TAXATION - Goods and Services Tax - Input tax credits for acquisition not claimed - Applicant deregistered for GST - Acquisition sold without GST applying - Whether applicant entitled to decreasing adjustment for change of use - Whether applicant had further tax periods and adjustment periods applying to it after cancellation of GST registration - Applicant did not have tax period applying to it - Provisions relating to decreasing adjustments operate only where entity has tax periods applying to it - Decision affirmed

A New Tax System (Goods and Services Tax) Act 1999 (Cth), ss 7-10, 27-40(2), Div 129, ss 129-20, 129-25, 125-25(1), Div 138, ss138-17(2), 138-17(3)

Certain Lloyd's Underwriters Subscribing to Contract No IHOOAQS v Cross [2012] HCA 56; (2012) ALJR 131

Supplementary Explanatory Memorandum to the Indirect Tax Legislation Amendment Bill 2000 (Cth)

1. In June 2000 Cater Corporation Pty Ltd, in its capacity as trustee for the Helensvale Unit Trust (the Trust), acquired land at Helensvale and thereafter constructed a retirement village on that land. Although registered for GST, Cater Corporation did not claim input tax credits for GST because all of its supplies were input taxed. Then in April 2007, and at a time when the Trust was no longer registered for GST, Cater Corporation sold the retirement village. Because the Trust was no longer registered or required to be registered the sale of the village, as "new residential premises", was not a taxable supply and was sold free of GST.
2. In August 2011 Cater Corporation applied to the respondent, the Commissioner of Taxation, for a private ruling about the operation of the GST legislation on the transactions of the Trust. It will suffice for present purposes to say that the Trust contended, and contends in these proceedings, that it was entitled to make a "decreasing adjustment", in effect, a refund of the GST paid, as a consequence of the change in the purpose of the Trust's acquisition of goods and services.
3. The Commissioner's ruling was adverse. Again, it will suffice to say that the Commissioner ruled, and contends in these proceedings, that the Trust was not entitled to make a decreasing adjustment because, as a consequence of it no longer being registered, or required to be registered, for GST, it did not have a "tax period" applicable to it in which that adjustment might be made.
4. The applicant, GOL-HUT Pty Ltd, is now the trustee of the Trust in the place of Cater Corporation. It seeks a review of the Commissioner's ruling.

1. The facts are agreed.[1] Cater Corporation acquired the land on which the retirement village was subsequently constructed on 15 June 2000 for a price of $1.85m. Two developments were undertaken on the land - 148 independent living units, together with communal facilities, (collectively "the Village") were constructed as was a community health care building. The Village commenced operation in the year ending 30 June 2003. Residents of the Village entered into contracts under which they enjoyed a right to occupy an independent living unit and to use the communal facilities. The health care building was sold as a going concern in October 2003.
2. During 2006 Cater Corporation, as trustee of the Trust, contracted to sell the Village for $26,276,000. That contract was completed on 5 April 2007. At the time of that sale the independent living units would have been classified as new residential premises as that term is defined in s 40-75 of the New Tax System (Goods and Services Tax) Act 1999 (the Act).
3. Cater Corporation, as trustee, was registered for GST effective from 1 July 2000. It did not claim any input tax credits for GST included in the cost of acquisitions relating to the construction and operation of the Village. The Trust deregistered for GST, with effect from 1 October 2006. It did not account for GST on the supply of the Village on the basis that the supply was considered not to be a taxable supply. The Village was sold without GST applying. Sometime after the sale[2] GOL-HUT Pty Ltd replaced Cater Corporation as the trustee of the Trust.
4. On 27 May 2011 accountants for the Trust notified the Commissioner of Taxation of a claimed entitlement to a "decreasing adjustment" of $2,074,179. In August 2011 the accountants lodged the request for a private ruling. Expressed in its most simple form, the Trust contended that it was entitled to a GST refund because of its entitlement to a decreasing adjustment for change in use. On 13 January 2012, for the reasons then given, the Commissioner ruled that the Trust did not have a decreasing adjustment as a result of selling the Village.
5. An objection to the ruling was lodged on 8 March 2012. The objection was disallowed on 19 July 2012. These proceedings, which seek a review of that objection decision, were commenced on 21 August 2012.

