Cyonara Snowfox Pty Ltd v Federal Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (QUD 69 of 2011 & QUD 70 of 2010)
Judgment date: 4 December 2012
Date published: 29 July 2013

Summary of decision:
Outlines the ATO's response to this case involving the application of the margin scheme and the going concern provisions of the GST Act; together with the four year limit on recovery in section 105-50 of Schedule 1 to the Taxation Administration Act 1953 .

Overview of facts:
Cyonara Snowfox Pty Ltd (Cyonara) is a property developer that, at all relevant times, was registered for GST. | In 1997 Cyonara acquired a parcel of land that it subsequently subdivided into allotments, referred to as Lots 1, 6, 9 and 10 and Lot 8 respectively. | Cyonara sold Lots 1, 6, 9 and 10 on various dates between September 2004 and February 2007. Upon settlement, as provided by each of the respective settlement statements, the respective purchasers of Lots 1, 6, 9 and 10 paid, to Cyonara, an additional amount equivalent to 10% of the GST exclusive contract price on account of GST. | Cyonara did not account for, or pay, any GST to the Commissioner for its sales of Lots 1 and 10. Cyonara reported and paid an amount of GST equivalent to 10% of the GST exclusive contract price for its sales of Lots 6 and 9. | Lot 8 was sold by Cyonara in December 2005 for a purchase price of $3.7 million. Subsequently, on 31 March 2007 Cyonara issued a tax invoice to the purchaser showing GST of $370,299.02 in consideration of the purchaser's promise to pay that amount, in addition to the $3.7 million purchase price already paid, to Cyonara. | Cyonara submitted that Lot 8 was the subject of a leasing enterprise that it was engaged in and carrying on up until the day of the supply, and that the supply of the property was a supply of a GST-free going concern. Cyonara did not account for or pay any GST to the Commissioner for its sale of Lot 8. | Cyonara acquired a parcel of land referred to as Lot 202 in December 2005. Cyonara reported an entitlement to input tax credits of $309,090 in its activity statement, in relation to its acquisition of Lot 202, for the tax period ended 28 February 2007. | Following the completion of an audit, the Commissioner made assessments of Cyonara's net amount for relevant tax periods to: • include an amount of GST payable, equal to 10% of the GST exclusive contract price, for the sale of Lots 1, 8 and 10. • to increase the GST payable in relation to Cyonara's sales of Lot 6 & 9 as a result of various adjustments made on settlement. • to reduce to nil the reported input tax credit entitlement of $309,090 on the acquisition of Lot 202. | • include an amount of GST payable, equal to 10% of the GST exclusive contract price, for the sale of Lots 1, 8 and 10. • to increase the GST payable in relation to Cyonara's sales of Lot 6 & 9 as a result of various adjustments made on settlement. • to reduce to nil the reported input tax credit entitlement of $309,090 on the acquisition of Lot 202. | The Commissioner issued a notice of these assessments to the taxpayer on 24 May 2007. | Subject to effect being given to a concession made by the Commissioner, prior to the hearing, in relation to the taxpayer's acquisition of Lot 202, the AAT affirmed the assessments under review. The AAT rejected Cyonara's submission that it could retrospectively 'choose' to apply the margin scheme in 'working out' its GST liability for relevant sales of real property, and based upon a lack of sufficient evidence, rejected Cyonara's contention that Lot 8 was sold as a GST-free supply of a going concern. | Cyonara appealed to the Federal Court. The matter was subsequently referred to a full bench of the Federal Court for determination. | The taxpayer filed an application for special leave to appeal to the High Court which was dismissed on 5 June 2013. | Issues decided by the court | 1. The Full Federal Court unanimously upheld the Tribunal's decision that section 75-5 of the GST Act, as it stood prior to 29 June 2005, required a taxpayer to make the choice to apply the margin scheme, to work out its GST liability for a taxable supply of real property, no later than the time of the supply. | 2. The Court rejected Cyonara's contention that the AAT made an error of law in making a finding of fact, contrary to the director's oral testimony, that Lot 8 was not the subject of a lease up until the day of its sale by Cyonara. Notwithstanding the director's oral testimony, by failing to put the executed lease into evidence or to adduce further evidence, Cyonara had not satisfied the AAT, on the balance or probabilities, as to the existence of the lease. | Relevantly, at [107], their Honours stated: "The discharge of Cyonara's burden before the Tribunal is not made good simply as a function of a director giving oral narrative evidence of a contended fact (without producing to the tribunal of fact the central document that speaks to critical aspects of the matter in issue), on the contended footing that oral narrative evidence must be persuasive because the Commissioner has not adduced evidence to contradict the director's oral evidence." | 3. Their Honours unanimously upheld the Tribunal's decision that the overstatement of an amount payable in the notice of assessments issued by the Commissioner on 24 May 2007 did not render the notice invalid for the purposes of subsection 105-50(3) of Schedule 1 to the Taxation Administration Act 1953 (TAA). Thus, the Commissioner was not precluded by the four year time limit in section 105-50 from recovering the unpaid amounts of GST from Cyonara.

