Badaoui & Konig and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2010/2378)
Judgment date: 29 September 2011
Date published: 19 December 2012

Summary of decision:
Outlines the ATO's response to the Tribunal's decision about how the substantiation provisions in relevant legislation affect entitlement to GST input tax credits.

Overview of facts:
The husband and wife partnership was registered for GST purposes during all relevant tax periods and accounted for GST on a cash basis. | By contract dated 7 August 2006, the previous owners agreed to sell the property known as the Mulgoa Service Station, Regentville in western Sydney to Mulgoa Service Station Pty Ltd, a company of which the applicant's brother was at the time the sole director. Another brother of the applicant considered that the applicant may have been interested in buying the property once development approval had been obtained, as this was an arrangement that had occurred between the three brothers previously. | In the Business Activity Statement (BAS) lodged for the quarter ended 30 September 2008, the Partnership claimed input tax credits amounting to $53,910, in respect of acquisitions purported to be made from Buildwest Constructions Pty Ltd and Kenmick Group Pty Ltd, both of which are associated with the brothers of one of the partners. The Partnership sought to rely on three purported tax invoices to support the claim for these input tax credits. The Partnership also claimed input tax credits of $17,500 for similar acquisitions in the quarter ended 31 December 2008. | The Commissioner issued a notice of amended assessment disallowing the input tax credits claimed by the Partnership because it was the Commissioner's view that there was insufficient documentation to support the Partnership's claim that the purported services were acquired by the Partnership and/or that the Partnership provided consideration for the services. | On objection, the Partnership provided additional documents, some of which were accepted by the Commissioner as supporting the Partnership's entitlement to some of the input tax credits claimed for the quarter ended 31 December 2008. | The Partnership applied for a review of the objection decision to the Administrative Appeals Tribunal. | Issues decided by the tribunal | The Tribunal accepted that the Partnership did acquire and provide consideration for, the professional services supplied by companies associated with the brothers of one of the partners, in relation to the development of the service station site, in the quarter ended 30 September 2008. Accordingly, the Partnership was entitled to claim input tax credits in the amount of $23,910, as described and evidenced in two of the three tax invoices. | However, in relation to the third tax invoice, the Tribunal agreed with the Commissioner that the Partnership was unable to establish that it had provided consideration for the professional services purported to have been supplied. Hence, the Tribunal found that the Partnership was not entitled to claim an input tax credit for the purported acquisition in the amount of $30,000 as described and evidenced in the third tax invoice. | As to the penalty imposed, the Tribunal noted that based on the findings in relation to the substantive issues, the behaviour of the partners at the relevant time could not be said to be reckless as the Partnership claimed the input tax credits knowing it had paid large amounts to the companies involved, had tax invoices issued to them relating to work which they either knew or could reasonably assume had been undertaken and had been asked to provide consideration to cover the work carried out at the service station. | The Tribunal also determined that it did not consider that the partners' behaviour fell within the description of a failure to take reasonable care to comply with a taxation law. Accordingly, the Tribunal reduced the penalty to nil.

Issues decided:
The Tribunal accepted that the Partnership did acquire and provide consideration for, the professional services supplied by companies associated with the brothers of one of the partners, in relation to the development of the service station site, in the quarter ended 30 September 2008. Accordingly, the Partnership was entitled to claim input tax credits in the amount of $23,910, as described and evidenced in two of the three tax invoices. However, in relation to the third tax invoice, the Tribunal agreed with the Commissioner that the Partnership was unable to establish that it had provided consideration for the professional services purported to have been supplied. Hence, the Tribunal found that the Partnership was not entitled to claim an input tax credit for the purported acquisition in the amount of $30,000 as described and evidenced in the third tax invoice. As to the penalty imposed, the Tribunal noted that based on the findings in relation to the substantive issues, the behaviour of the partners at the relevant time could not be said to be reckless as the Partnership claimed the input tax credits knowing it had paid large amounts to the companies involved, had tax invoices issued to them relating to work which they either knew or could reasonably assume had been undertaken and had been asked to provide consideration to cover the work carried out at the service station. The Tribunal also determined that it did not consider that the partners' behaviour fell within the description of a failure to take reasonable care to comply with a taxation law. Accordingly, the Tribunal reduced the penalty to nil.

ATO view of decision:
The Tribunal's decision confirms the view of the Commissioner that every claim must be substantiated as required by the legislation. A failure by a taxpayer to substantiate an entitlement to input tax credits claimed will result in claims being disallowed. | The matter decided in this case is largely factual and does not involve a question of law. On the evidence presented before the Tribunal it was open for the Tribunal to determine the issues.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | None Identified | Implications for Law Administration Practice Statements | None Identified

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 11-5 11-20 29-10 Taxation Administration Act 1953 Division 284 of Schedule 1
Subject references: GST Creditable acquisition input tax credit tax invoices whether acquisition made whether consideration provided penalty recklessness reasonable care