Decision impact statement

Davsa Forty-Ninth Pty Ltd as Trustee for Krongold Ford Business Unit Trust and Commissioner of Taxation

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Venue: Administrative Appeals Tribunal
Venue Reference No: 2011/1945
Judge Name: FD O'Loughlin, Senior Member
Judgment date: 29 May 2014
Appeals on foot: No
Decision Outcome: Partly Favourable

Impacted Advice

Relevant Rulings/Determinations:

• None

Précis

Outlines the ATO's response to this case which concerns whether the Applicant was entitled to its claims for input tax credits (ITCs) in the relevant period and a decreasing luxury car tax (LCT) adjustment in relation to motor vehicles (cars).

Brief summary of facts

Early in 2004, the director of the Applicant (the director) decided to commence a business activity of selling cars with the following attributes: quality, class, prestige distinction and performance. The director believed that there was a niche market for cars with these particular attributes and this was a business opportunity that could potentially be very lucrative in the future.

Over a period of some years the Applicant purchased a number of cars; the first being purchased in January 2004.

The cars purchased by the Applicant were stored at private premises of the director and parties related to him.

The Applicant did not keep records of all the expenditure incurred in holding, servicing or repairing the cars it had purchased and did not seek to claim input tax credits in respect of any of those costs.

During the relevant period, only one car was sold and that sale was to the director's daughter, and a loss on sale arose.

The Applicant claimed input tax credits in relation to the acquisition of the cars acquired after it was granted its motor car trading licence. It also claimed a decreasing luxury car tax (LCT) adjustment associated with the purchase of certain cars.

The Applicant commenced advertising its business and cars for sale in April 2009. In May 2009, the Commissioner commenced an examination of the Applicant's affairs and completed it in February 2010. The Commissioner assessed the Applicant on the basis that it was not entitled to input tax credits or a decreasing LCT adjustment because the Applicant was not carrying on an enterprise and the cars were not being held by the Applicant as trading stock.

The Commissioner imposed a penalty of 25% for lack of reasonable care.

The Applicant objected to the Commissioner's assessments of its net amount for relevant periods and assessment of penalty, and the Commissioner disallowed the objection. The Applicant applied to the Tribunal for review of the Commissioner's objection decision.

Issues decided by the Tribunal

As highlighted by the Tribunal at [6] the heart of the dispute between the Applicant and the Commissioner lay in whether the Applicant carried on an enterprise and acquired the cars subject to LCT to be used/held as trading stock.

Having regard to a number of specific facts (at [38]), the Tribunal held (at [38] & [39]) that, while finely balanced, the Applicant should be regarded as an entity that has engaged in a series of activities that have sufficient indicia of business to be regarded as carrying on an enterprise, or to have been carrying out steps in the commencement of an enterprise.

Entitlement to input tax credits

The Tribunal decided that the cars were acquired in carrying on an enterprise and were therefore creditable acquisitions, although the extent of creditable purpose would be subject to the apportionment rules for those cars which were used for private purposes.

The Tribunal also decided that the Applicant was not entitled to claim input tax credits in relation to the purchase of four of the cars purchased because the evidence did not disclose that the Applicant held valid tax invoices either at all or at the requisite time for the input tax credits claimed as required by, section 29-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act).

Entitlement to LCT decreasing adjustment

The Tribunal decided the Applicant was not entitled to the LCT decreasing adjustment for some of the luxury cars bought because it became aware of the adjustment after the period in which it was claimed. Also, because of the part private use of another of its luxury cars, the Tribunal decided the Applicant had not established that the car was held solely as trading stock in the period since its acquisition and was thus not entitled to an adjustment because of the multiple use.

25% penalty imposed for lack of reasonable care

The Tribunal decided that the Applicant and its agent had not shown that they had taken reasonable care to avoid the shortfall. It also decided not to remit the penalty as its imposition was not otherwise harsh and did not produce an unjust, inappropriate or unreasonable outcome.

ATO view of decision

The Commissioner accepts that while, as recognised by the Tribunal, it is finely balanced, the Tribunal's decision that the Applicant carried on an enterprise in the form of a business was open to it on the specific facts of this case.

In reaching the conclusion that the Applicant was carrying on an enterprise, the Tribunal appears to have implicitly accepted that the Applicant was therefore holding the luxury cars for a quotable purpose. The Commissioner considers that the existing, legally binding authority on the issue of quotable purpose continues to be the Federal Court's decision in Melbourne Car Shop Pty Ltd v Commissioner of Taxation [2010] FCA 373.

Notwithstanding the Tribunal's conclusion that the Applicant was not able to claim some of input tax credits sought because it did not hold the requisite tax invoices under subsection 29-10(3) of the GST Act, the A New Tax System (Goods and Services Tax) Act 1999 Waiver of Tax Invoice Requirement Determination (No. 1) 2004 - Decision of a Court or Tribunal (WTI 2004/1) waives the requirement for a tax invoice in circumstances where a Court or a Tribunal decides that a taxpayer is entitled to an input tax credit under section 11-5 of the GST Act. Therefore, in cases such as this where the Tribunal determines that there is an entitlement to input tax credits, the Commissioner will allow the taxpayer to claim that entitlement without the need to hold a tax invoice^[1].

