the Sales are to be disregarded in working out the applicant's projected GST turnover.18. To discharge the burden of proof, the applicant therefore must prove that its projected sales of the subdivided lots were properly characterised as supplies made or likely to be made:
- (a) 'by way of transfer of ownership of a capital asset' (s 188-25(a)); or
- (b) 'solely as a consequence of . . . ceasing to carry on an enterprise' (s 188-25(b)(i)); or
- (c) 'solely as a consequence of . . . substantially and permanently reducing the size or scale of an enterprise' (s 188-25(b)(ii)).
THE ACQUISITION, SUBDIVISION AND SALES - IN OUTLINE
19. The following facts are uncontroversial:
- (a) The lots that are the subject of the Sales were subdivided from two lots, referred to as Lots 11 and 12 (collectively, the ' Parent Lots ').
- (b) Mr and Mrs Collins acquired the first lot - Lot 11, comprising 25 acres - in 1986. They proceeded to reside on, and conduct their nursery business, from this land.
- (c) In 1992, Mr and Mrs Collins acquired the adjacent lot - Lot 12, comprising 35 acres.
- (d) The applicant superannuation fund was created in 1995.
- (e) In August 2004, Mr and Mrs Collins leased Lots 11 and 12 to a tenant for a four-year term with 2 four-year options to review, and around the same time sold their nursery business to the tenant.
- (f) Before exercising the first option to renew in around August 2008, the tenant offered to purchase Lots 11 and 12. Their offer was rejected because Mr and Mrs Collins considered that the price was too low.
- (g) The tenant exercised the second option to renew in around August 2012.
- (h) In August 2014, Flora Pacific Pty Limited ('
Flora
'), a company controlled by Mr and Mrs Collins, acquired Lots 11 and 12 from Mr and Mrs Collins. Flora at all times held the lots as bare trustee for the applicant.[4]
Both parties proceeded on the footing that the acts of Flora as bare trustee are to be treated as acts of the applicant. - (i) On 31 July 2015, Flora, as bare trustee for the applicant, submitted a development application (' DA ') to the local authority, seeking approval to subdivide Lots 11 and 12 into 11 community title rural residential lots and one community association lot.
- (j) The DA was approved on 23 February 2016.
- (k) On 21 March 2016, Flora served a notice to vacate on the tenant requiring it to vacate at the expiration of the lease on 27 August 2016.
- (l) The applicant applied to cancel its GST registration with effect from 1 October 2016 and the Commissioner duly cancelled the registration.
- (m) The applicant obtained further reports and consents, and caused construction works to be undertaken, as discussed in further detail below.
- (n) A subdivision plan subdividing Lots 11 and 12 into 11 residential lots and a community association lot was registered on 16 June 2017.
- (o) The applicant sold 10 of the residential lots, with settlements of the Sales occurring in the period from 26 June 2017 to 16 November 2017. Each lot sold for a price in the order of $1M. The remaining residential lot was transferred to Mr and Mrs Collins in June 2018.
HAS THE APPLICANT PROVED THE SALES WERE OF CAPITAL ASSETS?
Principles to be applied
Relevance of income tax jurisprudence/time for determination of the character of an asset
20. In the income tax context, in determining whether the proceeds of sale of an asset are on revenue or capital account, attention is focused upon whether the seller had an intention, at the time of acquisition of the asset, that the asset would be sold at a profit.[5]
21.
ATC 10475
As the Commissioner pointed out, the expression 'capital asset' does not appear elsewhere in the GST Act. Further, the context of the characterisation of the supply of an asset as a transfer of ownership of a capital asset in s 188-25(a) - in determining an entity's projected turnover - is quite different to the role played by the revenue/capital distinction in determining the assessibility of receipts or deductibility of outgoings or losses.22. For instance, whether an amount is received in the course of a commercial or business-like transaction may be significant to or even determinative of whether the receipt is assessable to income tax. In contrast, the application of s 188-25(a) will only arise for consideration where the supply under consideration is or would be made in the course of an enterprise the taxpayer carries on.
