Davsa Forty-Ninth Pty Ltd as Trustee for Krongold Ford Business Unit Trust and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2011/1945)
Judgment date: 29 May 2014
Date published: 26 June 2019

Summary of decision:
Outlines the ATO's response to this case which concerns whether the Applicant was entitled to its claims for input tax credits (ITCs) in the relevant period and a decreasing luxury car tax (LCT) adjustment in relation to motor vehicles (cars).

Overview of facts:
Early in 2004, the director of the Applicant (the director) decided to commence a business activity of selling cars with the following attributes: quality, class, prestige distinction and performance. The director believed that there was a niche market for cars with these particular attributes and this was a business opportunity that could potentially be very lucrative in the future. | Over a period of some years the Applicant purchased a number of cars; the first being purchased in January 2004. | The cars purchased by the Applicant were stored at private premises of the director and parties related to him. | The Applicant did not keep records of all the expenditure incurred in holding, servicing or repairing the cars it had purchased and did not seek to claim input tax credits in respect of any of those costs. | During the relevant period, only one car was sold and that sale was to the director's daughter, and a loss on sale arose. | The Applicant claimed input tax credits in relation to the acquisition of the cars acquired after it was granted its motor car trading licence. It also claimed a decreasing luxury car tax (LCT) adjustment associated with the purchase of certain cars. | The Applicant commenced advertising its business and cars for sale in April 2009. In May 2009, the Commissioner commenced an examination of the Applicant's affairs and completed it in February 2010. The Commissioner assessed the Applicant on the basis that it was not entitled to input tax credits or a decreasing LCT adjustment because the Applicant was not carrying on an enterprise and the cars were not being held by the Applicant as trading stock. | The Commissioner imposed a penalty of 25% for lack of reasonable care. | The Applicant objected to the Commissioner's assessments of its net amount for relevant periods and assessment of penalty, and the Commissioner disallowed the objection. The Applicant applied to the Tribunal for review of the Commissioner's objection decision. | Issues decided by the Tribunal | As highlighted by the Tribunal at [6] the heart of the dispute between the Applicant and the Commissioner lay in whether the Applicant carried on an enterprise and acquired the cars subject to LCT to be used/held as trading stock. | Having regard to a number of specific facts (at [38]), the Tribunal held (at [38] & [39]) that, while finely balanced, the Applicant should be regarded as an entity that has engaged in a series of activities that have sufficient indicia of business to be regarded as carrying on an enterprise, or to have been carrying out steps in the commencement of an enterprise. | Entitlement to input tax credits | The Tribunal decided that the cars were acquired in carrying on an enterprise and were therefore creditable acquisitions, although the extent of creditable purpose would be subject to the apportionment rules for those cars which were used for private purposes. | The Tribunal also decided that the Applicant was not entitled to claim input tax credits in relation to the purchase of four of the cars purchased because the evidence did not disclose that the Applicant held valid tax invoices either at all or at the requisite time for the input tax credits claimed as required by, section 29-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). | Entitlement to LCT decreasing adjustment | The Tribunal decided the Applicant was not entitled to the LCT decreasing adjustment for some of the luxury cars bought because it became aware of the adjustment after the period in which it was claimed. Also, because of the part private use of another of its luxury cars, the Tribunal decided the Applicant had not established that the car was held solely as trading stock in the period since its acquisition and was thus not entitled to an adjustment because of the multiple use. | 25% penalty imposed for lack of reasonable care | The Tribunal decided that the Applicant and its agent had not shown that they had taken reasonable care to avoid the shortfall. It also decided not to remit the penalty as its imposition was not otherwise harsh and did not produce an unjust, inappropriate or unreasonable outcome.

Issues decided:
As highlighted by the Tribunal at [6] the heart of the dispute between the Applicant and the Commissioner lay in whether the Applicant carried on an enterprise and acquired the cars subject to LCT to be used/held as trading stock. Having regard to a number of specific facts (at [38]), the Tribunal held (at [38] & [39]) that, while finely balanced, the Applicant should be regarded as an entity that has engaged in a series of activities that have sufficient indicia of business to be regarded as carrying on an enterprise, or to have been carrying out steps in the commencement of an enterprise. | Entitlement to input tax credits: The Tribunal decided that the cars were acquired in carrying on an enterprise and were therefore creditable acquisitions, although the extent of creditable purpose would be subject to the apportionment rules for those cars which were used for private purposes. The Tribunal also decided that the Applicant was not entitled to claim input tax credits in relation to the purchase of four of the cars purchased because the evidence did not disclose that the Applicant held valid tax invoices either at all or at the requisite time for the input tax credits claimed as required by, section 29-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). | Entitlement to LCT decreasing adjustment: The Tribunal decided the Applicant was not entitled to the LCT decreasing adjustment for some of the luxury cars bought because it became aware of the adjustment after the period in which it was claimed. Also, because of the part private use of another of its luxury cars, the Tribunal decided the Applicant had not established that the car was held solely as trading stock in the period since its acquisition and was thus not entitled to an adjustment because of the multiple use. | 25% penalty imposed for lack of reasonable care: The Tribunal decided that the Applicant and its agent had not shown that they had taken reasonable care to avoid the shortfall. It also decided not to remit the penalty as its imposition was not otherwise harsh and did not produce an unjust, inappropriate or unreasonable outcome.

