The AAT has directed that the Commissioner produce any ‘internal legal advice’ that bore on the question of whether it was reasonably arguable that the taxpayer’s supplies of gold bullion were GST-free or input taxed.

The AAT made this order under s37(2) of the AAT Act, on the basis that it was “of the opinion that [these] documents may be relevant to the review of the [objection] decision by the Tribunal”.

  • Normally, s37(1)(b) of the AAT requires the Commissioner to file all documents that are “relevant to the review” with the AAT.
  • But for tax related matters, s14ZZF(1)(a)(v) of the TAA narrowed the Commissioner’s initial filing obligation, by replacing s37(1), so that he was only obliged to file documents he “consider[s] to be necessary to the review” (allowing him an element of subjective discrimination).
  • However, s37(2) of the AAT Act, remained in place, to force the parties back to the “relevant to the review” test, and it was this test which was in issue in this case.

The issue arose in this way.

  1. The supply of gold bullion (a ‘precious metal’) is generally input taxed, under s40-100 of the GST Act. If that is the case, then the supplier is NOT entitled to credits on its inputs (‘Input Tax Credits’).
  2. However, the supply of precious metals (99.5% ‘fine’) is GST-free, if the supply is the first supply of the metal after it was ‘refined’. This is under s38-385 of the GST Act. The Act provides that ‘GST-free’ treatment gets priority over ‘input taxed’ treatment (s9-30(3)) and, therefore, the taxpayer would have been entitled to input tax credits, if it’s supply were the first after being relevantly ‘refined’.
  3. The Commissioner contended that the taxpayer had not relevantly ‘refined’ the gold bullion because, the gold was already 99.5% ‘fine’ (or in this case 99.9% fine), cannot be further (relevantly) ‘refined’. It appears that the Taxpayer’s position was built on the view that the relevant ‘refining’ (for s38-385 purposes) does not have to be the first time the gold is refined. The Commissioner’s contention was referred to as the ‘no refining issue’.
  4. Consistent with his view, the Commissioner disallowed the taxpayer’s claims for input tax credits (as the default position, is that the supply of the gold, was input taxed, under s40-100, precluding credits on relevant inputs). It is not clear from the decision, what input tax credits had been claimed, but it could have been input tax credits for ‘second hand’ acquisitions under Div 66 of the GST Act. The treatment of ‘precious metals’ has recently undergone a significant statutory overhaul, perhaps because of the likes of this case.
  5. Large amounts of money were involved as the Commissioner imposed penalties on the basis that the taxpayer had ‘recklessly’ made misleading statements, and imposed shortfall penalties of $58m. As a ‘reckless’ penalty is calculated as 50% of the GST shortfall, it seems that the shortfall in GST was double this sum ($116m). The purported acquisition amounts, would, therefore be 11 times that (about $1.3b) and the purported on-supply amounts, something more than this.
  6. The Taxpayer objected to these assessments, including that there should be no shortfall penalty because it had been neither ‘careless’ nor ‘reckless’, as to the truth of the statements in its returns. In the alternative, it claimed that the Commissioner ought remit the shortfall penalty to nil, or some lower amount, (for which the Commissioner has a completely uncontrolled discretion in s298-20 of the TAA).
  7. This case turned on the ‘relevance’ (of the of the Commissioner’s ‘internal legal advices’) to these penalties issues. The taxpayer knew of internal ATO advice, about the correctness of the Commissioner’s stance on ‘no refining issue’. In ordinary parlance, this plainly had ‘relevance’, but the parties had to engage in ‘learned’ argument about the meaning of ‘relevant’, for the purposes of s37(2) of the AAT Act (in case that were different).
  8. The Commissioner disallowed the objections and the Taxpayer applied to the AAT to review the Commissioner’s objection decision.
  9. On applying to the AAT, the Commissioner filed about 51,300 documents, under s37(1)(b) of the AAT Act, as modified by s14ZZF(1)(a)(v) of the TAA, on the basis that they were the documents he considered were “necessary to the review of the objection decision concerned”
  10. This action, however was about the application (or not) of s37(2), to require the Commissioner to file the ‘internal advices’, which the taxpayer sought.

The ‘foreplay’ included the following (quoting from the AAT’s reasons):

21.  On 9 August 2017, the Applicant wrote to the Respondent, stating, inter alia, that it was aware of at least two legal advices in relation to parts of the decision under review which had not been included in the s 37 documents and requested the Respondent to “file” with the Tribunal:

(a) any legal advice given on or between 29 November 2011 and 31 July 2017 that:

(i) relate to the interpretation and application of the law relating to the decision under review; and 

(ii) it had in its possession and control when it lodged documents under section 37(1) of the Act ….