23. Further, as the Commissioner pointed out, the GST Act deals separately with supplies and acquisitions. Section 188-25(a) is only relevant to supplies.
24. These considerations point to whether the taxpayer has a profit-making intention or object at the time the relevant asset is acquired being of less significance than it is for the purposes of the capital vs revenue dichotomy in the income tax context. Accordingly, the Commissioner submitted that whether the taxpayer had a profit-making intention at the time of the acquisition of an asset is not determinative for s 188-25(a) purposes. The focus must be on the time a supply of the asset is made or is likely to be made.
25. The applicant accepted this proposition. Neither party denied that intention at the time of acquisition may be relevant, but both accepted it could not be determinative in the GST context.
26. I respectfully adopt the proposition that for s 188-25(a) the character of an asset must be determined at the time the supply is made (or, I would add, likely to be made).
27. To be clear, the Commissioner did not submit that income tax cases on the capital/revenue distinction should be wholly disregarded. In particular, both parties referred to the concept which has evolved in the cases of the mere realisation of an asset in an enterprising way being on capital account.[8]
28. The Commissioner did, however, submit that the assistance which may be gleaned from prior decisions in this area is limited because they turn on their particular facts. I respectfully agree that earlier cases, the outcomes of which are highly fact-dependent, are of limited assistance. Nevertheless, in terms of desirable consistency and predictability in decision-making, it is appropriate to consider whether there are cases that might fall into a broadly similar category to these Sales. Accordingly, as discussed below, I have carefully examined the cases cited by the applicant in that regard.
Taxpayer's intention - subjective or objective?
29. Income tax jurisprudence establishes that receipts from the disposal in a commercial transaction of property acquired with a profit-making intention are ordinary income. The profit-making intention need not be the sole intention as long as profiting by the means undertaken was a 'not insignificant' object of the taxpayer when the property was acquired or ventured into a profit-making scheme.[9]
30. Noting the earlier discussion, to the extent that a taxpayer's intention may be relevant to the character of an asset at the time a supply is made or likely to be made for s 188-25(a) purposes, a difference arose between the parties regarding whether such intention is to be determined objectively or it is the taxpayer's subjective intention that is determinative.
31. The Commissioner submitted that subjective intention or purpose is not relevant. It is, the Commissioner said, the taxpayer's intention or purpose discerned only from an objective consideration of the facts and circumstances that is relevant.
32. The applicant accepted that the applicant's subjective intention is not determinative but submitted that it is relevant. However, the applicant accepted that the question of intention could be decided against the applicant if, for example, the Tribunal preferred other objective evidence to evidence of the trustees as to their subjective intention.
33.
ATC 10476
Although the Commissioner referred to income tax cases, his approach in this matter was slightly different to the proposition the Commissioner put to the Tribunal in a recent income tax case; namely, that in determining the taxpayer's intention 'it is an intention or purpose that is determined objectively, albeit that evidence of the taxpayer's subjective intention or state of mind may be relevant.'[10]34. Since only Mr Collins, and not his co-trustee, Mrs Collins, gave evidence, it is doubtful whether there would be an appropriate foundation upon which to make a finding favourable to the applicant regarding the trustees' subjective intention. However, even if I were to take into account Mr Collins' evidence as evidence of the applicants' subjective intention, for the reasons that follow in my view such evidence would be outweighed by highly probative objective evidence to the contrary. For that reason, whether or not I take into account the applicant's subjective intention, the outcome would be the same.
