A New Tax System (Goods and Services tax) Act 1999 (Cth), ss 11-5, 11-10, 29-10

Taxation Administration Act 1953 (Cth), ss 105-55_,_ 14ZZK

Australian Leisure Marine Pty Ltd and Commissioner of Taxation [2010] AATA 620

1. The Commissioner of Taxation and the taxpayer are locked in a wide-ranging dispute over the taxpayer's liability to pay Goods and Services Tax ("GST") in several different periods. The Commissioner disallowed most of the taxpayer's objections and imposed penalties in respect of the shortfall in the objection decision dated 2 December 2009. That decision dealt with the following quarterly tax periods:
   • 1 October 2002 - 31 March 2005;
   • 1 January 2006 - 31 March 2006;
   • 1 July 2006 - 31 December 2007;
   • 1 May 2008 - 30 June 2008.
2. The taxpayer was represented by officers employed by its tax agents at the hearing. They filed several volumes of documents in support of their case, although the scope and thrust of the case appeared to change as the proceedings continued. Interestingly, the taxpayer chose not to call oral evidence from any witnesses who might be expected to have evidence that would shed light on what occurred, and who might be able to answer questions about the mass of documents.
3. I have decided to affirm the objection decision for reasons I will explain.

1. The taxpayer was incorporated on 17 June 2002. The sole shareholder and director of the company was Dr Nirmal Taluja. On the same day that it was incorporated, the taxpayer purchased a block of land in Clontarf, near Brisbane. It also registered with the Commissioner for GST, indicating that it would account on a non-cash basis with quarterly tax periods. The taxpayer was represented by a tax agent, Gambhir Watts, who acted on behalf of the company until April 2004 when that agent was replaced by DL Business Services Pty Ltd. The principal of DL Business Services was Mr David Luong. Questions were raised at the hearing from the bar table about some of Mr Luong's activities on behalf of the taxpayer. He was not called as a witness.
2. In August 2005, the taxpayer's agent at the time advised the Commissioner that the taxpayer would account on a cash basis from 1 January 2003. A new tax agent, the firm of Peter Green Accountants, was appointed in April 2008. (That firm remains the agent for the taxpayer.) The agent notified the Commissioner on 29 July 2008 and 23 September 2008 that the taxpayer would not be accounting on a cash basis and asked that the Commissioner accept that the taxpayer would proceed on the basis that it had not been accounting on a cash basis since 1 July 2002. The Commissioner wrote back on 6 October 2008 to advise that the accounting method could not be back-dated to 2002. The Commissioner said the taxpayer would be regarded as having ceased accounting on a cash basis as of 1 October 2008.
3. Peter Green Accountants subsequently lodged activity statements for the quarterly tax periods ending on 31 December 2002 through the period ending 30 June 2004. The statements were lodged on 26 August 2008 - some four years after the end of the period. Those statements claimed refunds of $191,447. A BAS for the quarterly period ending 31 March 2005 was lodged on 1 September 2008. The taxpayer claimed a GST refund in the amount of $500,000. Further activity statements were lodged on 10-11 September 2008 in respect of the quarterly tax periods ending 31 March 2006 and 30 September 2006 through 31 December 2007. Those activity statements claimed refunds totalling $212,094. On 18 September 2008, Peter Green Accountants lodged activity statements for the quarterly tax periods ending 30 September 2004 and 31 December 2004.
4. The Commissioner and Peter Green Accountants engaged in a lengthy round of correspondence in connection with an audit that initially focused on the quarterly period ending 31 March 2005. Mr Mark Tomlinson of Peter Green, assisted by his brother, who is also employed by the firm, dealt with the Commissioner on behalf of the taxpayer (and subsequently appeared at the hearing). A great many documents changed hands during the course of this process as the taxpayer's representatives sought to convince the Commissioner of the correctness of the taxpayer's position. The inquiry widened to include other quarterly periods, which led to the Commissioner issuing amended assessments on 14 January 2009. The objections and the objection decision followed in due course.

1. The parties suggested there were six issues that required resolution, although I note the Commissioner's view that at least some of those questions were the product of a misconception on behalf of the taxpayer's representatives. The issues certainly tended to blur together in the course of a chaotic hearing. I did my best to divine what was really in dispute between the parties. In an attempt to bring some focus to the proceedings, I actually gave a decision early in the hearing in relation to the first issue identified by the parties. I have set out those reasons below. I will deal with the other issues in due course.

