VCF and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (VT 2006/141)
Judgment date: 21 August 2008
Date published: 4 September 2009
Decision outcome: Partially adverse

Summary of decision:
Outlines the Tax Office's response to this case which concerned the issue of whether the Applicant was entitled to input tax credits on purchase of scrap metal from unregistered suppliers and whether the Applicant was liable for an administrative penalty.

Overview of facts:
1. The Applicant was engaged in the purchase, processing and sale of scrap metal, including purchases through "door trade", being cash purchases of scrap metal sold to it by individuals without ABNs. | 2. The Applicant recorded information regarding the purchases, including the door traders' names and the type, quantity (weight) and price paid for scrap metal ,on 'purchase documents'. However, there was no evidence that the information regarding the identity of the suppliers was verified. | 3. The Applicant claimed input tax credits for these purchases in reliance upon Division 66 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | 4. After sampling the records held by the Applicant, the Commissioner concluded that there were significant inconsistencies in the names, addresses and motor vehicle registrations of suppliers. The results were extrapolated and the Commissioner determined that many of the records of door trades involving amounts of over $300 were false. | 5. The Commissioner issued adjustments disallowing claims for $364,048 for the period 1 July 2000 to 30 October 2002. | 6. An administrative penalty of 75% was imposed on the shortfall amount. | Issues decided by the tribunal | 1. The Applicant did not meet the record-keeping requirements of section 66-17 or section 66-55 of the GST Act; | 2. The Commissioner applied an acceptable methodology to calculate the amount of the assessments, however should have allowed a discount of 5% for a margin for error (except upon the purchase of cars); | 3. Consistent with the methodology applied by the Commissioner, it was reasonable to disallow a percentage of the input tax credits claimed by the Applicant on the purchase of scrap metal; | 4. An administrative penalty of 50% of the shortfall amount for recklessness, rather than 75% for intentional disregard of the law was appropriate in the circumstances. No remission of the penalty was warranted.

Issues decided:
1. The Applicant did not meet the record-keeping requirements of section 66-17 or section 66-55 of the GST Act; 2. The Commissioner applied an acceptable methodology to calculate the amount of the assessments, however should have allowed a discount of 5% for a margin for error (except upon the purchase of cars); 3. Consistent with the methodology applied by the Commissioner, it was reasonable to disallow a percentage of the input tax credits claimed by the Applicant on the purchase of scrap metal; 4. An administrative penalty of 50% of the shortfall amount for recklessness, rather than 75% for intentional disregard of the law was appropriate in the circumstances. No remission of the penalty was warranted.

ATO view of decision:
Methodology and margin for error | The Tax Office accepts that the minor adjustment to the sampling methodology made by the Tribunal was open to the Tribunal on the evidence in this case. | Penalty | The Tax Office accepts that a conclusion that the Applicant acted with recklessness, rather than intentional disregard of the law was open to the Tribunal on the evidence accepted in this case. The Tribunal's decision reaffirms, in the context of section 66-17 of the GST Act, the onus on taxpayers to keep accurate and reliable records. Further the Tribunal confirmed that the failure of a taxpayer, in these circumstances, to assure itself that the record was correct may amount to reckless disregard of a taxation law.

Administrative treatment:
None. | Implications on current Public Rulings & Determinations | None.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 66-5 66-10 66-17 Part 4-2 Taxation Administration Act 1953 Sch 1 Div 284-B 284-15 284-75 284-90 284-225 298-20
Case references: Hart v Commissioner of Taxation [2003] FCAFC 105 2003 ATC 4665 (2003) 53 ATR 371 Sterling Guardian Pty Ltd v Commissioner of Taxation [2005] FCA 1166 2005 ATC 4796 (2005) 60 ATR 502
Subject references: GST Second-hand goods Scrap metal Door trade Identity of suppliers Sampling methodology Administrative penalty Intentional disregard Recklessness