Issues decided:
1. The Full Federal Court unanimously upheld the Tribunal's decision that section 75-5 of the GST Act, as it stood prior to 29 June 2005, required a taxpayer to make the choice to apply the margin scheme, to work out its GST liability for a taxable supply of real property, no later than the time of the supply. 2. The Court rejected Cyonara's contention that the AAT made an error of law in making a finding of fact, contrary to the director's oral testimony, that Lot 8 was not the subject of a lease up until the day of its sale by Cyonara. Notwithstanding the director's oral testimony, by failing to put the executed lease into evidence or to adduce further evidence, Cyonara had not satisfied the AAT, on the balance or probabilities, as to the existence of the lease. Relevantly, at [107], their Honours stated: "The discharge of Cyonara's burden before the Tribunal is not made good simply as a function of a director giving oral narrative evidence of a contended fact (without producing to the tribunal of fact the central document that speaks to critical aspects of the matter in issue), on the contended footing that oral narrative evidence must be persuasive because the Commissioner has not adduced evidence to contradict the director's oral evidence." 3. Their Honours unanimously upheld the Tribunal's decision that the overstatement of an amount payable in the notice of assessments issued by the Commissioner on 24 May 2007 did not render the notice invalid for the purposes of subsection 105-50(3) of Schedule 1 to the Taxation Administration Act 1953 (TAA). Thus, the Commissioner was not precluded by the four year time limit in section 105-50 from recovering the unpaid amounts of GST from Cyonara.

ATO view of decision:
Choice to apply the margin scheme | The Full Federal Court's decision is consistent with the Commissioner's view, as expressed in GSTR 2006/7, GSTR 2006/8 and PS LA 2005/2 (GA), that section 75-5 of the GST Act, as it stood and applied prior to 29 June 2005, required a taxpayer to make a choice to apply the margin scheme no later than the time when the supply is made. | It is not necessary to amend GSTR 2006/7, GSTR 2006/8 or PS LA 2005/2 (GA) as a result of the Full Federal Court's decision. | Taxpayer's burden of proof in the AAT | The Court's decision confirms that in order to discharge their burden of proof under section 14ZZK of the TAA, a taxpayer must put before the Tribunal, or adduce, sufficient evidence that satisfies the Tribunal, on the balance of probabilities, of the existence a particular fact. | Oral testimony made by a taxpayer or on behalf a taxpayer that is not contradicted by evidence adduced by the Commissioner does not necessarily discharge a taxpayer's burden of proof in cases where a taxpayer fails to put before the Tribunal, or adduce, evidence that is central or critical to the asserted fact. | Notice requirements under section 105-50 of Schedule 1 to the TAA | The Full Federal Court's decision is consistent with the Commissioner's view in PS LA 2009/3 that a notice of assessment is a valid notice for the purposes of the four year limitation on recovery in section 105-50 of Schedule 1 to the TAA. | There is no need to amend PS LA 2009/3 as a result of the Court's decision.

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 75-5 s 38-325 Taxation Administration Act 1953 s 14ZZK s 105-50
Case references: Cyonara Snowfox Pty Ltd v Federal Commissioner of Taxation [2010] AATA 137 2010 ATC 10-125 78 ATR 632 Cyonara Snowfox Pty Ltd v Federal Commissioner of Taxation [2011] AATA 124 2011 ATC 10-176 80 ATR 225 Jones v Dunkel [1959] HCA 8 (1959) 101 CLR 298 [1959] ALR 367 32 ALJR 395
Subject references: Goods and services tax GST payable GST free GST supply of going concern Margin scheme Four year time limit