The AAT has rejected a taxpayer’s claim for input tax credits for the purported purchase of approximately 145kg of gold.

The taxpayer claimed that in May and June 2014 it purchased, in 16 transactions, a total of approximately 145kg of gold from another company. The transactions allegedly took place in Sydney at the airport carpark, in hotels or at the taxpayer’s office and, in each case, the gold was allegedly transported to Melbourne to be refined by a third company.

The basis for claiming input tax credits was that the the taxpayer could supply the ‘precious metal’ (gold) that it alleged it acquired, on a GST-free basis, as as the first supply after it was refined (under s38-385 of the GST Act). This allows input tax credits to be claimed (on acquisitions) whilst no GST is charged on the on-supply (s40-100). Generally, however, supplies of ‘precious metals’ are input taxed – meaning that that the on-supply of the precious metal has no GST, but the ‘inputs’ (gold acquired) remain taxed, because credits are denied (s11-5 & s11-20). The Commissioner has successfully challenged this on the basis that ‘re-refining’ gold, already sufficiently ‘fine’ to be a precious metal, was not relevantly ‘refined’ to attract the s38-385 GST-free treatment. (See related Tax Technical Article).

The taxpayer claimed input tax credits totalling almost $621,000. However, the ATO issued amended GST assessments rejecting the claim for the input tax credits, alleging that the transactions never took place.

The ATO also imposed administrative penalties based on an intentional disregard of the law equal to 75% of the input tax credit amounts claimed.

The issues for the AAT were:

  • Did the taxpayer make creditable acquisitions of scrap gold of which input tax credits should be attributed to the relevant periods?
  • Was the taxpayer liable to administrative penalties and, if so, should the penalties be remitted in whole or in part?

The AAT decided that the taxpayer had failed to prove that the amended GST assessments were excessive.

The AAT was “not satisfied that any of the transactions in May and June 2014 took place, whether as alleged or at all”. The only witness who gave first-hand evidence concerning the alleged transactions was the taxpayer’s sole director/shareholder and the AAT was “not impressed by him as a witness”. The AAT said that “at times he was evasive and unwilling to answer questions directly”. In addition, the AAT said there were “errors, omissions and inconsistencies” in certain documentary evidence and that tax invoices relied on by the taxpayer were “false”.

As regards the administrative penalties, the AAT decided that a 75% penalty for intentional disregard was appropriate in the circumstances.

(Mango Reef Pty Ltd v CofT – [2018] AATA 3091, File No: 2016/6201, Molloy DP, 28 August 2018.)

FJM 19.9.18

[LTN 167, 30/8/18; Tax Month – August 2018]


Comprehension questions (answers available)

  1. Were the input tax credits, claimed by the taxpayer, disallowed?
  2. Were the 75% penalties upheld?
  3. Was the Commissioner’s basis for the adjustment that the gold acquired was not relevantly ‘refined’ before being on-sold?
  4. Was there more there only one person giving first hand evidence of the acquisitions?
  5. Did the AAT trust the evidence?


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