A taxpayer has been mostly unsuccessful before the AAT in claiming input tax credits (ITCs) for vehicles purchased in a car sales business. The AAT also affirmed the 25% penalty imposed by the Commissioner for failing to take reasonable care.
The taxpayer carried on activities as a one-man business of selling motor vehicles. From 2004 to 2008, the taxpayer purchased 16 vehicles with a total purchase value of $926,436. All the vehicles were stored at the private premises of the taxpayer and related parties. At least 5 of the vehicles purchased were used privately by the taxpayer and his wife to varying degrees on which FBT was paid. During the relevant period, only 1 motor vehicle was sold, to the taxpayer’s daughter at a loss. The taxpayer claimed ITCs in respect of the motor vehicles purchased over the relevant period. The Commissioner contended that the taxpayer was not entitled to ITCs for the relevant period as he was not carrying on an enterprise. In addition, he argued that the taxpayer was not entitled to ITCs as tax invoices for the purchases were not held as required, or consideration was not paid in the relevant period, as well as some purchases being second hand motor vehicles purchased privately.
The AAT found the taxpayer had not established an entitlement to ITCs in respect of the motor vehicles, which were privately used as the evidence did not disclose an appropriate basis for apportionment. In relation to the other vehicles except for one, the AAT found that the taxpayer was not entitled to ITCs as he either did not hold tax invoices as required, did not pay the consideration in the relevant period, or purchased the vehicles second hand from parties not registered for the GST. Therefore, the AAT concluded the taxpayer was not entitled to ITCs with respect to the motor vehicles purchased except for one vehicle. [FJM Note: the AAT did find that he was carrying on an ‘enterprise’ – the ATO failed on that point but won overall, on the others.]
It also affirmed the Commissioner’s decision to impose an administrative penalty of 25% for failing to take reasonable care. The AAT found the taxpayer had not discharged the onus of showing that both he and his tax agent took reasonable care, and that a remission of the penalty was not appropriate.
(AAT Case [2014] AATA 337, Re Davsa Forty-Ninth Pty Ltd as Trustee for the Krongold Ford Business Unit Trust and FCT, AAT, Ref No 2011/1945, O’Loughlin SM, 29 May 2014.)
[LTN 103, 30/5/14]