Rod Mathiesen Truck Hire Pty Ltd as trustee for the Mathiesen Family Trust and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2013/0341 and 2013/0342)
Judgment date: 15 July 2013
Date published: 9 September 2013

Summary of decision:
Outlines the ATO's response to this case which concerns a loan/vendor financing agreement, and whether the vendor of land received all of the consideration at settlement for the purposes of the attribution rules in s 29-5 of the GST Act .

Overview of facts:
By a contract for sale dated 14 March 2008, the taxpayer agreed to sell property to the Purchaser for $3,177,650 plus GST. The Purchaser, prior to settlement, notified the Taxpayer that it was unable to pay the whole amount of the purchase price at settlement. | On settlement on 16 May 2008, the taxpayer received from the Purchaser $2,017,885 by way of cheques and entered into a Settlement Balance Facility Agreement ('SBFA') with the purchaser for the balance of $1,498,682.69. The taxpayer secured payment of the balance owing by the Purchaser with a mortgage over the Property. | On settlement, the Property was transferred in favour of the Purchaser capable of immediate registration. The transfer instrument recorded the consideration of $3,495,403.50. | The taxpayer issued a tax invoice to the Purchaser for $3,495,288.50, including $317,753.50 in GST with a description of the supply as "sale of vacant land...". | The taxpayer did not receive any amount of the balance owing or accrued interest from the Purchaser by 30 June 2008 as required under the SBFA. On 23 February 2009, the taxpayer and the Purchaser entered into a Deed of Variation. | The parties agreed under the Deed of Variation that in place of the Purchaser paying the balance of $1,498,682.69 and interest, the Purchaser would pay the taxpayer $500,000 within 21 days and transfer to the taxpayer three developed lots. | On 23 February 2009 the Purchaser paid to the taxpayer $500,000 by cheque. | The taxpayer was notified by letter dated 12 May 2011 that Westpac was exercising its power of sale as mortgagee in possession over the property. The taxpayer was notified by letter dated 18 May 2012 that there would be insufficient funds available from the sale of the Property to distribute any amount to the taxpayer. The taxpayer did not receive any developed lots from the Purchaser per the Deed of Variation. | The taxpayer accounted for GST on a cash basis. | Issues decided by the court | - Character of the Settlement Balance Facility Agreement | The Tribunal determined that having regard to the objective intention of the parties derived from the document itself the Settlement Balance Facility Agreement provided for a loan from the taxpayer to the purchaser where the obligation to advance the loan monies was set-off at settlement against the Purchaser's obligation to pay for the property. | - Whether the contract for sale was a sale on credit? | The Tribunal found at [23] that there is a clear distinction between a sale on credit and the dealings between the taxpayer and the Purchaser. The contract for sale did not provide for any form of credit and it was not varied to do so. | - Whether the "loan" from the taxpayer to the Purchaser was ancillary and incidental to the Purchaser's obligation to pay the purchase price under the contract for sale and whether the extension of credit merely facilitated the proper performance of the contract for supply of the Property? | At [26], Deputy President Molloy stated that he did not accept that the loan, or creation of the loan debt, between the taxpayer and the Purchaser was incidental or ancillary to the supply of the Property under the contract for sale. The contract of sale and the loan were distinct transactions. | - Whether all of the consideration in relation to the sale of the Property was received by the taxpayer at the time of settlement on 16 May 2008? | The Tribunal concluded at [28] that for the purposes of the GST Act, all of the consideration in relation to the sale of the Property was received by the taxpayer at the time of settlement on 16 May 2008. Consideration consisted of the cheques totalling $2,017,885 provided by the Purchaser to the taxpayer at settlement plus $1,477,520 provided for under the Settlement Balance Facility.

Issues decided:
- Character of the Settlement Balance Facility Agreement The Tribunal determined that having regard to the objective intention of the parties derived from the document itself the Settlement Balance Facility Agreement provided for a loan from the taxpayer to the purchaser where the obligation to advance the loan monies was set-off at settlement against the Purchaser's obligation to pay for the property. - Whether the contract for sale was a sale on credit? The Tribunal found at [23] that there is a clear distinction between a sale on credit and the dealings between the taxpayer and the Purchaser. The contract for sale did not provide for any form of credit and it was not varied to do so. - Whether the "loan" from the taxpayer to the Purchaser was ancillary and incidental to the Purchaser's obligation to pay the purchase price under the contract for sale and whether the extension of credit merely facilitated the proper performance of the contract for supply of the Property? At [26], Deputy President Molloy stated that he did not accept that the loan, or creation of the loan debt, between the taxpayer and the Purchaser was incidental or ancillary to the supply of the Property under the contract for sale. The contract of sale and the loan were distinct transactions. - Whether all of the consideration in relation to the sale of the Property was received by the taxpayer at the time of settlement on 16 May 2008? The Tribunal concluded at [28] that for the purposes of the GST Act, all of the consideration in relation to the sale of the Property was received by the taxpayer at the time of settlement on 16 May 2008. Consideration consisted of the cheques totalling $2,017,885 provided by the Purchaser to the taxpayer at settlement plus $1,477,520 provided for under the Settlement Balance Facility.

ATO view of decision:
The findings made by the Tribunal are consistent with principles set out in GSTRs 2001/8, 2003/12 and GSTD 2004/4, and are consistent with the submissions that the Commissioner made to the Tribunal, in this case, that: - for a taxpayer that accounts on a cash basis, attribution of GST or an input tax credit is determined by the meaning of 'consideration' and whether 'consideration' was received or provided and not by reference to the ordinary meaning of 'cash'; - in a vendor financing arrangement, consideration is received by a supplier on set-off of the loan against amounts owing to the supplier by the purchaser; - the postponement of payment of a debt does not constitute a loan where the recipient remains obliged to pay for the supply under the original supply contract; and - where there is a contract for sale of land and a vendor financing agreement, the financing agreement is not ancillary or incidental to the contract for the sale of land. | - for a taxpayer that accounts on a cash basis, attribution of GST or an input tax credit is determined by the meaning of 'consideration' and whether 'consideration' was received or provided and not by reference to the ordinary meaning of 'cash'; - in a vendor financing arrangement, consideration is received by a supplier on set-off of the loan against amounts owing to the supplier by the purchaser; - the postponement of payment of a debt does not constitute a loan where the recipient remains obliged to pay for the supply under the original supply contract; and - where there is a contract for sale of land and a vendor financing agreement, the financing agreement is not ancillary or incidental to the contract for the sale of land.

Administrative treatment:
Implications for ATO precedential documents (Public Rulings & Determinations etc) | N/A

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 s 9-15 s 29-5(2)
Subject references: Goods and Services Tax Sale of property Consideration Vendor finance agreement