The High Court on Wed 1.5.2013, unanimously granted the Commissioner special leave to appeal from the Full Federal Court decision in Unit Trend Services Pty Ltd v FCT [2012] FCAFC 112 and then immediately allowed the appeal and ordered that certain orders of the Full Federal Court made on 5 October 2012 be set aside and, in their place, ordered that the issue of remission of penalty in relation to the declaration pursuant to s 165-40 of the GST Act be remitted to the AAT for further consideration.
The case concerned the use by the taxpayer of the margin scheme with respect to commercial and residential properties. The taxpayer in the case was the representative member of a GST group, which develops commercial and residential properties.
In its majority decision, the Full Federal Court had partially allowed both the taxpayer’s appeal and Commissioner’s cross-appeal from a 2010 decision of the AAT in which it was found that the taxpayer was entitled to use the margin scheme for some acquisitions of property, but did not have approved valuations for others, and that the GST anti-avoidance provisions did not apply. The majority found that in relation to the application of the GST anti-avoidance provisions, for all settlements up to and including 16 March 2005, Div 165 did not operate because it was excluded as the GST benefit on the end purchaser transactions was attributable to relevant choices made by the taxpayer. Their Honours held that the GST benefit was attributable to the making of a choice or agreement expressly provided for by the GST Act. The majority also found that the imposition of shortfall penalties ought to be set aside, and that the matter be remitted to the Commissioner with a direction to allow the objection.
The Commissioner had sought special leave to appeal on a question concerning the interpretation of s 165-5(1)(b) of the GST Act. The issue in question was whether GST benefits obtained by the taxpayer were not attributable to the making of a choice, election, application or agreement (collectively “a choice”) that is expressly provided for by the GST Act. This question was resolved by the AAT in favour of the Commissioner, and subsequently on appeal by the Full Federal Court in favour of the taxpayer.
The High Court granted the Commissioner’s application for special leave and allowed the appeal. The Court rejected the 3 arguments put by the taxpayer:
- that s 165-5(1)(b) proceeds on the footing that a scheme which confers a GST benefit may be removed from the scope of Div 165 by a statutorily authorised choice which is but one element or step in a scheme which has generated the GST benefit;
- that a GST benefit arose only on the making of each choice to apply the margin scheme to an end sale; and
- that the addition of s 165-5(3), since the transactions in question were effected, reflected an appreciation on the part of the Parliament that, without s 165-5(3), s 165-5(1)(b) was not apt to exclude GST benefits of the kind in question from the scope of Div 165.
The High Court said that s 165-5(1)(a) and (b) require a GST benefit obtained from a scheme to be subject to scrutiny by reference to the other criteria in s 165-5 if the getting of the benefit referred to in s 165-5(1)(a) is not an entitlement the source of which is the making of a choice expressly authorised by another provision of the GST Act. That being so, the Court said “reference to the undisputed facts” showed that the GST benefit in question was not attributable to the making of a statutory choice provided by the GST Act.
(FCT v Unit Trend Services Pty Ltd [2013] HCA 16, Full High Court, French CJ, Crennan, Kiefel, Gageler and Keane JJ, 1 May 2013.)
[FJM Note: The Court said that it is not enough that the scheme include a statutory choice. Rather, it must still be assessed under all the other factors, to see if it has the relevant dominant purpose, aside from the statutory choice.]
[LTN 81, 1/5/13]