Consideration of the evidence and submissions
The applicant's intention
35. Noting the earlier discussion regarding its non-determinative effect, so far as the applicant's intention is relevant, the applicant maintains that when it acquired the Parent Lots from Mr and Mrs Collins it did not intend to subdivide the land and sell the subdivided lots. Although a DA allowing for subdivision was applied for and granted, Mr Collins gave evidence that the applicant merely sought this approval because it thought it was necessary to do so to obtain approval of remediation works. The transfer of the Parent Lots to the applicant was, Mr Collins said, to provide for a higher retirement income, and in that regard to enable access to the applicant's cash reserves to fund remediation works which in turn would enhance the rental income able to be derived from the property. It was only after land values subsequently increased significantly, Mr Collins asserted, that subdivision of the Parent Lots and sale of the subdivided lots became economically feasible.
36. In endeavouring to make out the assertion that at the time of the transfer of the Parent Lots to the applicant there was no intention to subdivide and sell - not even a 'not insignificant' intention - the applicant faces considerable evidential hurdles.
37. Foremost is that on 28 January 2014 Mr Collins obtained from Survey Plus, a firm of surveyors, planners and engineers, a quote for the cost of three stages of work to be carried out in respect of the Parent Lots:
- (a) Preliminary Feasibility Assessment and Concept Plan Preparation - for a cluster subdivision plan;
- (b) DA Preparation and Lodgement, Project Management and Council Negotiation;
- (c) Preparation of Final Plans Following DA Approval.[11]
STI, 656-658.
38. It will be noted that this quote was obtained some six months before the Parent Lots were transferred to the applicant. On the face of it, this is inconsistent with Mr Collins' evidence that the only intention in transferring the land to the applicant was for the applicant to generate an enhanced rental income after carrying out the remediation works. It strongly suggests that subdivision and sale of the land at a profit was at least a 'not insignificant' purpose of the applicant when it acquired the land.
39. Survey Plus proceeded to carry out work referenced in its quotation, including preparing an initial and revised draft plan of subdivision in advance of meeting with the local council on 13 May 2014.
40. The Council wrote to Survey Plus on 11 June 2014 attaching notes of that meeting. The notes were described as 'Pre DA Meeting Notes' and attached a copy of the draft plan of subdivision. The Proposal section of the notes described the proposal as:
Subdivision creating 11 community title rural residential lots and one community association lot (rural cluster).[12]
ST67, 1258.
41. The notes descended to such details as the width of pavements required, and the minimum 'turning heads' to allow waste collection vehicles to turn around without the need for a reversing movement.
42.
ATC 10477
The focus of this meeting upon a DA for a cluster subdivision of the kind ultimately undertaken is also inconsistent with Mr Collins' assertion that the intention was merely to remediate the property with a view to increasing rental returns.43. Mr Collins sought to meet these difficulties with evidence that the purpose of working towards a DA was 'to identify the issues, to see what land use could be advertised for'.[13]
44. By 11 June 2014, Mr Collins had also obtained a valuation report from John Virtue Valuers, valuing the Parent Lots at $2,500,000 exclusive of GST. That amount was adopted as the price paid by the applicant when it acquired the Parent Lots.
45. The valuer noted that:
the Instruction Party proposes to redevelop the property with a Rural Cluster Subdivision which is permissible under current Council guidelines. A pre-Development Application meeting with Council has been addressed with reported positive response. We have been provided with a concept plan which indicates some twelve (12) Cluster Lots . . . To facilitate this subdivision, the current nursery activity would be required to cease . . .[15]
ST38, 900.
46. Again, this account of the instructions provided to the valuer is inconsistent with Mr Collins' assertion that it was only intended to carry out remediation and not to subdivide the Parent Lots and sell the subdivided lots.
47. Mr Collins denied provided instructions that a subdivision was intended. He responded to questioning about this in this way:
We told him [the valuer] we were doing a DA, or about to lodge a DA, looking to lodge a DA, and he assumed - he took that progression, he took that as going through to [a] subdivision. It's not our position to instruct him on how to value the property I would have thought.[16]
Transcript of Proceedings (21 February 2022) [32-36].
48. The valuer summarised the valuation approach in these terms:
The valuation has been based upon a hypothetical development exercise which has ascribed potential sale prices to the notionally subdivided Cluster Lots and with the deduction of subdivision expenses and an appropriate 'Profit and Risk' margin to support a value 'as is'. The current rental for the unexpired lease term would provide a reasonable holding income in the interim.[17]
ST38, 900.
