Decision impact statement
Commissioner of Taxation v Secretary to the Department of Transport (Vic)
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 FCAFC 84
2010 ATC 20-196
76 ATR 306
(2010) 188 FCR 167
Venue: Federal Court of Australia
Venue Reference No: VID 845 of 2009
Judge Name: Kenny J; Dodds-Streeton J; Jessop J.
Judgment date: 9 July 2010
Appeals on foot:
Impacted AdviceRelevant Rulings/Determinations:
Multi Purpose Taxi Program
transport services of disabled passengers
input tax credits
Outlines the ATO's response to this matter which concerned whether a subsidy provider made creditable acquisitions in respect of the subsidy payments and was therefore entitled to input tax credits under the GST Act.
Brief summary of facts
The Department of Transport (DOT), through the Victorian Taxi Directorate (VTD), administers taxi-cab licences and the Multi Purpose Taxi Program (MPTP) in the State of Victoria pursuant to the Transport Act 1983 (Vic). The DOT is registered for GST.
Under the MPTP, the DOT provides a 50% subsidy of the metered taxi-cab fare (up to a specified maximum per trip and a specified maximum per year) for taxi-cab travel to Victorian residents who suffer from a severe and permanent disability and are unable to independently access public transport (a MPTP Member and for the purposes of the transactions in question, the passenger in the taxi).
Every taxi-cab licence requires the taxi-cab to be fitted out to facilitate the implementation of the MPTP and to be operated in accordance with the terms of the MPTP.
The metered taxi-cab fare payable by a passenger is calculated at the end of the taxi-cab ride. The passenger is liable to pay the fare calculated by reducing the metered taxi-cab fare by the amount of the subsidy.
The taxi-cab trip undertaken by the passenger is reported to the VTD. Before the trip commences, the passenger presents an MPTP card to the taxi-cab operator which is then validated electronically by DOT. The DOT pays the MPTP subsidy to the taxi-cab operator or, if the passenger paid the whole of the fare, the DOT pays the MPTP subsidy to the passenger.
Issues decided by the court
The issue in dispute in this matter was whether the DOT made creditable acquisitions in accordance with section 11-5 of the GST Act in respect to the payments it made to taxi-cab operators under the MPTP and was therefore entitled to input tax credits under section 11-20 of the GST Act.
The majority of the Full Federal Court (Kenny and Dodds-Streeton JJ) held that the DOT made creditable acquisitions in respect to the payments it made under the MPTP.
The majority held that a taxi-cab operator made two supplies: the supply of transport to the passenger and the supply to the DOT of the service of transporting the MPTP member. The subsidy payment was consideration for the supply to the DOT and therefore the DOT acquired a taxable supply from the taxi-cab operator for the purposes of paragraph 11-5(b).
The Court observed that the suggestion that there will be a supply made in every case that consideration is provided is an erroneous proposition.
Having found that the DOT made creditable acquisitions in respect of the payments it made under the MPTP, it concluded that the DOT was entitled to input tax credits under section 11-20 of the GST Act.
Tax Office View of Decision
The Commissioner considers that, as a result of the decision, a broader approach than that taken by the ATO to date when analysing subsidy arrangements of this kind is required.
In that regard, the Commissioner notes that the majority of the Court took into account two factors in deciding that the taxi-cab operators made supplies to the DOT for which the subsidy payments were held to be consideration:
- Having regard to the arrangements for electronic 'validation' before the journeys began, the taxi-cab operator was doing what the DOT had 'in effect' asked it to do on the basis that the DoT would make the payment.
- The identified supply to DOT of this service of transporting the MPTP member enabled the DOT to fulfil its objects under the relevant Transport Act and to perform its functions.
