North Sydney Developments Pty Ltd and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2013/4756)
Judgment date: 6 June 2014
Date published: 26 June 2015

Summary of decision:
Outlines the ATO's response to this case which is concerned with entitlement to input tax credits for acquisitions made more than 4 years previously, whether adequate notice was given within the 4 year period, and the effect of a lodgment and payment notice issued to the taxpayer.

Overview of facts:
Tribunal review from a disallowance of an objection against an unfavourable private binding ruling. 1. Between May 2004 and November 2005, North Sydney Developments Pty Ltd ('North Sydney') lodged monthly Business Activity Statements ('BASs') reporting acquisitions of $11.78 million, and no sales. The acquisitions related to the development of a substantial, but uncompleted property. The Commissioner accepted that North Sydney was entitled to input tax credits in relation to the acquisitions reported in each of the lodged BASs. 2. North Sydney did not lodge BASs for the December 2005 or January 2006 tax periods. 3. In February and March 2006, the Commissioner issued 'lodgment and payment' notices requiring North Sydney to lodge its December 2005 and January 2006 BASs respectively and pay any outstanding liabilities immediately. 4. On 8 March 2006, a mortgagee appointed a controller of the incomplete building and on 23 June 2006, North Sydney was placed into receivership. The Receiver subsequently sold the partially completed building. 5. On 3 September 2009, North Sydney wrote to the Commissioner. The letter advised that: a) Receivers were appointed for North Sydney on 8 March 2006 and 'ASIC and the receivers have taken the entities books and records and refused to return them or provide access'; b) North Sydney could not complete the lodgment of the December 2005 and January 2006 BASs; c) 'Substantial GST refunds' were due for these months; and d) North Sydney could not lodge BASs for these months until it gained access to the necessary books and records. 6. On 6 June 2013, the Commissioner ruled that although North Sydney was entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) 1999 ('GST Act') for the December 2005 and January 2006 tax periods, the entitlement had ceased under the time limit set in section 105-55 of Schedule 1 to the Taxation Administration Act 1953 ('TAA'). [1] | 1. Between May 2004 and November 2005, North Sydney Developments Pty Ltd ('North Sydney') lodged monthly Business Activity Statements ('BASs') reporting acquisitions of $11.78 million, and no sales. The acquisitions related to the development of a substantial, but uncompleted property. The Commissioner accepted that North Sydney was entitled to input tax credits in relation to the acquisitions reported in each of the lodged BASs. 2. North Sydney did not lodge BASs for the December 2005 or January 2006 tax periods. 3. In February and March 2006, the Commissioner issued 'lodgment and payment' notices requiring North Sydney to lodge its December 2005 and January 2006 BASs respectively and pay any outstanding liabilities immediately. 4. On 8 March 2006, a mortgagee appointed a controller of the incomplete building and on 23 June 2006, North Sydney was placed into receivership. The Receiver subsequently sold the partially completed building. 5. On 3 September 2009, North Sydney wrote to the Commissioner. The letter advised that: a) Receivers were appointed for North Sydney on 8 March 2006 and 'ASIC and the receivers have taken the entities books and records and refused to return them or provide access'; b) North Sydney could not complete the lodgment of the December 2005 and January 2006 BASs; c) 'Substantial GST refunds' were due for these months; and d) North Sydney could not lodge BASs for these months until it gained access to the necessary books and records. 6. On 6 June 2013, the Commissioner ruled that although North Sydney was entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) 1999 ('GST Act') for the December 2005 and January 2006 tax periods, the entitlement had ceased under the time limit set in section 105-55 of Schedule 1 to the Taxation Administration Act 1953 ('TAA'). [1] | a) Receivers were appointed for North Sydney on 8 March 2006 and 'ASIC and the receivers have taken the entities books and records and refused to return them or provide access'; b) North Sydney could not complete the lodgment of the December 2005 and January 2006 BASs; c) 'Substantial GST refunds' were due for these months; and d) North Sydney could not lodge BASs for these months until it gained access to the necessary books and records. | Issues Decided by the Tribunal | 1. Whether North Sydney's letter of 3 September 2009, to the Commissioner, satisfied the 'notification' requirement in section 105-55, thereby extending the four year time limit in that section in relation to entitlements to input tax credits for acquisitions made more than four years ago? | The Tribunal concluded at [31] that North Sydney's 3 September 2009 letter did notify the Commissioner of "the refund, other payment or credit", and was a complying notification for the purposes of the 4 year limitation in section 105-55, in relation to input tax credits relating to the December 2005 and January 2006 tax periods. | In reaching its conclusion, the Tribunal at [14] rejected the Commissioner's submission that in order to be a valid notice, the communication relied on by a taxpayer must provide "the specific nature of the refund and the circumstances under which the refund arises". | The Tribunal held at [31] that the section requires no greater specification than the tax period involved and the nature of the refund or input tax credit claimed, and that the letter, by describing the notification as relating to the expected outcome of specified BASs, satisfied those requirements. The Tribunal also went on to say that even if the letter did require some greater degree of specificity, it satisfied that requirement by indicating that the reason for the notification was the lack of access to contemporary books and records in the possession of the Receiver. | In reaching these findings, the Tribunal considered earlier decisions [2] and determined that there was no requirement for formal content notification, a specific amount, or further sufficiency of notice to be communicated other than that a claim is being made for a particular tax period. The Tribunal considered that section 105-55 did not support a requirement for further circumstances for notification when this section is satisfied by lodging a GST return without such circumstances stated. North Sydney's letter satisfied the requisite notification requirements because it referred to an expected entitlement to GST refunds for the December 2005 and January 2006 BASs and explained that the BASs were not completed because of a lack of access to books and records. | 2. Whether circumstances previously notified to the Commissioner could rectify an otherwise 'deficient' 105-55 notice (letter) for the notice to provide 'sufficient notice'? | Consistent with the Commissioner's submissions, the Tribunal concluded that if North Sydney's letter had been deficient as a section 105-55 notice, then that deficiency could not have been overcome by referring to information that had been provided to the Commissioner about North Sydney's activities in relation to previous tax periods. The Tribunal considered at [35] that 'whatever informality may be permissible for the purpose of an effective notification, it is the communication relied on as the notification that must provide the requisite information'. Further at [35], the Tribunal stated that 'expectation and inference are not the same as notification'. | 3. Whether the 'lodgment and payment notices' issued by the Commissioner for the December 2005 and January 2006 tax periods were 'notices' under paragraph 105-50(3)(a)? | North Sydney argued in the alternative that the lodgment and payment notices issued by the Commissioner for the December 2005 and January 2006 tax periods were effective notices for the purposes of paragraph 105-50(3)(a). Accordingly, their entitlement to the relevant input tax credits would have been preserved, even in the absence of an effective section 105-55 notice. [3] | The Tribunal concluded at [33] that the lodgment and payment notices did not relate to any "unpaid amount of tax" of the kind to which section 105-50 applied. There was no evidence that North Sydney had any unpaid liability at all for the relevant tax periods. Accordingly, the notices did not operate to remove the 4 year time limit that would otherwise apply.

