The AAT has found that a taxpayer was not carrying on an enterprise for GST purposes, and affirmed the Commissioner’s decision to cancel the GST registration of the company, and deny input tax credits (ITCs) claimed for the relevant period.
- The taxpayer was a company set up by various members of the same family to provide “lifestyle counselling and advisory services”.
- It lodged BASs for the periods 1 October 2010 to 30 June 2012, which contained net refunds of $9,678 paid by the ATO.
- In 2012, the Commissioner conducted an audit in order to verify the authenticity of the enterprise, and formed a view that in the relevant period, the taxpayer was not carrying on an enterprise for GST purposes.
- He then cancelled the taxpayer’s GST registration with effect from 30 June 2012, denied the input tax credits claimed and imposed a 50% penalty for recklessness.
- The taxpayer presented various items of evidence before the Tribunal relating to activities it carried on during the relevant period and argued that it met the definition of an enterprise as outlined in s 195-1 of the GST Act.
The AAT said it was not convinced by the taxpayer’s “limited” evidence that its services were provided to various entities (including some related entities). It concluded that the promotional activities undertaken in the relevant period were merely preparatory steps, and that the enterprise had not commenced by June 2012.
Since the Tribunal found that the taxpayer was not carrying on an enterprise, it accordingly held that the Commissioner was correct in cancelling the taxpayer’s GST registration. The AAT also held the taxpayer was not entitled to claim ITCs as it did not make creditable acquisitions during the relevant period. As such, it found that the net amount of GST for the taxpayer for each of the relevant tax periods is zero.
In relation to the 50% penalty imposed, the Tribunal held that the taxpayer failed to discharge the onus of proof that the penalty was excessive. However, it held that the administrative penalty should only be applied to the tax shortfall and not the “difference”. In addition, the AAT refused to remit the penalty taking into account the taxation experience of the director of the company taxpayer, and the lack of documentation in relation to the taxpayer’s activities.
(AAT Case [2014] AATA 740, Re Guru 4U and FCT, AAT, Ref No 2013/1343-1344, Lazanas SM, 14 October 2014.)
[FJM Note: Despite the Commissioner not cancelling the taxpayer’s registration until the end of the periods the subject of amendment, there were no creditable acquisitions because of the finding that there was no ‘enterprise’ and thus no ‘creditable acquisitions’ on the basis that the acquisitions were not in relation to carrying on an enterprise.]
[LTN 1200, 16/10/14]