GST Act
26 GST is often described as an indirect broad-based consumption tax. The facts of this case demonstrate that proposition is easier to state than to apply.
27 Liability for GST arises where a registered business entity supplies goods or services in the course of carrying on an enterprise to its customers. These are called "taxable supplies". The supplier accounts for the GST. If the recipient of the goods or services is a registered business entity, it will normally be able to claim a credit (described as an "input tax credit") for the amount of the GST it has paid. The input tax credits are then offset against any GST on goods and services that the recipient supplies to its own customers. Registered business entities are the collecting agencies of GST. Entities receive an amount representing GST but do not keep it, and when obliged to pay GST, get a credit for the amount paid. The ultimate burden of the GST falls on the private consumer of the goods and services who gets no credit for the GST they pay: see also HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 at [10]-[13] and [20]-[23].
28 The two central concepts of the GST Act are "supply" (s 9-10 definition of "supply") and "acquisition" (s 11-10 definition of "acquisition"). The express words of the GST Act, together with the explanatory memorandum (paras 3.6 and 3.21) and the supplementary explanatory memorandum (collectively the memoranda)which introduced the GST Act, indicate a legislative intent that the concepts of "supply" and "acquisition" are to be interpreted widely.
29 The issue in this case concerns the entitlement of the DOT to input tax credits for the GST paid by it in the payment of the subsidy under the MPTP to taxi-cab operators (see [2]-[3] above).
30 As Hill J stated in HP Mercantile 143 FCR 553 at [20]:
The provisions dealing with the entitlement to input tax credits are to be found in Div 11 of the GST Act. Section 11-20 provides for there to be an entitlement to an input tax credit for any "creditable acquisition" made by a taxpayer. The expression "creditable acquisition" is defined in s 11-5. Relevantly, there must be an acquisition which is solely or partly for a creditable purpose: s 11-5(a). The acquisition must arise from a supply to the taxpayer which is a taxable supply: s 11-5(b).
(Emphasis added).
31 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.
32 As the text of s 11-5 makes plain, each element must be satisfied. Thus, in addition to ss 11-5(a) and (b) referred to by Hill J in HP Mercantile 143 FCR 553, it is necessary to refer to sub-paragraphs (c) and (d). The taxpayer must provide, or be liable to provide, consideration for the taxable supply (s 11-5(c)) and be registered for GST (s 11-5(d)). There is no dispute in this case in relation to sub-section (d). The dispute is whether the other paragraphs of the section are satisfied. More particularly:
1. is there a acquisition which is solely or partly for a creditable purpose? (par (a));
2. does the acquisition arise from a supply to the taxpayer which is a taxable supply? (par (b)); and
3. does the taxpayer provide, or is the taxpayer liable to provide, consideration for the taxable supply? (par (c)).
33 Section 11-10(1) provides that "[a]n acquisition is any form of acquisition whatsoever". Sub-section 11-10(2) goes on to provide that:
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).
34 Not only must there be an "acquisition", but the acquisition must be for a "creditable purpose". As Hill J said in HP Mercantile 143 FCR 553:
20 …. What a creditable purpose is will be found from s 11-15. Relevantly, that section provides:
(1) You acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise.
(2) However, you do not acquire the thing for a creditable purpose to the extent that:
(a) the acquisition relates to making supplies that would be input taxed; or
(b) the acquisition is of a private or domestic nature.
(3) An acquisition is not treated, for the purpose of paragraph (2)(a), as relating to making supplies that would be input taxed to the extent that the supply is made through an enterprise, or a part of an enterprise, that you carry on outside Australia.
(4) ...
21 It is, perhaps, not unremarkable that s 11-15 of the GST Act bears, in its structure, some similarity to the general business deduction provisions of the Australian income tax law, ie, s 51(1) of the Income Tax Assessment Act 1936 (Cth) and s 8-1 of the Income Tax Assessment Act 1997 (Cth). In both the GST provision and the income tax provisions, there is a need to pass first through a positive test. In the case of GST, the positive test is the requirement that the acquisition has been in whole or in part acquired in carrying on an enterprise. In the income tax context, there is the need to find that the loss or outgoing be incurred in gaining or producing assessable income, or in carrying on a business. In both cases apportionment arises where the positive test is only partly satisfied. Next, both require consideration of negative tests which exclude the allowance of a credit in the GST context or the allowance of a deduction in the income tax context. In the GST context the negative tests are those set out in s 11-15(2) of acquisitions relating to supplies that would be input taxed or acquisitions of a private and domestic nature. In the income tax context, the negative tests also involve the case where the loss or outgoing is of a private and domestic nature as well as where it is capital or of a capital nature. In both cases, a question of apportionment arises where the negative tests only partly apply.
22 The legislature might have followed the value added tax model applicable in the United Kingdom, which for present purposes can be said to allow an input tax credit where the acquisition is one that relates to the making of taxable supplies (including within that expression, supplies which in Australian GST parlance are GST free, called, in European countries, zero rated supplies). ...
23 However, that is not the model which Parliament adopted in the GST Act. …
(Emphasis in original).
35 The express words, structure and purpose of the GST Act direct the questions to be asked in ascertaining whether the DOT is entitled to an input tax credit for the GST it paid as part of the payment of the MPTP subsidy to taxi-cab operators.