49. In assessing the profit and risk margin, the valuer expressly assumed that hypothetical sales of subdivided lots would be subject to GST.
50. The Commissioner sought to make much of the applicant paying a price for the Parent Lots that was based on a proposed subdivision as indicating an intention to carry out a subdivision. I am, with respect, unable to accept this submission. It is commonplace for a valuation to be conducted on the basis of the highest and best use. That does not indicate that the purchaser in agreeing to pay the price indicated by the valuation must intend to apply the property in accordance with the valuer's hypothesis. The value is the value, regardless of what a purchaser in fact does with the property.
51. However, the instructions provided to the valuer as set out in the valuation are in a different category. These, along with the request for a quote from Survey Plus for work towards a DA for cluster subdivision and the carrying out of that work, including the meeting with Council, all point to contemplation of a subdivision. And Mr Collins accepted that, by the time the DA was approved, no steps had been taken to endeavour to tenant the undeveloped property.[18]
52. It may be that Mr and Mrs Collins' main focus in the near term was upon the remediation work required. But in the face of the evidence of the instructions provided to Survey Plus and the valuer, and the cost of proceeding to the meeting with Council, it is, respectfully, too much of a stretch to accept that there was no contemplation of a subdivision and sale of the subdivided lands at the time the Parent Lots
ATC 10478
were transferred to the applicant. It just does not make sense to go to all of the trouble and expense of a DA for a cluster subdivision for the purpose of merely carrying out remediation works, without even inquiring whether such works could be approved without a DA, or at least without a DA for a subdivision.53. In any case, even if I am wrong in that conclusion, for the reasons set out above the intention of the applicant at the time of acquisition of the Parent Lots is not determinative. Mr Collins acknowledged that by the time the tenant vacated the property in August 2016, it was intended that the property would be subdivided and the individual lots sold.[19]
54. While inevitably it becomes a matter of scale and impression, in my view the applicant's undertaking amounted to more than a mere realisation of the property in an enterprising way. The works required to achieve the subdivision were substantial. The applicant acknowledges that it spent in total $4,538,757.64 in developing the property in the context of land that in aggregate sold for around three times that amount.[20]
55. Notwithstanding these substantial works and expenses, the applicant referenced three cases involving the subdivision and sale of land held to be mere realisation of a capital asset in support of its submission that this case falls on the mere realisation side of the divide:
George Casimaty v Commissioner of Taxation,[22]
McCorkell and Commissioner of Taxation,[23]
Statham & Anor v FCT.[24]
56. In Casimaty, the subject property was agricultural land acquired by the taxpayer decades earlier as a gift from his father. There could be no suggestion that it had been acquired for resale. The subdivision and sale of lots occurred progressively over eight subdivisions in what the Court described as a piecemeal fashion in response to the exigencies of the taxpayer's increasing unserviceable debt obligations and deteriorating health. There was no coherent plan at the outset to subdivide the property in stages and even at the date of the last of the relevant assessments an area considerably in excess of one-third of the original property remained unsubdivided. The works undertaken were the minimum necessary to comply with council requirements. That is quite removed from the current case in which there was a single coherent plan reflecting a professionally prepared plan obtained before the lands were acquired by the applicant.
57. Similarly, in McCorkell, the taxpayer had lived on a farming property since birth, inherited it upon his father's death and worked it for many years. Again, there could be no suggestion that he acquired it with the intention of subdivision and sale. The Tribunal found that the taxpayer did no more than was necessary to obtain approval of the authorities and enhance the presentation of the individual lots for sale. Aside from the sale proceeds being deposited to a separate bank account, more formal business records were not maintained. The Tribunal accepted evidence that the subdivision was a fairly straightforward one. Again, this is quite different to the current matter in which a very substantial amount was expended on the development and, I infer from the precision with which the applicant was able to identify that amount, effective business records maintained.