ISSUE ONE: THE TAXPAYER'S CLAIM IN RESPECT OF AN INPUT TAX CREDIT OF $500,000 IN QUARTERLY TAX PERIOD ENDED 31 MARCH 2005.

1. The first issue arose out of a deal between the taxpayer and a builder in 2005 to construct a block of flats. That dispute turned on whether the deal - such as it was - amounted to a creditable acquisition within the meaning of s 11-5 of the A New Tax System (Goods and Services tax) Act 1999 ("the GST Act").
2. Section 11-5 provides:

You make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide, or are liable to provide, consideration for the supply; and

(d) you are registered, or required to be registered.

1. The dispute before me arose out of the requirement in s 11-5(a) that there be an acquisition of something. Section 11-10(2) says, relevantly:

(2) Without limiting subsection (1), acquisition includes any of these:

(a) an acquisition of goods;

(b) an acquisition of services;

(c) a receipt of advice or information;

(d) an acceptance of a grant, assignment or surrender of real property;

(e) an acceptance of a grant, transfer, assignment or surrender of any right;

(f) an acquisition of something the supply of which is a financial supply;

(g) an acquisition of a right to require another person:

(i) to do anything; or

(ii) to refrain from an act; or

(iii) to tolerate an act or situation;

(h) any combination of any 2 or more of the matters referred to in paragraphs (a) to (g).

1. My task is to examine the contract - if that is what it is - and determine whether it effects an acquisition that is capable of satisfying this definition.
2. I have already noted the taxpayer provided several volumes of documents in support of its case. Unfortunately, it did not make Dr Taluja or any other witnesses available to prove or explain those documents. The taxpayer's representatives had been warned in a telephone directions hearing some weeks before the hearing that s 14ZZK of the Taxation Administration Act 1953 ("the Administation Act") effectively required the taxpayer to adduce evidence that showed the Commissioner was wrong, and that if it failed to call witnesses who might be of assistance, it did so at its peril. The taxpayer's representatives told me at the commencement of the hearing that it would be relying on the written documents because its director and shareholder was not available for reasons that were not made clear. Mr O'Seighin, for the Commissioner, said I should refuse to admit a statutory declaration provided by that officer. I did not think it was appropriate to reject the admission of the evidence but it is difficult to know what to make of that statement if the Commissioner is not to have the opportunity to cross-examine its author. I was not referred to the statutory declaration during the course of the argument in any event.
3. The taxpayer says there was a completed contract embodied in a letter from an entity called Coveco to the sole director and shareholder of the taxpayer. The letter, which is included in the documents tendered by the parties in a number of places, is one page in length. It is dated 22 February 2005. The date is significant because the letter was written during the quarter ending 31 March 2005, which is the relevant quarter for the purposes of the dispute. It refers to earlier discussions and invites a response. The letter is covered in hand-written annotations. The annotations include a reference to "special conditions" that were attached to the letter but which were not provided to the Tribunal. I was told they were not available. There is also a reference to the inclusion of standard terms and the need to have the contract formally prepared and executed by a lawyer. The letter is signed with a notation that the "offer" had been "accepted".
4. I am satisfied this document is not capable of being considered a completed contract. If, as seems likely, the hand-written notations that included reference to additional terms were added by the taxpayer's officer, the document as amended and returned to the builder is not, in truth, an acceptance but a counter-offer that would need to be considered and accepted by the other party before it could be regarded as a complete contract.
5. The letter of 26 August 2005 is drafted in a way that is consistent with that conclusion. The builder is a different company, although I understand it may be in the same group as the author of the earlier letter in February. It clearly indicates the matters which the taxpayer says had been settled in the February letter were only then being addressed. That letter refers to a set of standard terms that were not executed until 22 September 2005. A fair reading of those documents suggests that there was no contract to do anything in existence until 22 September 2005. I accept that is so.
6. I note from p 581 of the T-documents that the contract says the obligation to start doing the work would not commence until the property was made available on 1 October 2005.
7. Events overtook the contract. It was common ground between the parties that the Crown gave notice during September 2005 of its intention to resume the property for a public purpose. We know the property was finally resumed early the following year. We do not have any reliable evidence as to what occurred after the notice of intention to resume was received. I cannot be sure if any work was done on the property after 1 October 2005, although I would be surprised if that were so. Mr Tomlinson, one of the taxpayer's representatives, suggested from the bar table that he believed the taxpayer had gone ahead and paid the builder the contract price under the belief that it was required to do so. But we have no evidence of that - and it is probably irrelevant to the discrete question before me in relation to issue one.

