The AAT has found that a partnership was not carrying on an enterprise and was not entitled to input tax credits claimed in respect of the relevant period.
The taxpayers (2 individuals) were registered as a partnership for the purposes of the GST Act. The key issue between the parties was whether the partnership was carrying on an enterprise in the tax periods between 1 April 2007 and 31 March 2011 (the relevant period). The Commissioner had cancelled the GST registration of the partnership with effect from 31 March 2011, but later reinstated it with effect from 24 February 2012. The Commissioner had formed the view that the partnership was not carrying on an enterprise during the relevant period, and therefore, was not entitled to claim input tax credits (ITCs) and the acquisitions made.
However, the Commissioner also formed the view that the partnership was still liable to pay GST in the relevant period relying on s 105-65 of Sch 1 to the TAA and assessed the partnership to positive net amounts for the relevant tax periods (to avoid refunds).
The AAT concluded that the partnership was not carrying on an enterprise in the relevant period. Therefore, it decided the Commissioner was required to cancel the GST registration of the partnership. It also concluded the partnership was not entitled to claim ITCs during the relevant period. However, the AAT held that s 105-65 of Sch 1 to the TAA did not apply on the way the Commissioner contended and that the net amount of each tax period in relevant period was zero.
The AAT also affirmed the Commissioner’s decision to impose administrative penalty of 50% for “recklessness”, but ordered that it be applied only to the tax shortfall in accordance with its reasons.
(AAT Case [2013] AATA 443, Re Naidoo and FCT, AAT, Ref No: 2012/0101, 0111, Lazanas SM, 28 June 2013.)
[FJM Note: this might be the first decision that s105-65 of the TAA1 does not affect the determination of ‘net amounts’, only operates after the ‘net amount’ has been determined, and cannot be reviewed under Part IVC of the TAA].
[LTN 124, 1/7/13]