Issues decided:
1. Whether North Sydney's letter of 3 September 2009, to the Commissioner, satisfied the 'notification' requirement in section 105-55, thereby extending the four year time limit in that section in relation to entitlements to input tax credits for acquisitions made more than four years ago?: The Tribunal concluded at [31] that North Sydney's 3 September 2009 letter did notify the Commissioner of "the refund, other payment or credit", and was a complying notification for the purposes of the 4 year limitation in section 105-55, in relation to input tax credits relating to the December 2005 and January 2006 tax periods. In reaching its conclusion, the Tribunal at [14] rejected the Commissioner's submission that in order to be a valid notice, the communication relied on by a taxpayer must provide "the specific nature of the refund and the circumstances under which the refund arises". The Tribunal held at [31] that the section requires no greater specification than the tax period involved and the nature of the refund or input tax credit claimed, and that the letter, by describing the notification as relating to the expected outcome of specified BASs, satisfied those requirements. The Tribunal also went on to say that even if the letter did require some greater degree of specificity, it satisfied that requirement by indicating that the reason for the notification was the lack of access to contemporary books and records in the possession of the Receiver. In reaching these findings, the Tribunal considered earlier decisions [2] and determined that there was no requirement for formal content notification, a specific amount, or further sufficiency of notice to be communicated other than that a claim is being made for a particular tax period. The Tribunal considered that section 105-55 did not support a requirement for further circumstances for notification when this section is satisfied by lodging a GST return without such circumstances stated. North Sydney's letter satisfied the requisite notification requirements because it referred to an expected entitlement to GST refunds for the December 2005 and January 2006 BASs and explained that the BASs were not completed because of a lack of access to books and records. | 2. Whether circumstances previously notified to the Commissioner could rectify an otherwise 'deficient' 105-55 notice (letter) for the notice to provide 'sufficient notice'?: Consistent with the Commissioner's submissions, the Tribunal concluded that if North Sydney's letter had been deficient as a section 105-55 notice, then that deficiency could not have been overcome by referring to information that had been provided to the Commissioner about North Sydney's activities in relation to previous tax periods. The Tribunal considered at [35] that 'whatever informality may be permissible for the purpose of an effective notification, it is the communication relied on as the notification that must provide the requisite information'. Further at [35], the Tribunal stated that 'expectation and inference are not the same as notification'. | 3. Whether the 'lodgment and payment notices' issued by the Commissioner for the December 2005 and January 2006 tax periods were 'notices' under paragraph 105-50(3)(a)?: North Sydney argued in the alternative that the lodgment and payment notices issued by the Commissioner for the December 2005 and January 2006 tax periods were effective notices for the purposes of paragraph 105-50(3)(a). Accordingly, their entitlement to the relevant input tax credits would have been preserved, even in the absence of an effective section 105-55 notice. [3] The Tribunal concluded at [33] that the lodgment and payment notices did not relate to any "unpaid amount of tax" of the kind to which section 105-50 applied. There was no evidence that North Sydney had any unpaid liability at all for the relevant tax periods. Accordingly, the notices did not operate to remove the 4 year time limit that would otherwise apply.