1. I turn to the question at hand: is there a creditable acquisition? It will be apparent from my findings that I do not accept there was a creditable acquisition during the quarter ending 31 March 2005 because the contract in question was not concluded until 22 September 2005. What of that contract? Does it satisfy the statutory criteria in s 11-10?
2. The Commissioner says the September agreement was a contract for the supply of services - namely building services. That sort of contract would be covered under s 11-10(2)(b). Mr O'Seighin said that given the time issues, there was no opportunity for the taxpayer to obtain any services under the contract because the property was resumed and the contract was presumably frustrated before any work could be done or services supplied. He added there was no evidence of work being done in any event. In those circumstances, it was impossible for the taxpayer to satisfy the criteria.
3. The taxpayer initially disputed this but settled on a different argument. Mr Tomlinson said the contract was a fixed price contract for the delivery of a completed development. He said that amounted to a contract to acquire the right to compel someone to do something within the meaning of s 11-10(2)(g). The right in question was a right to compel the builder to build a block of flats according to the specifications for the agreed price.
4. I am satisfied the Commissioner has the better view of the September contract. It is, in my view, a contract for the supply of building services. I am not aware of credible evidence that suggests building services were ever supplied under that contract because the resumption process presumably prevented the actual acquisition of any services.
5. Even if I am wrong about that and it is possible to characterise the contract as a contract to acquire a right, I am not satisfied the right in question was actually acquired because the resumption process appeared to interfere in what occurred before the property could be made available.
6. It follows I do not accept there was a creditable acquisition within the meaning of the GST Act in the March quarter of 2005. The dispute in relation to the quarterly tax period ending 31 March 2005 must be decided against the taxpayer. Even if I am wrong about the contract in September 2005 and it is to be regarded as a creditable acquisition that would otherwise give rise to an input tax credit of $500,000, the fact is the taxpayer did not make that claim until quite recently. It may be too late to amend the relevant activity statement. In any event, the taxpayer has not sought an amendment of the grounds upon which the objection was made pursuant to s 14ZZK(1) of the Administration Act, so that claim is not before me.

ISSUE TWO: ENTITLEMENT TO REFUNDS IN RESPECT QUARTERLY TAX PERIODS ENDING ON 31 DECEMBER 2002 THROUGH THE PERIOD ENDING 30 JUNE 2004

1. The taxpayer lodged activity statements on 26 August 2008 in respect of the quarterly tax periods ending on 31 December 2002 through the period ending 30 June 2004. Those statements were more than four years after the periods in question. Statements had already been lodged; the revised statements claimed additional refunds.
2. The Commissioner says the claims cannot be accepted because s 105-55(1) and (2) to the Administration Act imposes a four year time limit after the end of the tax period. Claims for a refund, payment or credit must be made within that time frame, or they must be declined.
3. The taxpayer argued that it was not making a fresh claim for a refund, it was merely amending an earlier claim. There was some discussion over whether or not the activity statements that were lodged in 2008 were lodged on the basis that they were amendments or fresh claims. I was invited to pore over the claim documents and characterise them as amended statements.
4. Section 105-55(1) provides relevantly:

(1) You are not entitled to a refund, other payment or credit to which this subsection applies in respect of a * tax period or importation unless:

(a) within 4 years after:

(i) the end of the tax period; or

(ii) the importation;

as the case requires, you notify the Commissioner (in a * GST return or otherwise) that you are entitled to the refund, other payment or credit; ...

