The impact of this case on ATO policy is discussed in Decision Impact Statement: Rod Mathiesen Truck Hire Pty Ltd as trustee for the Mathiesen Family Trust and Commissioner of Taxation (2013/0341 and 2013/0342 ).
ROD MATHIESEN TRUCK HIRE PTY LTD ATF THE MATHIESEN FAMILY TRUST v FC OF TMembers:
IR Molloy DP
Administrative Appeals Tribunal, Brisbane
MEDIA NEUTRAL CITATION:
 AATA 496
Deputy President I R Molloy
1. This proceeding concerns the liability of the applicant, Rod Mathiesen Truck Hire Pty Ltd as trustee for the Mathiesen Family Trust (the Trust), for GST in connection with the taxable supply of vacant land at 585 Ingham Road, Mount St John, Queensland (the Property).
2. The Commissioner assessed the Trust on the basis that it received full consideration on the transfer of the Property in the 2008 tax year in part through a vendor finance agreement. The Trust contends that it is only liable for GST to the extent of two payments actually received for the Property, made in the 2008 and 2009 tax periods, and amounting to less than the full consideration.
3. The Trust's objection to the Commissioner's assessment was disallowed on 11 December 2012 and this is an application for review of that decision.
4. By a contract for sale dated 14 March 2008, the Trust agreed to sell the Property to Wardell St Investments as trustee for the TSV Trust (the Purchaser) for $3,177,650 plus GST.
5. On settlement on 16 May 2008, the Trust and the Purchaser entered into what was described as a Settlement Balance Facility Agreement and the Trust received from the Purchaser $2,017,885.
6. In the Settlement Balance Facility Agreement, the Trust is described as the Lender and the Purchaser as the Borrower. The Preamble states:
- A. The parties are the Seller and Buyer of land respectively. On settlement of the Land the Lender intends to lend funds in the amount of $1,498,682.69 to the Borrower as an adjustment from the settlement price of land ("the Funds").
- B. The parties wish to record the terms of the loan and Security ("the Loan").
7. The Operative Part of the Agreement includes the following:
1 Advance of Funds and Security
- 1.1 The Lender will advance the Funds to the Borrower by way of an adjustment on settlement ("the Advance Date") of the purchase by the Borrower of land situated at Lot 585 Ingham Road, Mt St John, ("the Land").
- 1.2 The Loan will be secured by a subordinate registered mortgage over the Land and if so required by the Lender a Personal Guarantee by the Borrower's director and a subordinate company charge.
2 Monies to be paid at settlement
- 2.1 The Borrower will pay to the Lender at settlement of the Land:
- 2.1.1 $1,700,000.00 (one million seven hundred thousand dollars); and
- 2.1.2 $50,000.00 fifty thousand dollars interest in advance to be drawn upon by the Lender immediately; and
- 2.1.3 GST of $317,885.00;
- 2.1.4 $50,000 to be paid to the Lender's Solicitors Trust Account to be held in trust and drawn upon as a further capitalized interest sum if the balance purchase price is not paid by the Due Date.
- 2.1 The Borrower will pay to the Lender at settlement of the Land:
3 Monies to be paid subsequently
- 3.1 The Borrower must pay the balance of the Purchase Price due upon the land being $149,8682.69 (sic) of the Funds on or before 30 June 2008 ("the Repayment Date")
- 3.2 In the event that the balance of the Purchase Price is not paid by the Repayment Date:
- 3.2.1 The Lender's solicitors may release the $50,000 held on trust to the Lender for its benefit absolutely with no further authority from the Borrower required; and
- 3.2.2 Interest at the rate of 2% per month compounding monthly shall accrue in addition.
8. On settlement the Property was transferred in favour of the Purchaser capable of immediate registration. The transfer instrument recorded the consideration of $3,495,403.50.