58. The Tribunal in McCorkell was heavily influenced by the judgement of the Full Federal Court in Statham, the third case referenced by the applicant. Again, that case is quite different
ATC 10479
to the current matter. The Court accepted a submission that the subdivision was simple and had few of the hallmarks of a business enterprise. Only limited clearing and earthworks were involved, the owners relying on the local council to carry out roadworks and other infrastructure.59. All in all, examination of these cases underlines, with respect, the wisdom of the observation in the judgement of Gibbs CJ in the Whitfords Beach case that it can be 'unprofitable to examine the particular circumstances of the various cases in which the question [of whether a subdivision and sale is a mere realisation of a capital asset] has been discussed.'[25]
60. At a more general level, his Honour also noted, along with Mason J, the significance of the designation 'mere' in answering this question.[26]
I do not agree with the proposition which appears to be founded on remarks in some of the judgments that sale of land which has been subdivided is necessarily no more than the realization of an asset merely because it is an enterprising way of realizing the asset to the best advantage. That may be so in the case where an area of land is merely divided into several allotments. But it is not so in a case such as the present where the planned subdivision takes place on a massive scale, involving the laying out and construction of roads, the provision of parklands, services and other improvements. All this amounts to development and improvement of the land to such a marked degree that it is impossible to say that it is mere realization of an asset. We need to bear in mind that the subdivision of broad acres into marketable residential allotments involves much more in the way of planning, development and improvement than was formerly the case.[27]
. (1982) 150 CLR 355 , 385
61. It may not be accurate to describe the development in the current matter as on a massive scale. But it clearly involved substantial works of the kind mentioned by Gibbs CJ in the way of planning, development and improvement of the land.
62. I have considered each of the factors pointed to by the applicant in written and oral submissions but consider they do not outweigh those I have identified in favour of the view that the applicant's activities take the character of this matter beyond mere realisation into a commercial venture entered into for the purpose of obtaining the gain on sale of the subdivided lots.
63. That the applicant, with no professional experience in land development, should engage others to carry out works and market the subdivided lots is scarcely surprising. The engagement of contractors to provide advice and carry out engineering and construction works and real estate agents to market land is, I would have thought, a hallmark of modern subdivision projects. While that may mean Mr Collins was relatively passive in respect of these activities, I do not accept that this weighs heavily in the applicant's favour in the context of a development of this nature which involved the undertaking of extensive skilled work.
64. Likewise, that the applicant chose to sell vacant land and, as the applicant expressed it, left further profits on the table by not constructing and selling houses on the lots for further profit, in my view provides little assistance to the applicant. Every operator of a land development business that chooses to sell allotments rather than house and land packages has made such a choice.
65. The applicant also noted that the sale proceeds from the land sales were reinvested in capital assets of the applicant fund. Respectfully, I am unable to see how that is relevant to the character of the antecedent subdivision and sale of the lands from which those proceeds were generated. It is commonplace for an entity, especially a superannuation fund, to invest excess income in income-earning capital assets; that does not affect the character of the income.
66. For these reasons, I am not persuaded that the supplies of the subdivided lots were or were likely to be made by way of transfer of ownership of capital assets.
HAS THE APPLICANT PROVED THAT ANY OF THE SALES WERE OR WERE LIKELY TO BE SOLELY AS A CONSEQUENCE OF CEASING TO CARRY ON AN ENTERPRISE?
67. The Commissioner submitted that the enterprise referred to in s 188-25(b) - in respect
ATC 10480
of both s 188(b)(i) and s 188(b)(ii) - must be the same enterprise that the applicant acknowledges it carried on; that is, carrying out activities as trustees of a complying superannuation fund. Accordingly, the Commissioner submitted, the applicant's argument under s 188-25(b)(i) must fail because it did not cease to carry on that enterprise.68. I am, with respect, unable to accept this submission. Section 188-25(b) in its terms refers to 'an' enterprise. I can see nothing in the context of this provision which would warrant limiting the enterprise referred to in s 188-25(b) to a particular enterprise.
