The AAT has decided that the trustee of a unit trust was not entitled to input tax credits, as there was insufficient evidence of a creditable acquisition and the relevant invoices did not comply with the requirements of a tax invoice for GST purposes.
The facts included the following.
- In December 2004, the then trustee of the Drummond Cove Unit Trust (Cove Trust) became the registered proprietor of approximately 220 hectares of vacant land in Western Australia. The land was acquired for the purpose of subdivision and sale as vacant residential lots.
- In August 2005, various parties, including the then trustee of the Cove Trust, formed a joint venture to develop and sell the residential lots, under a Joint Venture Agreement (JV Agreement). [para 28]
- In August 2005, Sandpiper Asset Pty Ltd (Sandpiper) became the registered proprietor of the land, as bare trustee, for the joint venturers, under the Joint Venture Agreement (JV Agreement). [para 28]
- The JV Agreement contemplated that there would be a Project Manager, managing the JV project, under a Project Management Agreement. However, no such agreement was ever created or signed. Nonetheless, the Applicant said that Sandpiper was the project manager.
- The regime seemed to be that Sandpiper credited loan accounts, in favour of the Joint Venturers, for sale proceeds, that belonged to them, and debited those loan accounts, with development expenses, which were to be reimbursed by the Joint Venturers.
- Also in August 2005, Sandpiper borrowed funds secured by registered mortgages of the land it acquired. [para 28]
- In November 2007, the applicant (Sunlea) became the trustee of the Cove Trust.
- In the course of the development, Sandpiper issued a series of 17 invoices, two of which were disputed. There was no dispute in relation to the ‘input tax credits’ which the Cove Trust claimed on 15 invoices. [para 30]
- There were two invoices, however, where there was a dispute. One was dated 15 June 2010, for “unrecouped project costs 2006 to 2010” for just over $12m, including $1.092m GST. The other was dated 30 June 2010, for the same unrecouped costs – this time for almost $19m, including $1.727m GST. [para 31] The Applicants said that its liability for these amounts was paid by way of set off, having been set off against the amounts that Sandpiper owed it.
- From December 2008, the Mortgagees entered into (after Sandpiper defaults on the loan) and had an irrevocable authority to proceed with the sale [paras 32 & 108]. In June 2010, the Mortgagees sold the remaining land [para 34].
- In September 2010, Sandpiper was put into liquidation, by its creditors. In the liquidation, Cove Trust proved only for the $12m it was owed by Sandpiper (net of the off-set for the two amounts in the disputed invoices). [para 37] Sandpiper was finally deregistered in January 2014 [para 38].
- In June 2014, the Applicant lodged Business Activity Statements, for the October to December 2012 quarter, in which it claimed input tax credits for the GST component in the 2 disputed invoices ($1.09m + $1.72m = $2.81m). [para 39]
- After assessments, an objection, and disallowance of the objection, the Applicant bought this application for review, in January 2017.
- There wer also commercial proceedings, in the Western Australian Supreme Court, regarding the same development, which gave some further evidence for these proceedings.
The AAT decided that the input tax credits could not be claimed, for the following reasons.
It was not clear that the Applicant had actually acquired anything.
- Sandpiper was the bare trustee/nominee for the JV, and did (no doubt) acquired third party goods and services, on the Joint Venturer’s behalf, which the Joint Venturers did pay for, via Sandpiper’s invoices. The 15 undisputed invoices probably involved such acquisitions and amounts.
- The commissioner was suspicious that there was not real transaction here.
- It was not clear whether the invoiced amounts were supposed to be reimbursement for third party expenses or belated management fees.
- It wasn’t clear that there were any underlying expenses, for which Sandpiper was supposed to be invoicing.
- If the invoices were for project management fees, then it wasn’t clear that Sandpiper was the project manager and was entitled to them. Neither was it clear that Sandpiper was actually doing anything, at least since December 2008, when the Mortgagees had taken possession and had irrevocable authority to sell the land.
It was not clear that the Applicant had paid anything – despite the alleged set off
- The AAT was content to accept that a set off is actual payment. [para 93]
- However, it looked at the books of both Sandpiper and the Applicant and the journal entries had deficiencies which could not be answered on the evidence.
Any supply by Sandpiper could be input taxed (as an indemnity to a trustee)
- If Sandpiper was not simply acting as an agent for the Joint Venturers (in making underlying acquisitions) by was exercising its right of indemnity, as trustee, then such a supply is input taxed (as a financial supply: s40-5 of the GST Act; GST Regulations r40.5.09(3), item 7A).
- A trustee indemnifying itself from the trust fund, would have no GST implications as it is a dealing with itself, or if that’s no so, then it’s an input taxed supply.
- But here, Sandpiper appeared to be only a bare trustee and was claiming indemnity from the beneficiaries (not out of the trust fund). It does seem correct that this would be input taxed (assuming it was not simply acting as an agent).
The invoices were not ‘tax invoices’ and so, not attributable in the period claimed
- Even if the Applicant did acquire something, for a creditable purpose, and paid for it, the acquisition can’t be attributed to the relevant period, until the Applicant had an invoice that is a ‘tax invoice’ (s29-10(3) of the GST Act).
- The AAT considered that the disputed invoices were not ‘tax invoices’ as defined in s29-70 of the GST Act. It said that it breached the requirement in s29-70(1)(c)(iii) in that they did not really state “what is supplied, including the quantity (if applicable)”.
- Also, it said that it failed to comply with the further requirements required in the regulations (which is required by s29-70(1)(c)(viii) of the Act) – breaching r29-70.01(2)(f), requiring a “a brief description of each thing supplied” and r29-70.01(2)(g), requiring: “for each description, the quantity of the goods or the extent of the services supplied”.
(Sunlea Enterprises Pty Ltd As Trustee for Drummond Cove Unit Trust v CofT  AATA 2792, Evans SM, AAT File no: 2017/0089, 2 August 2018.)
[LTN 163, 24/8/18; Tax Month – August 2018]
Comprehension questions (answers available)
- Did the taxpayer succeed in claiming the input tax credits on the 2 invoiced amounts, in question?
- Were there other invoices (from the same person: Sandpiper) where it did succeed in claiming input tax credits?
- Did the Taxpayer actually acquire anything?
- Did the taxpayer establish that it had paid anything?
- Could there have been no GST in the relevant supply, to the Taxpayer (that could establish its input tax credits)?
- Were the invoices, ‘tax invoices’ (and so deferred ‘attribution’ to a later period)?