Implications for impacted advice or guidance

None

Amendment history

© AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA

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Court citation:
[2014] AATA 337
2014 ATC 10-361

Footnotes

WTI 2004/1 expired on 1 April 2017 and has not been remade. The Tribunal standing in the shoes of the Commissioner, will exercise the discretion to treat a document as a tax invoice, in subsection 29-70(1B) of the GST Act, on a case by case basis.

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
9-20
11-5
11-15
11-25
29-10(3)
29-70(1B)
69-10

A New Tax System (Luxury Car Tax) Act 1999
9-5
15-30

Taxation Administration Act 1953
Sch1 284-75

Case References:
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[2010] FCAFC 25
(2010) 182 FCR 526
2010 ATC 20-169
(2010) 76 ATR 472

Ell v Commissioner of Taxation
[2006] FCA 71
2006 ATC 4098
(2006) 61 ATR 661

Envestra Limited (ACN 078 551 685) v Commissioner of Taxation
[2008] FCA 249
(2008) 169 FCR 300
(2008) 70 ATR 115

Evans, R.J. v Commissioner of Taxation
[1989] FCA 278
89 ATC 4540
20 ATR 922

Commissioner of Taxation v Swansea Services Pty Ltd
[2009] FCA 402
72 ATR 120
2009 ATC 20-100

Commissioner of Taxation (Cth) v Whitfords Beach Pty Ltd
[1982] HCA 8
(1982) 150 CLR 355
12 ATR 692
82 ATC 4031
39 ALR 521

Ferguson, Peter Ian Murdoch v The Commissioner of Taxation for the Commonwealth of Australia
[1979] FCA 51
(1979) 37 FLR 310
79 ATC 4261
(1979) 9 ATR 873
(1979) 26 ALR 307
79 ATC 470

Fletcher v Commissioner of Taxation (Cth)
[1991] HCA 42
(1991) 173 CLR 1
22 ATR 613
103 ALR 97
91 ATC 4950

Hope v Bathurst City Council
[1980] HCA 16
(1980) 144 CLR 1
(1980) 29 ALR 577
(1980) 12 ATR 231
80 ATC 4386

Melbourne Car Shop Pty Ltd v Commissioner of Taxation
[2010] FCA 373
76 ATR 42
2010 ATC 20-179

Prestcold (Central) Ltd v Minister of Labour
[1969] 2 WLR 89 (Court of Appeal)

Project Blue Sky Inc v Australian Broadcasting Authority
[1998] HCA 28
(1998) 194 CLR 355
153 ALR 490

Registrar Of Titles (WA) v Franzon
[1975] HCA 41
(1975) 132 CLR 611
(1975) 7 ALR 383

Ronpibon Tin NL v Commissioner of Taxation (Cth)
[1949] HCA 15
(1949) 78 CLR 47
[1949] ALR (CN) 1055
[1949] ALR 785
(1949) 8 ATD 431

Russell v Commissioner of Taxation
[2011] FCAFC 10
190 FCR 449
(2011) 79 ATR 315
(2011) 274 ALR 545
2011 ATC 20-240

Sanctuary Lakes Pty Ltd v Commissioner of Taxation
[2013] FCAFC 50
2013 ATC 20-395
212 FCR 483
(2013) 90 ATR 762

Spassked Pty Limited v Commissioner of Taxation
[2003] FCAFC 282
(2003) 54 ATR 546
136 FCR 441
2003 ATC 5099
(2003) 203 FLR 515

Spriggs v Commissioner of Taxation
[2009] HCA 22
239 CLR 1
(2009) 256 ALR 596
(2009) 72 ATR 148
2009 ATC 20-109

State Authorities Superannuation Board v Commissioner of Taxation
[1988] FCA 756
(1988) 21 FCR 535
(1988) 85 ALR 125
(1988) 20 ATR 211
89 ATC 4078

Stewart and Commissioner of Taxation
[2013] AATA 845
2013 ATC 10-340
(2013) 97 ATR 963

Thomas v Commissioner of Taxation (Cth)
(1972) 46 ALJR 397
[1972-73] ALR 368
72 ATC 4094
3 ATR 165

Tweddle v Federal Commissioner of Taxation
[1942] HCA 40
180 CLR 1
(1942) 7 ATD 186

Vincent v Commissioner of Taxation
[2002] FCAFC 291
(2002) 124 FCR 350
(2002) 51 ATR 18
2002 ATC 4742
(2002) 193 ALR 686

Walstern v Commissioner of Taxation
[2003] FCA 1428
2003 ATC 5076
(2003) 54 ATR 423
(2003) 183 FCR 1

Woods v Deputy Commissioner of Taxation
[1999] FCA 1589
99 ATC 5306
43 ATR 491