1. A careful reading of that section confirms there is no difference whether the statements were lodged as amended statements or originals. The claim for a refund was first brought to the Commissioner's notice more than four years after the end of the tax period. That is the end of the matter: see Australian Leisure Marine Pty Ltd and Commissioner of Taxation [2010] AATA 620 at [17] per Dr McDermott. The objection decision in relation to those quarterly periods must be affirmed.

ISSUE THREE: THE APPLICANT'S CLAIM FOR AN INPUT TAX CREDIT OF $212,094 IN RESPECTOF THE QUARTERLY PERIOD ENDING 31 MARCH 2006 AND THE PERIODS ENDING 30 SEPTEMBER 2006 THROUGH 31 DECEMBER 2007 AND ISSUE FOUR: THE TAXPAYER'S CLAIM FOR AN INPUT TAX CREDIT OF $24,629 IN RESPECT OF THE QUARTERLY PERIODS ENDING 30 SEPTEMBER 2004 AND 31 DECEMBER 2004

1. The taxpayer claimed an input tax credit totalling $212,094 in respect of tax periods in 2006 and 2007. This claim was harder to understand, and was the subject of limited discussion at the hearing. As I apprehend the argument, the taxpayer says it should be able to attribute input tax credit ("ITC") amounts to these periods. It seems that some of the ITC amounts it wishes to attribute were already claimed in respect of the earlier periods considered in the discussion of issue two. (Portions of the $24,629 referred to in connection with issue four which the taxpayer said was attributable to the September and December quarters of 2004 were also previously attributed to quarters in 2002-2004.) I do not think the taxpayer can get around the problem of the time limit on making claims in respect of the earlier periods by simply making an alternative claim in respect of a later period. A claim can only be attributed to one period or another. If a claim is made in respect of a period and that claim fails because it was made more than four years after the tax period ended, that exhausts the claim because the activity statement can no longer be amended: s 105-55(1). It follows I would affirm the objection decision to the extent that it disallows claims made by the taxpayer in later periods that have already been attributed to earlier periods.
2. The Commissioner acknowledged that s 29-10(4) of the GST Act effectively permitted a taxpayer to hold off making a claim in respect of a period and attribute an ITC to a later period if it had a tax invoice - provided of course there was no "double dipping" in the sense that the same claim was attributed to more than one period.
3. The taxpayer, for its part, appeared to argue that two amounts (of $8269 and $30,528 respectively) which the Commissioner assumed were attributable to the tax periods ending 30 September 2004 through 31 December 2004 and the period ending 30 June 2008 should be attributed differently. The taxpayer said the amounts were properly attributable to the quarterly tax periods ending 31 March 2006 and ending 30 September 2006 through 31 December 2007. The Commissioner's submissions acknowledged this was acceptable in principle, subject to its concern about double dipping. The genesis of the concern about double dipping became apparent when the Commissioner pointed out the taxpayer may be seeking to attribute the same amounts (of $8269 and $30,528 respectively) to the September and December quarters in 2004 (which explains why the Commissioner took the view it did following the audit).
4. The failure to call witnesses who could give evidence that would adequately explain the taxpayer's claims meant I was left in a state where I could not form a view one way or the other in relation to these issues. I did not think it was fair or appropriate to entertain evidence in relation to these questions that was proffered from the bar table by the taxpayer's representatives. The mass of documents that I was provided did not tell the story on their own. In those circumstances, I think the effect of s 14ZZK of the Administration Act is clear: the objection decision in relation to these matters must be affirmed.

1. There were a number of allegations made about whether or not the taxpayer was involved in an agency relationship with other persons and entities, either as principal or agent. There were several other companies controlled by Dr Taluja, the sole shareholder and director of the taxpayer that might have been acting as an agent in relation to transactions which have GST implications for the taxpayer. Mr Isakka or his associates might also have acted as agents in relation to some matters. I gather the taxpayer says creditable acquisitions made by those entities should be treated as creditable acquisitions by the taxpayer.
2. While I accept it was impossible to call the late Mr Isakka to give evidence, the failure to call any other witnesses who could make sense of these arguments meant that I have difficulty forming a view about the true position. I do not think that the documents can be left to speak for themselves. It is simply not good enough for a taxpayer's representatives to tender a large number of documents without explanation. The taxpayer cannot cure that shortcoming by offering essentially un-contestable evidence from the bar table. Section 14ZZK of the Administration Act suggests I should affirm the objection decision in relation to issue five.