ATO view of decision:
The Commissioner accepts that while, as recognised by the Tribunal, it is finely balanced, the Tribunal's decision that the Applicant carried on an enterprise in the form of a business was open to it on the specific facts of this case. | In reaching the conclusion that the Applicant was carrying on an enterprise, the Tribunal appears to have implicitly accepted that the Applicant was therefore holding the luxury cars for a quotable purpose. The Commissioner considers that the existing, legally binding authority on the issue of quotable purpose continues to be the Federal Court's decision in Melbourne Car Shop Pty Ltd v Commissioner of Taxation [2010] FCA 373. | Notwithstanding the Tribunal's conclusion that the Applicant was not able to claim some of input tax credits sought because it did not hold the requisite tax invoices under subsection 29-10(3) of the GST Act, the A New Tax System (Goods and Services Tax) Act 1999 Waiver of Tax Invoice Requirement Determination (No. 1) 2004 - Decision of a Court or Tribunal (WTI 2004/1) waives the requirement for a tax invoice in circumstances where a Court or a Tribunal decides that a taxpayer is entitled to an input tax credit under section 11-5 of the GST Act. Therefore, in cases such as this where the Tribunal determines that there is an entitlement to input tax credits, the Commissioner will allow the taxpayer to claim that entitlement without the need to hold a tax invoice [1] .

Administrative treatment:
None | Date of amendment Part Comment 26 June 2019 Issues decided by the Tribunal Corrected spelling errors ATO view of decision Inserted footnote 1 Throughout Applied current style | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] WTI 2004/1 expired on 1 April 2017 and has not been remade. The Tribunal standing in the shoes of the Commissioner, will exercise the discretion to treat a document as a tax invoice, in subsection 29-70(1B) of the GST Act, on a case by case basis.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 9-20 11-5 11-15 11-25 29-10(3) 29-70(1B) 69-10 A New Tax System (Luxury Car Tax) Act 1999 9-5 15-30 Taxation Administration Act 1953 Sch1 284-75
Case references: Commissioner of Taxation v BHP Billiton Finance Limited [2010] FCAFC 25 (2010) 182 FCR 526 2010 ATC 20-169 (2010) 76 ATR 472 Ell v Commissioner of Taxation [2006] FCA 71 2006 ATC 4098 (2006) 61 ATR 661 Envestra Limited (ACN 078 551 685) v Commissioner of Taxation [2008] FCA 249 (2008) 169 FCR 300 (2008) 70 ATR 115 Evans, R.J. v Commissioner of Taxation [1989] FCA 278 89 ATC 4540 20 ATR 922 Commissioner of Taxation v Swansea Services Pty Ltd [2009] FCA 402 72 ATR 120 2009 ATC 20-100 Commissioner of Taxation (Cth) v Whitfords Beach Pty Ltd [1982] HCA 8 (1982) 150 CLR 355 12 ATR 692 82 ATC 4031 39 ALR 521 Ferguson, Peter Ian Murdoch v The Commissioner of Taxation for the Commonwealth of Australia [1979] FCA 51 (1979) 37 FLR 310 79 ATC 4261 (1979) 9 ATR 873 (1979) 26 ALR 307 79 ATC 470 Fletcher v Commissioner of Taxation (Cth) [1991] HCA 42 (1991) 173 CLR 1 22 ATR 613 103 ALR 97 91 ATC 4950 Hope v Bathurst City Council [1980] HCA 16 (1980) 144 CLR 1 (1980) 29 ALR 577 (1980) 12 ATR 231 80 ATC 4386 Melbourne Car Shop Pty Ltd v Commissioner of Taxation [2010] FCA 373 76 ATR 42 2010 ATC 20-179 Prestcold (Central) Ltd v Minister of Labour [1969] 2 WLR 89 (Court of Appeal) Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28 (1998) 194 CLR 355 153 ALR 490 Registrar Of Titles (WA) v Franzon [1975] HCA 41 (1975) 132 CLR 611 (1975) 7 ALR 383 Ronpibon Tin NL v Commissioner of Taxation (Cth) [1949] HCA 15 (1949) 78 CLR 47 [1949] ALR (CN) 1055 [1949] ALR 785 (1949) 8 ATD 431 Russell v Commissioner of Taxation [2011] FCAFC 10 190 FCR 449 (2011) 79 ATR 315 (2011) 274 ALR 545 2011 ATC 20-240 Sanctuary Lakes Pty Ltd v Commissioner of Taxation [2013] FCAFC 50 2013 ATC 20-395 212 FCR 483 (2013) 90 ATR 762 Spassked Pty Limited v Commissioner of Taxation [2003] FCAFC 282 (2003) 54 ATR 546 136 FCR 441 2003 ATC 5099 (2003) 203 FLR 515 Spriggs v Commissioner of Taxation [2009] HCA 22 239 CLR 1 (2009) 256 ALR 596 (2009) 72 ATR 148 2009 ATC 20-109 State Authorities Superannuation Board v Commissioner of Taxation [1988] FCA 756 (1988) 21 FCR 535 (1988) 85 ALR 125 (1988) 20 ATR 211 89 ATC 4078 Stewart and Commissioner of Taxation [2013] AATA 845 2013 ATC 10-340 (2013) 97 ATR 963 Thomas v Commissioner of Taxation (Cth) (1972) 46 ALJR 397 [1972-73] ALR 368 72 ATC 4094 3 ATR 165 Tweddle v Federal Commissioner of Taxation [1942] HCA 40 180 CLR 1 (1942) 7 ATD 186 Vincent v Commissioner of Taxation [2002] FCAFC 291 (2002) 124 FCR 350 (2002) 51 ATR 18 2002 ATC 4742 (2002) 193 ALR 686 Walstern v Commissioner of Taxation [2003] FCA 1428 2003 ATC 5076 (2003) 54 ATR 423 (2003) 183 FCR 1 Woods v Deputy Commissioner of Taxation [1999] FCA 1589 99 ATC 5306 43 ATR 491