36 First, the focus is the "entity" "carrying on [the] enterprise" - here, the DOT: ss 184-1 and 7-10 of the GST Act. Secondly, the entity must pay the GST on any taxable supply that the entity makes: s 9-40. However, the entity is also entitled to input tax credit in respect of certain acquisitions.
37 Having identified the "entity" "carrying on [the] enterprise", the next question to be asked is - did that entity acquire anything in carrying on its enterprise: s 11-15(1)? There is no dispute that the DOT is an enterprise within the meaning of the GST Act (see s 9-20 of the GST Act) and that the MPTP is an activity or series of activities done by the State through one of its executive arms, the DOT (s 9-20(1)(g) of the GST Act).
38 As has been said on numerous occasions, acquisition by an entity in carrying on its enterprise will normally consist of the supply of goods or services to that entity. However, "it may equally well consist of the right to have goods delivered or services rendered to a third party" where "[t]he grant of such a right is itself a supply of services": Customs and Excise Commissioners v Redrow Group plc [1999] 1 WLR 408 at 418.
39 Subject to two matters, neither the GST Act nor the memoranda deal generally with arrangements involving more than a supplier and an ultimate consumer (sometimes described as tripartite or multi party transactions or arrangements) and, in particular, whether one set of acts may constitute two or more different supplies of services and may give rise to two or more different acquisitions. First, "consideration" as defined in s 9-15 of the GST Act expressly provides that "the payment, act or forbearance" may be by a person or entity other than "the recipient of the supply". Secondly, the GST Act contains special rules which deal with some tripartite arrangements: Div 78 deals with insurance and Div 111 deals with reimbursement of employees (it will be necessary to consider Div 111 in further detail below). The respondent contends that these special rules are confined to limited circumstances and do not provide a principle of general application to tripartite transactions. However, the respondent does accept that one set of acts can constitute two or more different supplies of services.
40 In the United Kingdom, it is accepted that one set of acts can constitute two or more different supplies of services under the Value Added Tax Act 1994 (UK) and the Value Added Tax Act 1983 (UK): see Redrow [1999] 1 WLR 408 and Customs and Excise Commissioners v Plantiflor Ltd [2002] 1 WLR 2287 at [32], [50] and [55]. However, the Courts in the United Kingdom recognise that such arrangements involving more than a supplier and an ultimate consumer (a tripartite arrangement) "call for close analysis in order to determine their [GST] consequences": Plantiflor [2002] 1 WLR 2287 at [49]. For a discussion of recourse to foreign authority in dealing with Australian tax cases see Edmonds J, Recourse to foreign authority in deciding Australian tax cases (2007) 36 AT Rev 5 and Lindgren J, The Courts' role in statutory interpretation: the relevance of overseas case law to Australia's GST, speech delivered at the 2009 National GST Intensive Conference, Melbourne, 3-4 September, 2009.
41 Ultimately, we are driven back to the words of the GST Act and the fact that even in the case of multiple supplies, we are concerned with a limited set of relevant concepts: a taxable supply to the taxpayer for consideration (see for example the discussion of the proper characterisation of what was alleged to be two taxable supplies in Federal Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 at [42]) and an acquisition for a creditable purpose.
42 The applicable principles may be summarised as follows:
1. An entity is entitled to an input tax credit in respect of certain acquisitions, namely creditable acquisitions: s 11-20;
2. A creditable acquisition will occur when (i) an "entity" taxpayer is registered and (ii) makes an acquisition for a creditable purpose, (iii) arising from a supply to that entity which is a taxable supply (iv) for which the entity does, or is liable to provide consideration: s 11-5 and HP Mercantile 143 FCR 553 at [20]. Each element must be satisfied;
3. An acquisition will be made for a creditable purpose to the extent that it is acquired in carrying on the entity's enterprise: s 11-15;
4. An acquisition can include the acquisition of services or the acquisition of a right to require another person to do anything, refrain from an act or tolerate an act or situation: s 11-10;
5. The concepts of taxable supply and acquisition are related. In other words, a taxpayer makes an acquisition if the taxpayer is the recipient of the supply: see for example Sterling Guardian Pty Ltd v Commissioner of Taxation (2006) 149 FCR 255 at [15]. As a result, to determine the eligibility of entitlement to input tax credits, the relevant perspective is the standpoint of the entity: cf Redrow [1999] 1 WLR 408 at 412;
6. There is nothing in the GST Act or its explanatory material to prohibit one set of acts constituting two or more supplies. Relevantly, this may include "the right to have goods delivered or services rendered to a third party…[where] the grant of such a right is itself a supply of services": Redrow [1999] 1 WLR 408 at 418; Plantiflor Ltd [2002] 1 WLR 2287 at [32], [50] and [55]; Ashfield District Council v Customs and Excise Commissioners [2001] STC 1706;
7. The GST Act should be viewed as a "practical business tax": Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256 at [29]-[30]; Brady King Pty Ltd v Federal Commissioner of Taxation (2008) 168 FCR 558 at [22]-[24]; Travelex Ltd v Commissioner of Taxation [2009] FCAFC 133 at [46]; Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd (2006) 152 FCR 461 at 477 and HP Mercantile 143 FCR 553 at 564-565 citing CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384. As such, it is unhelpful to focus on "strict identity in juridical terms" when attempting to ascertain whether each of the four elements (see [42(2)]) above has been satisfied: Brady King Pty Ltd 168 FCR 558 at [22]-[24].