9. A Settlement Statement prepared by the Trust's solicitors recorded the following payments:
Cheques Drawn as Follows:-
1. Westpac Banking Corporation cr a/c Rod Mathiesen Truck Hire Pty Ltd $1,700,000.00 2. Westpac Banking Corporation cr a/c Rod Mathiesen Truck Hire Pty Ltd $ 317,885.00 (GST) 3. Lee Turnbull & Co Trust Account (being $50,000.00 interest in advance and retention of $50,000 (capitalised interest pursuant to clause 2.1.4 of the Settlement Balance Facility Agreement $ 100,000.00 Balance payable pursuant to Settlement Balance Facility Agreement $1,498,682.69
10. The Trust received a total of $2,017,885 at settlement, being the sum of cheques 1 and 2. The Trust secured the payment of the balance of $1,498,682.69 owing from the Purchaser with a mortgage over the Property. Paragraph 2(a) of a schedule to the mortgage provides:
The Mortgagor will pay (as adjustment from the purchase price of the Land) to the Mortgagee the whole of the principal monies or otherwise in accordance with and in the manner provided for in the Vendor Finance Agreement on or before 30 June 2008 ("the Due Date").
11. The Trust issued a tax invoice to the Purchaser for $3,495,288.50, including $317,753.50 in GST. The description of the supply on the tax invoice was "sale of vacant land ...".
12. The Trust did not receive any amount of the balance owing or accrued interest from the Purchaser by 30 June 2008 as required under the Settlement Balance Facility Agreement.
13. On 23 February 2009, the Trust and the Purchaser entered into a Deed of Variation - Settlement Balance (Deed of Variation).
By an agreement titled "Settlement Balance Facilities Agreement" made on ("The Original SBFA") or about 16 th May 2008 and Mortgage number 710695298 the Lender advanced funds to the Borrower by way of vendor finance in relation to the sale of real property situated at 585 Ingham Road, Mt. St. John, Qld.
14. By the Deed of Variation, the Trust and the Purchaser agreed that in place of the Purchaser's obligations contained in cls 2 and 3 of the Settlement Balance Facility Agreement, the Purchaser would pay the Trust $500,000 within 21 days and transfer to the Trust three developed lots.
15. The Purchaser paid $500,000 to the Trust by cheque on 23 February 2009. The Trust was notified by letter dated 12 May 2011 that Westpac Banking Corporation was exercising its power of sale as mortgagee in possession over the Property.
16. The foregoing facts were agreed. In addition, evidence was given by Mrs Kaylene Mathiesen, a director of Rod Mathiesen Truck Hire Pty Ltd. Mrs Mathiesen's signature as a director appears on the Settlement Balance Facility Agreement. Her evidence was that it was not the practice of the Trust to lend money. She said it was not her intention to enter into a loan agreement with the Purchaser. She could not recall reading the Agreement before signing, or whether it was explained to her. The Trust accounted for GST on the payments actually received from the Purchaser in the relevant Annual GST Returns and paid the corresponding GST, all of which was reflected in the Trust's accounts.
17. The Commissioner considered that the Trust had received full consideration for the transfer of the Property on 16 May 2008, being the payment of $2,017,895 and $1,477,520 through the Settlement Balance Facility Agreement. The Commissioner relied on s 9-15 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act), which defines "consideration" to include "any payment, or any act of forbearance, in connection with a supply of anything". In this case, the consideration was said to consist of two forms of "money" as defined by s 195-1 of the GST Act, namely, (1) a cheque being a negotiable instrument, and (2) the entry into a loan agreement which is the creation of a debt.
18. The Trust contended it was erroneously being made liable to account for GST on consideration which was promised but had not been received. It relied on the fact that it accounted for GST on a cash basis. It contended that the proper approach was to look at the substance and reality of the transactions which, it said, amounted to a deferral of payment of the purchase price under the contract for sale. Alternatively, it was contended the loan transaction (if properly so-called) was simply ancillary to a single or dominant supply under the contract for sale.
19. The dealings between the Trust and the Purchaser were not unusual. They consisted of a contract for the sale of land (in a usual REIQ form), a loan agreement whereby the vendor advanced money to the purchaser (commonly referred to as vendor finance), and a mortgage over the subject property to secure repayment of the loan. Each was a distinct dealing and there is no reason, from a business perspective or otherwise, not to recognise them as such.
20. The intention of the parties to the Settlement Balance Facility Agreement, so far as relevant, is their objective intention to be derived from the document itself. Whatever was Mrs Mathiesen's subjective intention, the Agreement clearly, in my view, provided for a loan from the Trust to the Purchaser. I should also say that I do not think that Mrs Mathiesen had formed any particular intention about lending money to the Purchaser at the time the Agreement was executed. My impression was that she signed what was presented to her as a means of ensuring the sale went ahead without considering what precisely the Trust was agreeing to.
