On 8 April 2016, judgment was handed down by the Federal Court (Logan J) in the matter of Crown Estates (sales) Pty Ltd Crown Estates Pty Ltd as Trustee for Crown Estates unit trust V Commissioner of Taxation [2016] FCA 335. The appeal was dismissed.
Logan J concluded that the taxpayer was not entitled to claim credits when making acquisitions as an agent for its clients. Logan J also concluded that the penalties were imposed correctly.
The Commissioner filed a notice of objection to competency which was heard at the same time as the substantive matters. Logan J held that no question of law was identified by the taxpayer in the amended notice of appeal so as to invoke the jurisdiction of the Court.
[ATO LPR 11/4/16]
The Court upheld the Commissioner’s objection to the appeal on the ground that the notice of appeal did not specify any question of law. The Court noted that an appeal can be made from a decision of the Tribunal only on a question of law and that the question of law must be specified in the notice of appeal.
The decision illustrates the difficulties in properly framing an appeal from a decision of the Tribunal.
The amended questions of law were stated to be as follows:
(1) Whether the Tribunal erred in properly construing and applying s 11.5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) in concluding that the Applicants did not make creditable acquisitions in the course of their dealings with suppliers of goods and services to properties owned by the clients of the Applicants.
(2) Whether the Tribunal erred in construing and applying the law of agency in determining that the Applicants acted as agents in the course of all their dealings with suppliers of goods and services to properties owned by the clients of the Applicants.
The Court considered that the questions of law did nothing more than solicit a broad and hypothetical enquiry as to the construction and operation of statutory provisions. They did not identify a question of law.
The Court observed that an additional reason why the Commissioner submitted that question 2 (expressly) and also 1 (by necessary implication) in the notice of appeal raised no question of law was that a conclusion that the taxpayer was an agent of the property owners was one of fact. The Court considered that questions as to the existence of agency are usually questions of fact and that those questions of fact emerge from settled legal principles.
However, the Court considered that it was not impossible to conceive of a case where a question of law might be found in posing as a question that, having found particular facts, was the Tribunal obliged in law to conclude that an agency relationship existed? The Court noted that neither question of law was pleaded in this way.
The Court also observed that another way putting such a proposition would be to pose as a question whether, on the facts found, the Tribunal was obliged in law to conclude that it was the taxpayer which had made the creditable acquisition? Once again, that is not the way in which either question was pleaded.
The Court nevertheless addressed the issue raised in the appeal, which was whether the taxpayer had made “creditable acquisitions” for the purposes of the GST Act – i.e., whether the taxpayer was acting as a principal that acquired goods and services from third parties which it resupplied to its owner-clients, or was it dealing with the contractors et al. as the agent of the owners in each case.
The Court observed that the taxpayer chose not to give detailed evidence as to the circumstances appertaining to each and every creditable acquisition for each and every period in question to establish that the taxpayer was the entity that made the acquisition. Further, the Tribunal was not shown any evidence that suggested that the finding of agency was wrong – for example invoices or other documents evidencing or describing transactions in a way that suggested the third party and the taxpayer intended that goods or services would be supplied to the taxpayer as principal, rather than to a property-owning client.
The Court concluded that the relationship of principal and agent between the taxpayer and its client was the correct conclusion in law.
The Federal Court has held that a taxpayer’s notice of appeal re GST assessments and penalty did not raise a question of law and it therefore upheld the Commissioner’s objection to the competency of the appeal.
The taxpayers conducted a property management business which let and managed properties on behalf of property owners. In the course of that work, the business often engaged with contractors and government entities and arranged for the provision of goods and services on behalf of its owner-clients. The taxpayers claimed ITCs re those dealings, which the Commissioner disallowed. The AAT had previously held – in Re Crown Estates (Sales) Pty Ltd and FCT [2015] AATA 949 – that the taxpayers were not entitled to the ITCs and that administrative penalties imposed should stand. The taxpayers appealed. The Commissioner asserted that, even as amended, the taxpayers’ notice of appeal did not specify any question of law. On that basis, he objected to the competency of the appeal.
The Federal Court said that a relationship of principal and agent existed as between the business and its clients was, given the findings of fact which the Tribunal made, the correct conclusion in law. “That, in these circumstances, it was [the business] which made the creditable acquisition was the inevitable, consequential conclusion and the one made by the Tribunal”, the Court said.
The Federal Court came to the conclusion that no question of law had been identified in the amended notice of appeal. While the Court did not accept the Commissioner’s submission that the existence of agency was always a question of fact, it said the business had chosen not to frame its amended notice of appeal in a way which would, “on the basis of the findings of fact made by the Tribunal, raise questions as to whether on those facts [the business] was not acting as an agent in acquiring particular goods and services or, put another way, whether it was the party making the creditable acquisition?” The Court therefore dismissed the taxpayers’ appeal.
(Crown Estates (Sales) Pty Ltd & Anor v FCT [2016] FCA 335, Federal Court, Logan J, 8 April 2016.)
[LTN 67, 11/4/16]
Division 57 of the A New Tax System (Goods and Services Tax) 1999 provides for resident agents of non-resident purchasers to get input tax credits (not the non-resident). This doesn’t apply to wholly on-shore acquisitions.
[FJM Note]