1. It is a sufficient explanation of the general scheme of the GST Act to say that, ordinarily, a supply of goods or services is taxable (at the rate of 10% of the value of the taxable supply) if, relevantly, it is made for consideration in the course of an enterprise carried on by a person who is registered, or required to be registered, for GST and if the supply is neither GST-free nor input taxed. Moreover, the enterprise is entitled to claim input tax credits equal to the amount of GST paid by the enterprise on supplies to it by others. On a regular basis, usually quarterly, the enterprise accounts to the Commissioner for the GST collected, less any input tax credits, by means of a business activity statement (BAS) and pays to, or receives from, the Commissioner, any balance owed by or to the enterprise.
2. Division 2 of the Act provides an overview of the Act. Section 2-1, in particular, explains that the Act "is about the GST", that it begins with "the basic rules about the GST", and that there are exemptions and "special rules that can apply in particular cases". The basic rules are introduced by s 2-5 in these terms:

25 The basic rules (Chapter 2)

Chapter 2 has the basic rules for the GST, including:

• when and how the GST arises, and who is liable to pay it;
• when and how input tax credits arise, and who is entitled to them;
• how to work out payments and refunds of GST;
• when and how the payments and refunds are to be made.

The special rules are introduced by s 2-15 of the Act in this way:

215 The special rules (Chapter 4)

Chapter 4 has special rules which, in particular cases, have the effect of modifying the basic rules in Chapter 2.

1. Division 7 of Part 2-1 of the Act, within Chapter 2, sets out the "central provisions" including, relevantly, the proposition, in s 7-10 that:

Every entity that is *registered, or *required to be registered, has tax periods applying to it.

The term "entity" includes a trust.[3] Tax periods are dealt with in Part 2-6, also within Chapter 2. The general rule[4] is that the tax periods are each period of 3 months ending on 31 March, 30 June, 30 September and 31 December in any year but there are presently irrelevant exceptions to the general rule.

1. Provision is made within Part 2-6 for changing the day on which a tax period ends and for the making, and the revocation, of a special determination of tax periods. Section 27-40 deals with an entity's concluding tax period. It provides, so far as is presently relevant,

(2) If an entity's *registration is cancelled, the entity's tax period at the date of effect of the cancellation (the cancellation day) ceases at the end of the cancellation day.

Also within Part 2-6 is s 27-99, "Special rules relating to tax periods". The section notes that Chapter 4 of the Act contains special rules relating to tax periods including relevantly, Division 129, "Changes in the extent of creditable purpose."

1. Given the way in which the Trust puts its case it is necessary to consider Division 138, Cessation of Registration. The operation of that Division is explained in s 138-1 of the Act in this way:

An entity whose registration has been cancelled may still have acquisitions and importations for which entitlements to input tax credits have arisen. This Division provides for an increasing adjustment to cancel those input tax credits.

That explanation may be considered in the circumstances set out in s 182-10(2) of the Act. I did not understand the applicant to suggest that resort could not be had to the explanation sections in the Act to assist in the construction of the provisions in issue in the present case.

1. Section 138-20 expresses the general rule that Division 138 does not affect the operation of Division 129 (concerning changes in the extent of creditable purpose) but excludes from that rule ss 138-17(2) and (3) of the Act. Those subsections provide:

(2) Division 129 (which is about changes in the extent of creditable purpose) continues to apply to the acquisition or importation of the thing immediately after the cancellation if:

(a) Subdivision 129A does not prevent an adjustment arising under that Division for the acquisition or importation; and

(b) the cancellation occurs during an *adjustment period for the acquisition or importation.

(3) For the purposes of applying Division 129 to the acquisition or importation after the cancellation:

(a) the entity *carrying on the *enterprise in question immediately after the cancellation is taken to have made the acquisition or importation at the time it was originally made; and

(b) the extent (if any) to which the thing was originally acquired or imported for a *creditable purpose is taken to be the extent (if any) to which the entity acquired or imported the thing for a creditable purpose; and

(c) any *application of the thing since the original acquisition or importation is taken to be an application of the thing by the entity.