ATO view of decision:
1. Whether the letter sent to the Commissioner by North Sydney on 3 September 2009 satisfied the 'notification' requirement in section 105-55 to extend the conditional four year time limit to claim input tax credits for a particular tax period? | The Commissioner accepts the conclusion of the Tribunal that North Sydney's letter of 3 September 2009 satisfied the 'notification' requirement in section 105-55. | 2. Whether circumstances previously notified to the Commissioner could rectify an otherwise 'deficient' 105-55 notice (letter) for the notice to provide 'sufficient notice'? | The Tribunal's conclusions at [34 to 35] are consistent with the Commissioner's submissions in this case. That is, as stated by the Tribunal, a notification under section 105-55 should not be based on expectation and inference drawn from previously lodged information that discloses the general nature of activities conducted for previous tax periods. It is the notification that is relied on to provide the requisite information. | 3. Whether the 'lodgment and payment notices' issued by the Commissioner for the December 2005 and January 2006 tax periods were 'notices' under paragraph 105-50(3)(a)? | This issue arose from North Sydney's alternative argument in the event that the letter of 3 September 2009 was not an effective notice for the purposes of section 105-55. | The Tribunal's finding at [33] that the lodgment and payment notices did not engage the exception in subparagraph 93-10(1)(a)(i) of the GST Act because North Sydney's claim to input tax credits did not arise out of an unpaid net amount or an amount of indirect tax is consistent with the Commissioner's view. | Consistent with the Tribunal's decision, the Commissioner's view is that a lodgment and payment demand notice is not an effective notice for the purpose of subparagraph 105-50(3)(a)(i) in the specific circumstances (such as in this case) where there is no GST liability attributable to the relevant tax periods for which the notice was originally issued. Consequently, the exception in subparagraph 93-10(1)(a)(i) does not apply in these circumstances.

Administrative treatment:
Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | An addendum to MT 2009/1 [4] was published on 24 June 2015 to reflect the Tribunal's decision in this case and the views set out in this Decision Impact Statement. | Implications for impacted Law Administration Practice Statements | The Commissioner has published changes to PS LA 2009/3 [5] to reflect the Tribunal's decision in this case and the views set out in this Decision Impact Statement. | [1] All further legislative references are to Schedule 1 to the TAA unless otherwise specified. | [2] In particular, Central Equity Ltd v Federal Commissioner of Taxation [2011] FCA 908, Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370, MTAA Superannuation Fund ( RG Casey Building ) Property Pty Ltd v Commissioner of Taxation [2011] AATA 769, and National Jet Systems Pty Ltd v Commissioner of Taxation [2011] AATA 766. | [3] Under subsection 93-10(1) of the GST Act, the 4 year time limit on entitlement to input tax credits does not apply where the input tax credit arises out of circumstances that also gave rise to an unpaid amount in relation to which the Commissioner has provided a notice under paragraph 105-50(3)(a) requiring payment. | [4] Miscellaneous Tax Ruling MT 2009/1 Miscellaneous taxes: notification requirements for an entity under section 105-55 of Schedule 1 to the Taxation Administration Act 1953 . | [5] Law Administration Practice Statement PS LA 2009/3 Time limit on recovery by the Commissioner .

Legislative references: Taxation Administration Act 1953 105-55 105-50(3)(a) A New Tax System (Goods and Services Tax) Act 1999 93-5 93-10(1) 93-10(3)
Case references: Central Equity Limited and Another v Federal Commissioner of Taxation (2011) 214 FCR 255 [2011] FCA 908 2011 ATC 20-274 (2011) 82 ATR 550 MTAA Superannuation Fund (RG Casey Building) Property Pty Ltd and Federal Commissioner of Taxation [2011] AATA 769 2011 ATC 10-213 (2011) 84 ATR 334 National Jet Systems Pty Ltd and Federal Commissioner of Taxation [2011] AATA 766 (2011) 82 ATR 740 2011 ATC 10-212 Brookdale Investments Pty Ltd v Federal Commissioner of Taxation [2013] AATA 154 2013 ATC 10-301 Cyonara Snowfox Pty Ltd v Federal Commissioner of Taxation (2012) 208 FCR 471 [2012] FCAFC 177 2012 ATC 20-362 (2012) 89 ATR 122 Russell v Federal Commissioner of Taxation [2009] FCA 1224 2009 ATC 20-143 (2009) 74 ATR 466 Wynnum Holdings No. 1 v Commissioner of Taxation [2011] AATA 296 (2011) 2011 ATC 10-180 (2011) 83 ATR 444
Subject references: GST input tax credits and creditable acquisitions GST refunds GST returns, payments and refunds