(b) Any instructions given in relation to that legal advice.

The taxpayer contended:

41.  In the present case, if the Commissioner has received internal written legal advice on the No refining issue to the effect that the position adopted by the Applicant was either correct or that the position adopted by the Commissioner was unlikely to be accepted by a court, then that is probative evidence of the fact that the Applicant’s position was not ‘grossly careless’ as it would assist in an assessment of whether the Applicant’s adoption of the position was reasonable.

As part of the skirmish, the Commissioner handed the Tribunal a document described below.

49.  At the hearing, the Applicant handed the Tribunal a copy of what it described as an “internal advice” of the Respondent dated 27 November 2013 in relation to the Applicant, that expressed the opinion that “s 38-385(a) extends to subsequent refining of ‘precious metal’ from scrap and is not confined to any original refining for ore or doré”. The writer stated that he agreed with the view cleared by another named person and disagreed with the position “put in the draft discussion paper”. The advice had been released by the Australian Taxation Office under the Freedom of Information Act 1982 (Cth). The Applicant’s legal representative claimed that it was the first time at the hearing that that the Applicant had been told that there was no such legal advice and that was why it was handed up in reply following the submissions made by the Respondent’s legal representative. He claimed that the Respondent had said that there was no advice that was supportive to or sympathetic to the taxpayer, which was not open when terms of the advice are looked at.

The Commissioner’s submissions were very competent, but ultimately unsuccessful. They included the following.

  1. The question of whether the taxpayer was relevantly ‘reckless’, is determined objectively on the facts arising (and not on one party’s internal reasoning). [para 60]
  2. Phrasing the argument in terms of ‘reasonable arguable’ is irrelevant, as the penalty was imposed under a different section. [para 64 & 68]
  3. There were no internal advices, to the effect that gold, which is already 99.9% fine, can be further relevantly ‘refined’. [para 69]
  4. The Applicant’s request for this advice was relevantly ‘fishing’ in that it was based on speculation (that the advice requested existed) and there was no evidence, put on, to establish otherwise. [paras 70-73]
  5. Any legal advice (internal or external) would be subject to ‘legal professional privilege’ and the AAT had no power to require such documents to be filed. [paras 74-77]

Ultimately, the Tribunal did find that the documents requested were relevantly ‘relevant‘ [para 104]. In reaching this conclusion, it decided as follows.

  1. It is not for the Tribunal, here to decide the substantive arguments, but only what may be ‘relevant’ to the issues raised. [para 95]
  2. The Commissioner, himself, accepted that the arguability of the the ‘no refining’ issue was ‘relevant’ to the Commissioner’s uncontrolled penalty remission power (in s298-20 of the TAA) and it was not up to the AAT, at this stage, to decide whether the Commissioner’s gloss (that this only be determined by reference to authority) was correct. [para 99]
  3. Advices within the ATO were ‘relevant’ (for s37(2) purposes) to the issues in the review. [para 101]
  4. That the request for these advices was neither premature, nor speculative and ‘fishing’. The category of documents requested were narrow and “go to the issue of whether the [taxpayer’s] position, on the No refining issue, is reasonably arguable, which [in turn] is relevant to the issue of remission [of the shortfall penalty]”. [para 102]
  5. Whether the documents would be subject to legal professional privilege is not relevant to the filing of these documents, but rather, whether to the question of whether the AAT then gives them to the taxpayer. [paras 102 & 103]

The Tribunal also cites some useful authority on the question of ‘relevance’ in these circumstances at paras 80 & 81.

 (ACN 154 520 199 Pty Ltd and FCT [2018] AATA 33, AAT, Kelly SM, AAT File No: 2016/6242, 17 January 2018.)

23 January 2018

[FJM; LTN 14, 22/1/18; Tax Month January 2018]

Study questions (*answers below)

  1. Was this case about whether the Commissioner was compelled to file certain ‘internal advices’ under s37(2) of the AAT Act?
  2. Can a supply of gold be either GST-free or Input Taxed, depending proximity to refining?
  3. Were the amount of the penalties they were fighting over $85m?
  4. Did the Commissioner accept that s38-385 could cover secondary refining?
  5. Has the law, regarding ‘precious metals’ been changed recently?
  6. Was it, because the Commissioner handed the Taxpayer one internal advice, that it suspected there were more?
  7. Is ‘fishing’ permitted?
  8. Did the AAT find that the Commissioner’s internal advices, on the ‘no refining issue’, were s37(2) ‘relevant’, to at least the issue of whether the shortfall penalty should be remitted (under s298-20)?
  9. Did the AAT find that the request for ‘internal advices’ was ‘fishing’?



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