Trustee for the Amabalad Family Trust and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2007/0460)
Judgment date: 11 September 2008
Date published: 23 December 2009
Decision outcome: Partly Adverse

Summary of decision:
Whether the applicant was liable to pay GST when its accounting method was changed from cash to accruals. Whether the applicant was entitled to various input tax credits. Whether the applicant was liable for an administrative penalty.

Overview of facts:
The applicant was subject to a GST audit for the tax periods from 1 October 2001 to 30 June 2004 and amended assessments were issued as a result of the audit. As a result of the applicant's objection, a number of issues were resolved between the parties. | The matters remaining in dispute before the Tribunal were: 1. $55,016 GST the Commissioner asserted to be payable on invoices issued prior to the applicant changing its accounting method from cash to accruals in the March 2004 tax period. 2. $60,000 input tax credits disallowed in relation to invoices relating to acquisition of intellectual property in the December 2001 tax period. 3. $84,393 input tax credit disallowed in relation to an invoice relating to assumption of a debt of a company whose business was acquired by the applicant. 4. $292 input tax credits disallowed in relation to the reimbursement of telephone bills of staff and other representatives. 5. $3650 input tax credits disallowed in relation to invoices in the names of related parties. 6. $91,855 shortfall penalty at 25% in relation to the March 2004 and June 2004 tax periods. The Commissioner submitted that the penalty assessment at the rate of 60% should be reduced to 25%. | 1. $55,016 GST the Commissioner asserted to be payable on invoices issued prior to the applicant changing its accounting method from cash to accruals in the March 2004 tax period. 2. $60,000 input tax credits disallowed in relation to invoices relating to acquisition of intellectual property in the December 2001 tax period. 3. $84,393 input tax credit disallowed in relation to an invoice relating to assumption of a debt of a company whose business was acquired by the applicant. 4. $292 input tax credits disallowed in relation to the reimbursement of telephone bills of staff and other representatives. 5. $3650 input tax credits disallowed in relation to invoices in the names of related parties. 6. $91,855 shortfall penalty at 25% in relation to the March 2004 and June 2004 tax periods. The Commissioner submitted that the penalty assessment at the rate of 60% should be reduced to 25%. | Issues decided by the court or tribunal | The Tribunal held that: 1. The applicant was not liable to pay GST of $55,016 in the March 2004 tax period on the basis that it had been previously accounted for. 2. The applicant was entitled to input tax credits of $60,000 on the invoices relating to the acquisition of intellectual property on the basis that the intellectual property was acquired for the purpose of carrying on an enterprise. 3. The applicant was not entitled to input tax credits of $84,393 as no basis for entitlement to the credit was established. 4. The applicant was not entitled to input tax credits of $292 in relation to the phone bills, as a supply was made by the telephone carrier to the individuals concerned, and there was simply a payment by the applicant to the individuals under an arrangement to reimburse the expenditure of the individuals. 5. The applicant was not entitled to input tax credits of $3650. However, nor was any supply made by the applicant, so the amount of GST also charged and accounted for by the applicant should be deducted from the amount returned as GST on sales, resulting in a reduction in the GST shortfall of that amount. 6. There was a lack of reasonable care in making the relevant claims in the March 2004 and June 2004 tax periods and it was not appropriate to remit the penalty of 25%. | 1. The applicant was not liable to pay GST of $55,016 in the March 2004 tax period on the basis that it had been previously accounted for. 2. The applicant was entitled to input tax credits of $60,000 on the invoices relating to the acquisition of intellectual property on the basis that the intellectual property was acquired for the purpose of carrying on an enterprise. 3. The applicant was not entitled to input tax credits of $84,393 as no basis for entitlement to the credit was established. 4. The applicant was not entitled to input tax credits of $292 in relation to the phone bills, as a supply was made by the telephone carrier to the individuals concerned, and there was simply a payment by the applicant to the individuals under an arrangement to reimburse the expenditure of the individuals. 5. The applicant was not entitled to input tax credits of $3650. However, nor was any supply made by the applicant, so the amount of GST also charged and accounted for by the applicant should be deducted from the amount returned as GST on sales, resulting in a reduction in the GST shortfall of that amount. 6. There was a lack of reasonable care in making the relevant claims in the March 2004 and June 2004 tax periods and it was not appropriate to remit the penalty of 25%.

Issues decided:
The Tribunal held that: 1. The applicant was not liable to pay GST of $55,016 in the March 2004 tax period on the basis that it had been previously accounted for. 2. The applicant was entitled to input tax credits of $60,000 on the invoices relating to the acquisition of intellectual property on the basis that the intellectual property was acquired for the purpose of carrying on an enterprise. 3. The applicant was not entitled to input tax credits of $84,393 as no basis for entitlement to the credit was established. 4. The applicant was not entitled to input tax credits of $292 in relation to the phone bills, as a supply was made by the telephone carrier to the individuals concerned, and there was simply a payment by the applicant to the individuals under an arrangement to reimburse the expenditure of the individuals. 5. The applicant was not entitled to input tax credits of $3650. However, nor was any supply made by the applicant, so the amount of GST also charged and accounted for by the applicant should be deducted from the amount returned as GST on sales, resulting in a reduction in the GST shortfall of that amount. 6. There was a lack of reasonable care in making the relevant claims in the March 2004 and June 2004 tax periods and it was not appropriate to remit the penalty of 25%. 1. The applicant was not liable to pay GST of $55,016 in the March 2004 tax period on the basis that it had been previously accounted for. 2. The applicant was entitled to input tax credits of $60,000 on the invoices relating to the acquisition of intellectual property on the basis that the intellectual property was acquired for the purpose of carrying on an enterprise. 3. The applicant was not entitled to input tax credits of $84,393 as no basis for entitlement to the credit was established. 4. The applicant was not entitled to input tax credits of $292 in relation to the phone bills, as a supply was made by the telephone carrier to the individuals concerned, and there was simply a payment by the applicant to the individuals under an arrangement to reimburse the expenditure of the individuals. 5. The applicant was not entitled to input tax credits of $3650. However, nor was any supply made by the applicant, so the amount of GST also charged and accounted for by the applicant should be deducted from the amount returned as GST on sales, resulting in a reduction in the GST shortfall of that amount. 6. There was a lack of reasonable care in making the relevant claims in the March 2004 and June 2004 tax periods and it was not appropriate to remit the penalty of 25%.

ATO view of decision:
The decision of the Tribunal to set aside the decision of the Commissioner in relation to some of the issues in dispute was made on the basis of the findings of fact made by the Tribunal, having regard mainly to the oral evidence presented by the applicant. Although the Commissioner argued there was not sufficient evidence to support the applicant's position in relation to these issues, it is accepted that the decision of the Tribunal was open to it on the particular facts of the case.

Administrative treatment:
There are no implications for administrative treatment. | Implications on current Public Rulings & Determinations | None

Legislative references: Taxation Administration Act 1953 (Cth) 284-90 284-220
Subject references: GST Input tax credits Administrative penalty