1. Before considering the text of Division 129 it may be helpful to explain the general operation of the Act so far as adjustments are concerned. The adjustment is to the GST or input tax credits previously returned in the BAS. The need for an adjustment may arise in a variety of circumstances including, as in the present case, a change in the intended use of goods or services which in turn brings about a change in the liability to GST or entitlement to input tax credits. And, in the ordinary case, the adjustment is made in a subsequent tax period rather than as a revision of the original BAS.
2. The operation of Division 129 is explained by s 129-1 of the Act in this way:

The extent to which an acquisition or importation is for a creditable purpose affects the amount of the resulting input tax credit. When the extent of creditable purpose is changed by later events, adjustments (for the purpose of working out net amounts under Part 24) may need to be made.

The key provisions are ss 129-5, 129-20 and 129-25 of the Act. They provide:

1295 Adjustments arising under this Division

(1) An *adjustment can arise under this Division for:

(a) an acquisition, even if it is not a *creditable acquisition; or

(b) an importation, even if it is not a *creditable importation;

in respect of any *adjustment period for the acquisition or importation.

(2) However, in determining:

(a) whether an adjustment under this Division arises; or

(b) the amount of such an *adjustment;

disregard any change in the extent to which the thing acquired or imported is *applied in making *financial supplies, unless you *exceed the financial acquisitions threshold.

...

12920 Adjustment periods

(1) An adjustment period for an acquisition or importation is a tax period applying to you that:

(a) starts at least 12 months after the end of the tax period to which the acquisition or importation is attributable (or would be attributable if it were a *creditable acquisition or *creditable importation); and

(b) ends:

(i) on 30 June in any year; or

(ii) if none of the tax periods applying to you in a particular year ends on 30 June - closer to 30 June than any of the other tax periods applying to you in that year.

In addition, a tax period provided for under section 2739 or 2740 or subsection 15155(1) or 16285(1) is an adjustment period for the acquisition or importation.

Note: Section 2739 deals with an incapacitated entity's tax periods. Section 2740 and subsections 15155(1) and 16285(1) deal with an entity's concluding tax period.

(2) Despite subsection (1), for an acquisition or importation that *relates to business finance:

(a) if the *GST exclusive value of the acquisition or importation is $50,000 or less - only the first such tax period is an adjustment period; or

(b) if the GST exclusive value of the acquisition or importation is more than $50,000 but less than $500,000 - only the first 5 such tax periods are adjustment periods; or

(c) if the GST exclusive value of the acquisition or importation is $500,000 or more - only the first 10 such tax periods are adjustment periods.

(3) Despite subsection (1), for an acquisition or importation that does not *relate to business finance:

(a) if the *GST exclusive value of the acquisition or importation is $5,000 or less - only the first 2 such tax periods are adjustment periods; or

(b) if the GST exclusive value of the acquisition or importation is more than $5,000 but less than $500,000 - only the first 5 such tax periods are adjustment periods; or

(c) if the GST exclusive value of the acquisition or importation is $500,000 or more - only the first 10 such tax periods are adjustment periods.

However, the Commissioner may, having regard to record keeping requirements for the purposes of income tax, determine in writing that a fewer number of tax periods are adjustment periods for a particular class of acquisitions or importations that do not *relate to business finance.

12925 Effect on adjustment periods of things being disposed of etc.

(1) Despite section 12920, if:

(a) you dispose of a thing acquired or imported (other than in circumstances giving rise to a *decreasing adjustment under Division 132); or

(b) a thing acquired or imported is lost, stolen or destroyed; or

(c) a thing is acquired only for a particular period and that period expires;

the next tax period applying to you that ends:

(d) on 30 June in any year; or

(e) if none of the tax periods applying to you in a particular year ends on 30 June - closer to 30 June than any of the other tax periods applying to you in that year;

is the last *adjustment period for the acquisition or importation in question.

(2) Despite section 12920, if:

(a) you dispose of a thing acquired or imported; and

(b) the disposal takes place in circumstances giving rise to a *decreasing adjustment under Division 132;

then:

(c) the last *adjustment period to end before the disposal is the last adjustment period for the acquisition or importation in question; and

(d) if no such adjustment period ended before the disposal, there is no adjustment period for the acquisition or importation.

(3) This section does not apply to a disposal if this Division continues to apply to the acquisition or importation of the thing because of subsection 13817(2).