69. Further, to do so would seem to be contrary to the evident purpose of s 188-25(b). It is self-evident that the purpose of the registration turnover threshold is to allow small enterprises to choose to remain out of the GST regime. Against that background, inferentially the purpose of s 188-25(b) is to exclude from consideration the value of projected supplies that are outside the usual run of transactions and, if included, would distort an assessment of the scale of an entity's enterprise.
70. The Commissioner's construction would lead to odd outcomes that are unlikely to have been intended. A superannuation fund that made a low value of supplies (below the registration threshold) would not be required to be registered for GST purposes and thus not liable for GST on those limited supplies. However, a superannuation fund that had been registered because it was making significant taxable supplies and makes supplies as a consequence of ceasing those activities in the current month, but is projected to make only a low value of ongoing supplies in the following 11 months, would be required to remain registered and would be liable for GST on those supplies.
71. Accordingly, I accept the applicant's submission that it is sufficient to demonstrate that the Sales were made solely as a consequence of the applicant ceasing to carry on an enterprise of subdividing and selling the subdivided lots. However, that is not the end of the matter.
72. I am, with respect, quite unable to see how it could be said that the Sales would be made solely as a consequence of ceasing to carry on the land development enterprise. That enterprise did not cease before the last of the Sales were completed.[28]
73. More to the point, in my view the applicant's characterisation of the Sales or even the final sale as made as a consequence of ceasing to carry on the land development, let alone solely as a consequence of the ceasing of that enterprise, is not reasonably open. A land development venture may be said to cease as a consequence of the sale of the subject lands or perhaps the final sale. But that is the inverse of what s 188-25(b)(i) requires. It would in my view be quite artificial to say such sales occur in consequence of the business ceasing. The sale of lands is the central objective of a land development enterprise and occurs as part and parcel of - as a consequence of - the ongoing conduct of the enterprise. The sales do not occur as a consequence of the enterprise ceasing.
HAS THE APPLICANT PROVED THAT ANY OF THE SALES WERE OR WERE LIKELY TO BE SOLELY AS A CONSEQUENCE OF SUBSTANTIALLY AND PERMANENTLY REDUCING THE SIZE OR SCALE OF AN ENTERPRISE?
74. The discussion above relating to s 188-25(b)(i) applies similarly in respect of s 188-25(b)(ii).
75. The land development venture broadly comprised the subdivision and sale of the subdivided lots. That was the applicant's enterprise throughout the course of its relevant activities. That enterprise did not change until, at the earliest, the sale of the final lot.
76. It might be said that the scale of that enterprise substantially and permanently reduced as a consequence of the Sales. But, as with the applicant's s 188-25(b)(i) argument, that is the inverse of what s 188-25(b)(ii) requires - that the supplies are solely as a consequence of a substantial and permanent reduction in the size or scale of an enterprise.
77. In my view the characterisation of the Sales or even the final sale as made in consequence of a substantial and permanent reduction in the size or scale of the applicant's land development enterprise is not reasonably open. The Sales were made in the course of and as a consequence of carrying on the
ATC 10481
enterprise, not as a consequence of a reduction in its size or scale.78. Additionally, the applicant's approach under either limb of s 188-25(b) would mean land developers could escape GST on the footing that land sales transacted in the ordinary course of their businesses are made solely in consequence of ceasing or substantially and permanently reducing the size or scale of their enterprise. A construction with such outcomes for a substantial sector of the economy, which the GST Act plainly contemplates being subject to GST,[29]
DISPOSITION OF THE REVIEW
79. For the reasons set out above, I am not persuaded that the assessments are excessive. It follows that the objection decision must be affirmed.
Footnotes
[1][2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
[21]
[22]
[23]
[24]
[25]
[26]
[27]
[28]
[29]
This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.