Decision impact statement

VCF 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: VT 2006/141
Judge Name: Deputy President McDonald
Judgment date: 21 August 2008
Appeals on foot:
No.

Impacted Advice

Relevant Rulings/Determinations:

• None.

Subject References:
GST
Second-hand goods
Scrap metal
Door trade
Identity of suppliers
Sampling methodology
Administrative penalty
Intentional disregard
Recklessness

Précis

Outlines the Tax Office's response to this case which concerned the issue of whether the Applicant was entitled to input tax credits on purchase of scrap metal from unregistered suppliers and whether the Applicant was liable for an administrative penalty.

Decision Outcome:

Partially adverse

Brief summary of facts

1. The Applicant was engaged in the purchase, processing and sale of scrap metal, including purchases through "door trade", being cash purchases of scrap metal sold to it by individuals without ABNs.

2. The Applicant recorded information regarding the purchases, including the door traders' names and the type, quantity (weight) and price paid for scrap metal ,on 'purchase documents'. However, there was no evidence that the information regarding the identity of the suppliers was verified.

3. The Applicant claimed input tax credits for these purchases in reliance upon Division 66 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

4. After sampling the records held by the Applicant, the Commissioner concluded that there were significant inconsistencies in the names, addresses and motor vehicle registrations of suppliers. The results were extrapolated and the Commissioner determined that many of the records of door trades involving amounts of over $300 were false.

5. The Commissioner issued adjustments disallowing claims for $364,048 for the period 1 July 2000 to 30 October 2002.

6. An administrative penalty of 75% was imposed on the shortfall amount.

Issues decided by the tribunal

1. The Applicant did not meet the record-keeping requirements of section 66-17 or section 66-55 of the GST Act;

2. The Commissioner applied an acceptable methodology to calculate the amount of the assessments, however should have allowed a discount of 5% for a margin for error (except upon the purchase of cars);

3. Consistent with the methodology applied by the Commissioner, it was reasonable to disallow a percentage of the input tax credits claimed by the Applicant on the purchase of scrap metal;

4. An administrative penalty of 50% of the shortfall amount for recklessness, rather than 75% for intentional disregard of the law was appropriate in the circumstances. No remission of the penalty was warranted.

Tax Office view of Decision

Methodology and margin for error

The Tax Office accepts that the minor adjustment to the sampling methodology made by the Tribunal was open to the Tribunal on the evidence in this case.

Penalty

The Tax Office accepts that a conclusion that the Applicant acted with recklessness, rather than intentional disregard of the law was open to the Tribunal on the evidence accepted in this case. The Tribunal's decision reaffirms, in the context of section 66-17 of the GST Act, the onus on taxpayers to keep accurate and reliable records. Further the Tribunal confirmed that the failure of a taxpayer, in these circumstances, to assure itself that the record was correct may amount to reckless disregard of a taxation law.

Administrative Treatment

None.

Implications on current Public Rulings & Determinations

None.

Implications on Law Administration Practice Statements

None

Court citation:
[2008] AATA 731
2008 ATC 1-004
71 ATR 702

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
66-5
66-10
66-17
Part 4-2

Taxation Administration Act 1953
Sch 1 Div 284-B
284-15
284-75
284-90
284-225
298-20

Case References:
Hart v Commissioner of Taxation
[2003] FCAFC 105
2003 ATC 4665
(2003) 53 ATR 371

Sterling Guardian Pty Ltd v Commissioner of Taxation
[2005] FCA 1166
2005 ATC 4796
(2005) 60 ATR 502