1. The issue is whether the Trust had further tax periods (and therefore adjustment periods) applying to it after cancellation of its GST registration from 1 October 2006. The Trust says that it does and that the adjustment period is determined in accordance with s 129-25(1) of the Act. The Trust points to ss 138-17(2) and (3) as giving continuing operation to Division 129 after cancellation. For his part, the Commissioner contends that ss 129-20 and 129-25 are of no assistance to the Trust. That is so, it is said, because those subsections cannot operate unless there is a tax period; post-cancellation, there is no tax period and hence no adjustment period.
2. For the reasons that follow, in my view the Commissioner's arguments ought be accepted and those of the Trust rejected.

1. Ms Brennan, counsel for the Commissioner, drew my attention to the following passage from the judgement of French CJ and Hayne J in Certain Lloyd's Underwriters Subscribing to Contract No IHOOAAQS v Cross[5] where their Honours said:

[23] It is as well to begin consideration of this issue by re-stating some basic principles. It is convenient to do that by reference to the reasons of the plurality in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue:

"This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy."

[24] The context and purpose of a provision are important to its proper construction because, as the plurality said in Project Blue Sky Inc v Australian Broadcasting Authority, "[t]he primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute"). That is, statutory construction requires deciding what is the legal meaning of the relevant provision "by reference to the language of the instrument viewed as a whole", and "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed".

1. The Commissioner submits that the allocation of tax periods to an entity is a central feature of the Act. He points to the stipulation in s 7-10 of the Act that every entity that is registered, or required to be registered, has tax periods applying to it. And, it may be observed, the notion of tax periods is necessary, in the scheme of the Act, to crystallise the obligation to pay to the Commonwealth (or receive from the Commonwealth) the net amount of GST less input tax credits. There is no obligation to pay (or receive) the net amount except by reference to a tax period[6]. Moreover, by virtue of s 27-40(2) of the Act, the tax period ceases upon cancellation of registration.
2. At the time of the events giving rise to the claimed adjustment the Trust was not registered for GST and I did not understand Mr Vorster, its representative, to suggest that it was required to be registered at that time. In any event I am satisfied, for the reasons set out in paragraphs 23 to 27 of the Commissioner's Statement of Facts, Issues and Contentions, that the Trust was not required to be registered at that time. Thus, without more, the Trust did not have a tax period applying to it at the time it claims the entitlement to a decreasing adjustment.
3. The Trust seeks to overcome the difficulty by reference to s 138-17 of the Act and the claimed effect of that section on s 129-25(1) of the Act. I do not accept the Trust's argument.
4. First, ss 138-17(2) and (3) of the Act do not have general operation; they operate to exclude the operation of Division 138 in the particular circumstances identified in s 138-17(1), cancellation as a result of the death of an entity. Contrary to the Trust's argument, they do not have a stand-alone effect. That much is clear from their context within s 138-17. Moreover the Trust's argument is contrary to the scheme of the Act in particular ss 7-10, 27-40(2) and 129-20. In addition, the Trust's construction is inconsistent with the Supplementary Explanatory Memorandum to the Indirect Tax Legislation Amendment Bill 2000[7] which introduced s 138-17.
5. It was not clear to me whether the Trust argues that Division 129 had operation in circumstances independent of s 138-17 of the Act. If it does, I do not accept the argument. Again, it is contrary to the scheme of the Act. In my view Division 129, on its proper construction, cannot have any application to an entity that was neither registered nor required to be registered. Most obviously, an adjustment period is, as the Commissioner submits, a subset of a tax period. Section 129-25 of the Act operates only where an entity has a tax period applying to it, by operation of the Act, because it is registered or required to be registered. It cannot create a tax period independent of the operation of the Act. Division 129 is one of the "Special rules relating to tax periods"[8]. That description, together with an examination of the other "Special rules" and the general scheme of the Act, reinforces the construction that I prefer.
6. It follows that the Commissioner's ruling was correct and that accordingly the objection decision ought to be affirmed.

I certify that the preceding 26 (twenty-six) paragraphs are a true copy of the reasons for the decision herein of

......................[Sgd]..................................................

[2] The date does not appear in the material.

[5] [2012] HCA 56; (2012) 87 ALJR 131, at [23] - [24]. Citations have been omitted.