Decleah Investments Pty Ltd and Prince Removal and Storage Pty Ltd as Trustees for the PRS Unit Trust v Commissioner of Taxation

1. The appeal be allowed with costs.
2. The decision of the Administrative Appeals Tribunal dated 1 December 2017 be set aside.
3. The parties file, within 14 days, the orders that they agree ought to be made to reflect the reasons for decision published this day, or, if agreement cannot be reached, written submissions limited to eight pages, concerning the orders for final disposition of this appeal. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

STEWARD J: 1 The applicant taxpayer appeals to this Court from a decision of the Administrative Appeals Tribunal (the "Tribunal"), which had set aside an objection decision made by the respondent (the "Commissioner") on 12 November 2015, and which had substituted its own decision increasing goods and services tax and administrative penalty payable. 2 The applicant was a developer of land who had purchased property in Pakenham prior to the introduction of A New Tax System (Goods and Services Tax) Act 1999 (the "GST Act"), which came into effect from 1 July 2000. It has since subdivided and otherwise developed the land, progressively selling lots, and for that purpose applied what is called the "margin scheme" provisions of the GST Act. 3 The margin scheme is an exception to the usual way of calculating liability under the GST Act. In simple terms, rather than accounting for the gross amount payable for a taxable supply, the scheme provides that the amount of GST on a supply of real property, or like interest, is 1/11 of the "margin" for the supply. The "margin" is the amount by which the consideration for the supply exceeds the consideration for the acquisition of the real property or like interest. To obtain the benefit of the margin scheme, the taxpayer and the purchaser of the land, or like interest, must agree in writing that the scheme applies. Once applicable, the purchase of the land or similar interest is not a creditable acquisition. As such, the scheme is directed at developers selling houses, and the like, for domestic consumption. 4 The scheme of the GST Act is not to tax increases in the value of land that have taken place before 1 July 2000 upon the land being sold thereafter. Rather, it taxes increases in the value of land that take place after that date and which are realised on the making of a taxable supply. To achieve this, in general terms, the margin is calculated as being the amount by which the consideration for the supply exceeds an "approved valuation" of the land as at 1 July 2000. Here, the applicant obtained its valuation. The Commissioner obtained his own. The valuers disagreed about the value of the applicant's land. Below, the Tribunal rejected the applicant's valuation in sufficiently striking terms such that it increased the GST payable and, on its own motion, the penalties payable to 50% for recklessness. The applicant now appeals to this Court.