Outlines the ATO’s response to this case which concerns whether supplies of air ambulance services were GST-free pursuant to subsection 38-10(5) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Brief summary of facts

The defendants, Dieter and Lieselotte Siewert (the Siewerts), were the owners of a number of aviation companies (the Aviation Companies), including Wingaway Air Pty Ltd (Wingaway), through which Mr Siewert conducted various aviation operations, including the provision of air ambulance services to regional hospitals and area health services. [The Siewerts sold the shares in (inter alia) Wingaway to Aquatic Air Pty Ltd – a company associated with Mr Ross Sellers, who is known to the ATO through some tax schemes he promoted. The sale occurred under a contract in July 2011. The Siewerts provided vendor finance for some of the purchase price and took security over the shares, they had just sold, and over the underlying assets in Wingaway. Ultimately the Siewerts exercised their security and the purchaser/mortgagor of the Wingaway shares: Aquatic Air, sought redress, arising, in part out of the GST issues that follow.]

Wingaway had a fleet of aircraft specifically fitted for medical care. The company was engaged by hospitals to transport patients who were under the hospital’s care (usually from home to hospital, or between hospitals). Upon doing so, Wingaway would invoice the relevant health service for the services that had been performed which would be paid by the health service.

When the Siewerts [now the vendor of the shares, previously] purchased Wingaway, they were informed by their vendor that the provision of ambulance services, to hospitals, was GST-[free]. That vendor placed reliance an ATO private binding ruling, issued on 25 October 2000, to Wingaway National Pty Ltd, which was a separate entity, that was related to the previous owner of Wingaway Air Pty Ltd. The Siewerts continued to operate the business on the assumption that the supplies made by Wingaway were GST-free [and, it appears, so did the Wingaway, under the control of Ross Sellers].

On 23 July 2012, the Commissioner issued notices of amended assessment to Wingaway for over $2.9m for unpaid GST, penalties and interest in respect of the period 1 July 2008 to 31 May 2012. The Assessments were founded on the footing that the supplies made by Wingaway did not fall within the scope of subsection 38-10(5) of the GST Act, and thus were not GST-free.

On 28 May 2012, AT Air commenced proceedings against the Siewerts seeking, inter alia, damages for misrepresentation in respect of the share sale agreement. Aquatic alleged, amongst other things, that the Siewerts had misrepresented the true GST liability of Wingaway [at the time when they executed the Share Sale Agreement].

Issues decided by the court/tribunal

The issue for determination by the Court was whether the Siewerts had made a misrepresentation in respect of Wingaway’s true GST liability as at 30 June 2011. His Honour decided that no representation or misrepresentation had been made by the Siewerts in this regard. His Honour [also found] that, contrary to the Notices of Amended Assessment, issued by the Commissioner, Wingaway did not have a GST liability for the relevant period because it’s activities fell within the ambit of subsection 38-10(5) of the GST Act.

[Section 38-10(5) provides as follows:

(5)   A supply is GST-free if it is provided by an ambulance service in the course of the treatment of the *recipient of the supply.

Section 195-1(1) of the GST Act defines: ‘recipient’, as follows:

recipient   in relation to a supply, means the entity to which the supply was made.

His Honour noted that the Commissioner’s Assessments were predicated on two primary bases:

    (a)   That Wingaway did not hold an Air Operator’s Certificate (AOC) and therefore could not have been providing air ambulance services; and(b)   That the services rendered by Wingaway were provided to the hospitals, not to the individuals being transported, and thus, was not provided in the course of the treatment of the recipient of the supply.]

His Honour disagreed with the Commissioner’s reasoning and observed that:

(a)   There is no requirement in the GST legislation for an air ambulance service to hold an AOC [which the Commissioner now agrees with]; and
(b)   The recipients of the services, rendered by Wingaway, were the patients transported by Wingaway, and not the hospitals that arranged [and paid for] the service. The services rendered were, therefore, relevantly ‘provided in course of the treatment of the recipient of the supply’ [as required by] subsection 38-10(5) of the GST Act [which the Commissioner does not agree with – see below].

Accordingly, his Honour concluded that the supplies rendered by Wingaway fell within the ambit of subsection 38-10(5) of the GST Act and were GST-free.

On appeal, the Court of Appeal did not proffer any view as to the correctness of Brereton J’s observations as to Wingaway’s liability for GST.

ATO View of Decision

The observations made by Brereton J as to Wingaway’s liability for GST were obiter dicta. This is because his Honour had previously held that the relevant ‘representation’ had not been made by the Siewerts. It was therefore unnecessary for his Honour to consider whether, if the representation had been made, it was correct. [I doubt that this is correct – they were alternative bases of finding against the Ross Seller’s entity and both of equal importance.]

Accordingly, the Commissioner does not consider that he is bound to administer the GST Act in a manner consistent with the observations of Brereton J in respect of subsection 38-10(5) of the GST Act. [I doubt that the Commissioner is bound by a case, which was not actually about the tax liability and/or where he is not a party. I’m not quite sure why this warranted a ‘Decision Impact Statement’ anyway.]

The Commissioner respectfully disagrees with his Honour’s identification of the recipients of the supplies made by Wingaway. The Commissioner’s view in respect of tripartite arrangements is set out in Goods and Services Tax Ruling GSTR 2006/9: supplies (GSTR 2006/9). Consistent with GSTR 2006/9, the Commissioner considers that the recipients of the supplies made by Wingaway were the hospitals with which Wingaway contracted. The Commissioner will continue to apply the law in the manner set out in GSTR 2006/9 [start at para 114].