1. The last matter I must consider is the question of penalties. Given I have affirmed the objection decision in other respects, it seems there is a substantial shortfall, so the question of penalties is a live one.
2. At the conclusion of the hearing, I insisted that the taxpayer's representatives take time to prepare written submissions in relation to this issue. I had become increasingly conscious of the inexperience of Messrs Tomlinson, who represented the taxpayer, and I wanted them to have the opportunity to clearly reflect on the Commissioner's oral and written submissions on this issue.
3. The objection decision imposed an administrative base penalty at the rate of 50% of the shortfall amount pursuant to s 284-75 of Schedule One of the Administration Act. The Commissioner says - and I accept, for reasons I have explained - the taxpayer has made statements to the Commissioner in the activity statements that were false or misleading in a material particular. I accept the various activity statements included claims that were erroneous or incorrect. As a result of those errors, there is a shortfall amount.
4. The Commissioner argues that the shortfall amount has arisen as a result of the recklessness of the taxpayer or its agent. Recklessness justifies a penalty levied at the 50% rate. "Recklessness" in this context means gross carelessness, or a disregard for, or indifference to, a risk that was reasonably foreseeable. Naturally, the fact that a taxpayer is represented by a tax agent - a professional who is presumably experienced in dealing with taxation matters and aware of traps that might elude an unrepresented taxpayer - must be taken into account when determining whether the taxpayer has acted recklessly.
5. The taxpayer's written submissions say there is no suggestion that the taxpayer or its agents have knowingly made false statements to the Commissioner. The submissions agree that confusion had arisen prior to 2008 over the taxpayer's GST affairs but insist that the taxpayer and Peter Green Accountants acted appropriately and reasonably once that firm was retained in 2008. The submissions point out that the activity statements lodged for the 2002-2004 period were lodged on the good faith assumption that activity statements had not already been lodged. The submissions suggest the Commissioner acted precipitously when this mistake was uncovered. It will be apparent from my reasons that I accept the Commissioner's argument that it did not matter whether the statements in question were the first or amended statements: the taxpayer should not have been seeking refunds in the first place because of the time limit that is applicable. The taxpayer (through its agent) should have known of that time limit and its implications.
6. The taxpayer's submissions also seek to excuse the error in claiming an input tax credit in relation to the construction contract in the March 2005 quarter. The taxpayer says it was not legally advised and it was reasonable to form the view that it did in relation to the document it signed in February 2005. I disagree. I concluded that the document represented a step in the negotiations rather than a completed contract. The taxpayer knew that.
7. The taxpayer's submissions also seek to shift the blame onto the Commissioner. It argued (at p 5 of the submissions) "that no shortfall existed, or would have existed but for the erroneous conduct of the ATO." The submissions went on to argue that Peter Green Accountants had followed advice given by the Commissioner and complied with various rules and guidelines and published information in its dealings. I disagree. I saw nothing during the course of the proceedings that persuaded me the Commissioner was responsible for what occurred. The errors I have discussed in these reasons (with respect to the building "contract" in early 2005, the claims outside the four-year limit and the duplicate claims) were not the product of confusion generated by the Commissioner's behaviour. They should not have been made by a competent tax agent.
8. The taxpayer in this case has made basic mistakes in its dealings with the Commissioner which led to the tax shortfall. Given it was advised by a tax agent, those mistakes should have been foreseen and avoided. I am satisfied its behaviour was reckless in all the circumstances. The 50% penalty rate is appropriate.
9. The taxpayer did not argue that the penalty should be remitted in its grounds for objection. If there are any arguments to that effect, they are not before me.

1. The objection decision is affirmed.
2. I would add one further observation about the difficulties that may arise in proceedings conducted on behalf of a taxpayer by a tax agent or accountant where the outcome of the dispute may turn on the Tribunal's view of advice provided by that tax agent to its client. A tax agent has duties to its client, and there is a risk that those duties might conflict with the agent's own interests when the quality of the agent's advice is in issue before the Tribunal. It would usually be preferable for the taxpayer to obtain independent advice and representation at a hearing in those circumstances.

I certify that the 46 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe.

Signed: ....................[Sgd].......................................................