21. The Trust sought to characterise the Settlement Balance Facility Agreement as providing for a sale of the Property on credit. This featured in several of the Trust's arguments. In addition to the circumstances of the transaction, and Mrs Mathiesen's evidence, particular reliance was placed on the wording of cl 3.1 of the Agreement. The reference in that clause to payment of "the Balance of the Purchase due upon the land" is understandable given that that was the basis and amount of the loan. I do not see how these words alter the essential nature of the transaction which was a loan from the Trust to the Purchaser permitting it to complete the purchase of the Property. That is plain from the Agreement read as a whole, and from the contemporaneous Mortgage. That the loan was only intended to be for a period of 45 days does not alter the nature of the Agreement. Nor do subsequent entries in the Trust's accounting records.
22. The Trust contended that the Commissioner's position undermines the correct application of the cash accounting principles set out in Div 29 of the GST Act. The example is offered of a purchaser who agrees to 45 day payment terms. At the time of rendering an invoice, it was said, the supplier has an amount receivable but not yet received. The contention is that, applying the Commissioner's reasoning in this case, the supplier has been paid by way of "creation of a debt" and has therefore received "money" as consideration at the time of the creation of the debt. This would mean that the distinction between taxpayers accounting for GST on a cash basis compared to an accruals basis would not operate as the legislature intended. This was also said to be inconsistent with the Commissioner's public rulings, particularly GSTR 2003/12 at para 78.
23. However, there is a clear distinction between a sale on credit and the dealings here between the Trust and the Purchaser. The contract for sale did not provide for any form of credit and it was not varied to do so. There may have been other options than the one employed by the parties when it became apparent that the Purchaser did not have the money to complete. A differently structured solution, in the circumstances that transpired, may have led to a different GST outcome. However, the Trust and the Purchaser adopted the method outlined above, and the fact that things did not turn out as planned is not an opportunity to recast what has already occurred.
24. It was also contended that the "loan" (even if that is the correct description) should be characterised as ancillary and incidental to the Purchaser's obligation to pay the purchase price under the contract for sale. There was a principal supply of the Property and the Settlement Balance Facility Agreement did not give rise to a separate input taxed financial supply. Reliance was placed on decisions such as
Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd (2006) 152 FCR 461, at paragraph 35; and
Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256; and on English and European authorities
25. As stated in the ruling, some supplies include parts which do not need to be separately recognised for GST purposes. Where a supply is essentially the provision of one thing, it need not be broken down, unbundled or dissected further. In the British Telecommunications case (see footnote 9), for example, the actual delivery of a new motor vehicle to the purchaser was held to be ancillary or incidental to the supply of the vehicle.
26. The Trust contended that the extension of credit merely facilitated the proper performance of the contract for the supply of the Property. It was pointed out that the deferral of payment of the purchase price was only 45 days. The italicized descriptions do not accord with my view of the transactions. Be that as it may, I have taken into account all of the circumstances referred to by the Trust. I do not accept that the loan, or creation of the loan debt, between the Trust and the Purchaser was incidental or ancillary to the supply under the contract for sale as envisaged in the cases and the Commissioner's ruling. They were distinct transactions.
27. The Trust took issue with the Commissioner's view that the transactions, including the Settlement Balance Facility Agreement, constituted a loan facility and set-off arrangement. It was pointed out that postponement of payment of a debt does not constitute a loan: see, for example,
Mercantile Credits Ltd v Commissioner of Taxation  FCA 359 per Morling J; approved on appeal in
Commissioner of Taxation v Mercantile Credits Ltd  FCA 36. It was submitted that the Settlement Balance Facility Agreement did not provide for a loan, but that "the substance" of the Agreement was to vary how long the Purchaser had to pay for the Property and provide a mechanism for the Trust to take security. I have already rejected this characterization of the Settlement Balance Facility Agreement. There was plainly a loan agreement and a loan. The obligation to advance the loan monies was off-set at settlement against the Purchaser's obligation to pay for the Property. Thereafter the Trust's rights against the Purchaser were under the Settlement Balance Facility Agreement (subsequently varied) and the Mortgage.
28. In the result I find that for the purposes of the GST Act all of the consideration in relation to the sale of the Property was received by the Trust at the time of settlement on 16 May 2008. The Commissioner submitted that the GST assessment of $317,765.00 was incorrect in that it failed to take into account all settlement adjustments. The amount is minor and, as it favoured the Trust, no variation to the decision on the objection was sought. Accordingly, the decision is affirmed.