[What the Commissioner means is that, this is a ‘tri-partite’ arrangement of the sort dealt with in GSTR 2006/9 (which is inherently complicated and often unsatisfactory). He contends that the Air Ambulace company contracted with the Hospital and made the supply to the hospital (a bit like paying the florist to supply flowers to your grandmother – to take the example in the Ruling). The corollary was that the supply was not made to the patient, and could not, therefore, have been made ‘in course of the treatment of the [patient]’. And, likewise, a supply to the Hospital did not comply with s38-10(5), because the Hospital was not being ‘treated’. I’m not convinced that the Commissioner is right that there is no supply to the patient – even if there is no contract between the Air Ambulance and the patient – still, that’s complicated stuff.]

The Commissioner accepts Brereton J’s finding that holding an AOC is not a precondition to satisfying subsection 38-10(5) of the GST Act.

Implications for impacted advice or guidance

ATO Interpretative Decision ATO ID 2005/185 will be revised to take account of His Honour’s observations regarding the requirement to hold an AOC.

The decision has no impact on Law Administration Practice Statements

Court Citation(s): [2015] NSWSC 928
Appeal dismissed (making no finding on the GST position) – See Aquatic Air Pty Ltd v Siewert [2016] NSWCA 318

Relevant Rulings/Determinations:

[ATO website – decision impact statement; LTN 236, 8/12/17; Tax Month Dec 2017]

Author’s comments

This case appears to me to be very difficult and, in many ways, unsatisfactory, for the following reasons.

  1. The Commissioner’s conclusion (that the supply is not GST-free) narrows the application of the s38-10(5) relief, perhaps, beyond what Parliament intended. There is much to be said for the idea that, if the transport is by way of Air Ambulance (not some other plane making an emergency dash) and the person transported is a patient, in need of treatment (not a healthy/uninjured person being flown in an empty seat), then the relief is available. One could be forgiven for thinking that the Commissioner, seeking to apply the ‘split the atom’ technicalities of tri-partite supplies, as he perceives them (in this way) is to defeat Parliament’s intention.
  2. Further, I suspect is possible to find that the Air Ambulance Service does, also make a supply, to the patient, even if a supply is also made to the Hospital (so as to secure the ‘intended’ GST-free relief).
  3. Having said all that, a result, where GST has to be paid for a supply to a Hospital (for instance, if it is paying) might be what Parliament intended as the Hospital will get the extra cost back as an input tax credit (ie. refund). Parliament might have been content to give the relief, only consumer’s – as they couldn’t get the extra amount back (as it is not part of any enterprise – see s11 of the GST Act). The only problem with this is, that Parliament may have, nonetheless, have intended that an Air Ambulance Service could trade with a single system (not one that depends on who its invoicing) as it will make no net difference to the revenue (as the Hospital will get the GST back, in any event).
  4. So, in the context of it making no difference to the Revenue, one might wonder why the Commissioner sought to impose this tax retrospectively.
  5. And, further, imposing the tax retrospectively worked particular injustice, in that the vendor of the business had a GST-free model of conducting the business, based on a private ruling that it got for a related business, and the purchaser (taxpayer) continued on the same practice. And it gets worse. The Commissioner confirmed that practice as satisfactory (at least in a defacto sense) as it audited the Air Ambulance operator and raised no objection to the GST-free basis of trading. Had this been a tax case, and had the taxpayer been solvent, it could have worked massive injustice, if, for instance, it did not have a standard supply agreement that gave it the right to recover unexpected GST from its customers, or the customers no longer existed, or couldn’t, or wouldn’t pay, or if the taxpayer had lost the opportunity to call for payment of those amounts, or to enforce payment of those amounts.
  6. However, this was not a tax case. The taxpayer was in administration (it seems to enforce a secured debt). I deduce this because the Administrator chose not to defend the tax assessments, for who knows how many reasons, but one mentioned in the judgement, was that the tax being only an ‘unsecured debt’. So, it appears, one should not ‘bleat’ the unfairness, as it looks like the Commissioner didn’t get paid, in any event (though, a man of commerce, if not the Commissioner, might have thought that it was not worth wasting the resources of an audit if it looked like it would be a lost cause).
  7. It seems that the Commissioner ought to have been on notice that raising the assessments might be a lost cause, because the it was the Administrator who became concerned that the GST-free treatment might not be right and sought confirmation from the Commissioner, who, obviously, thought about it again and came up with the more aggressive interpretation than he previously applied.
  8. Aquatic Air (Ross Seller’s purchaser) sought various kinds of relief, including damages or recision of the purchase contract because Wingaway’s warranted accounts did not include the $2m GST liability, that later appeared.
  9. There were contractual difficulties with this as the accounts alleged to be warranted, were not supplied at the time of signing and settling the sale. Nonetheless, the case proceeded.
  10. As part of the first instance judge’s reasoning, he concluded that the Commissioner was actually wrong, and there was no GST liability (on the basis, broadly, that I expressed above).
  11. In this Decision Impact Statement, the Commissioner sought to diminish the legal gravity of this first instance decision (that there was no GST liability) by saying that the decision did not turn on this finding (viz: it was only ‘obiter dicta’) because the judge had already found that there was no representation or it wasn’t relied on. But that is ‘too cheap’. They were alternate bases, for finding against the administrator, with both, not neither, being reasons for the decision.
  12. Remember, also, that the Commissioner concedes he was wrong to have required an AOC for GST-free status.
  13. On appeal, the Court did not even address the ‘no GST anyway’ finding in the lower court.
  14. So it is difficult to know what this case achieved, or why the Commissioner felt obliged expressly not follow it.
Category: Tax Month - December 2017

Author: John Morgan

John Morgan is a tax specialist lawyer of more than three decades experience now practicing at the Victorian Bar - w: www.FJMtax.com e: f.john.morgan@vicbar.com.au