[Paragraph 56 of judgment]
It is necessary to take into account all the factual circumstances in a particular matter to determine whether a subsidy payment is consideration for a supply to the paying agency. The Commissioner is currently considering how the decision of the Full Federal Court may be applied to subsidy arrangements with different factual features to that of the MPTP with the view of updating relevant ATO Public Rulings and Determinations. In the interim, and subject to the necessary qualification that all factual circumstances need to be taken into account, the ATO accepts that a supply to the paying agency for which the subsidy is consideration occurs if:
- subsidy payments are made to an entity (the supplier) by a government department or agency (the agency) in circumstances where the supplier supplies goods or services to a third party;
- the supplier obtains, before each individual supply of goods or services is made by the supplier to the third party, advance authorisation from the agency that the agency would make the payment to the supplier if the goods or services are supplied; and
- the supply by the supplier to the third party promotes the objects or functions of the agency.
Implications on current Public Rulings & Determinations
There are a number of ATO Public Rulings and Determinations that consider the identification of supplies made under multi-party arrangements that will be reviewed and updated where required, including:
- the application of propositions 9 and 12-15 of GSTR 2006/9 which sets out the Commissioner's views on supplies;
- the Commissioner's views on supplies of rights and obligations in the context of grants of financial assistance as set out in GSTR 2000/11;
- the need to identify binding obligations when analysing multi-party insurance arrangements as referred to in GSTR 2006/10; and
- GSTD 2006/1 concerning whether a payment from a non-resident car manufacturer to an Australian distributor under an offshore warranty chargeback arrangement could be consideration for a supply.
This will include considering the implications of the Full Federal Court decision in TT-Line Company Pty Ltd v Federal Commissioner of Taxation (2009) 181 FCR 400 which also concerned a subsidy arrangement.
Implications on Law Administration Practice Statements
Refund requests and refund notifications
Taxpayers who consider that they are entitled to additional input tax credits as a consequence of this decision may claim a refund provided that the claim is made within the time limits for recovery of refunds in accordance with section 105-55 of Schedule 1 to the Taxation Administration Act 1953.
Taxpayers may notify us of their intention to seek a refund by lodging a Notification of entitlement to GST refund (NAT 11716) form within the time limits for recovery of refunds in accordance with section 105-55.
For any notification or refund request, it is requested that taxpayers also lodge a private ruling request to assist us in determining their entitlement to input tax credits.
As part of refund integrity processes, activity statements lodged by taxpayers may be reviewed and claims for input tax credit entitlements in reliance on the decision held pending the outcome of the review of the ATO position where the multi-party arrangement does not have the features listed above under Tax Office View of Decision.
Any private ruling requests relating to input tax credit claims which do not appear to rely on this decision or which involve a subsidy arrangement with the features listed above under Tax Office View of Decision will be finalised in accordance with normal ATO processes.
Ruling requests that are impacted by the decision that involve multi-party arrangements that do not have those features will be held pending the outcome of the review of the ATO position.
A New Tax System (Goods and Services Tax) Act 1999
A New Tax System (Australian Business Number ) Act 1999
Acts Interpretation Act 1901 (Cth)
Transport Act 1983 (Vic)
Div 5 of Part VI
Transport (Taxi-Cab) Regulations 2005 (Vic)
Carlill v Carbolic Smoke Ball Co
 1 QB 256
 2 QBD 484
Customs and Excise Commissioners v Redrow Group plc
 1 WLR 408
HP Mercantile Pty Ltd v Federal Commissioner of Taxation
(2005) 143 FCR 553
 FCAFC 126
2005 ATC 4571
60 ATR 106
Mallinson v Scottish Australian Investment Co Ltd
(1920) 28 CLR 66
(1920) 26 ALR 225
 HCA 51
Secretary to the Department of Transport (Victoria) v Commissioner of Taxation
(2009) 261 ALR 39
 FCA 1209
(2009) 2009 ATC 20-140
(2009) 73 ATR 690
TT-Line Company Pty Ltd v Federal Commissioner of Taxation
(2009) 181 FCR 400
(2009) 2009 ATC 20-157
(2009) 74 ATR 771