Private ruling: GST and tax invoice
Published: March 2014

Ruling: Q1: Will the Commissioner exercise his discretion to treat the sale contract and the settlement statement as a tax invoice? Decision No, the Commissioner will not exercise his discretion to treat the sale contract and the settlement statement as a tax invoice.

Relevant facts and circumstances: • On Date A, you entered into a contract with J Citizen Pty Ltd, to purchase the property M for a GST inclusive price of $X. • The property was settled on Date B and you received a valid tax invoice from the vendor for the supply of property M. • On Date A, you entered into another contract with J Citizen, to purchase property N for a purchase price of $Y. The contract states that the price is GST inclusive, if applicable. • This property was also settled on Date B. The settlement statement states the GST exclusive purchase price and the GST component separately. • Before the settlement of the property N, J Citizen passed away and the ownership of the property passed to their deceased estate. • As per our records, you are registered for goods and services tax (GST). The executor for the deceased estate of J Citizen is not registered for GST. • You claim that on the settlement date, the executor of the deceased estate failed to provide you with a valid tax invoice for the supply of property N. Even though your settlement agent objected to it, the settlement of the property was completed. • As you do not hold a valid tax invoice for the acquisition of the property N, you are unable to claim the relevant input tax credit. You request the Commissioner to exercise his discretion and treat the contract of sale and the settlement statement as a tax invoice. • You purchased the properties for the purpose of commercial leasing. You own other commercial properties in the same area. • The front of each property faces a different road but on the rear end, these two properties have a common boundary. • J Citizen Pty Ltd carried on an enterprise. You claim that the company was using both properties for the purposes of the enterprise. Parts from the enterprise could be seen on both properties. • Special Condition Y of the contracts provides that the buyer and seller acknowledge and agree that the contract of sale is subject to and conditional upon the seller at their own expense clearing the property of all parts, plant, equipment and refuse and removal of all internal metal, timber and wire dividing fences.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 - section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 - section 11-5 | A New Tax System (Goods and Services Tax) Act 1999 - subsection 29-70(1B) Reasons for the decision | Subsection 29-10(3) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) requires that you hold a tax invoice before you are entitled to claim an input tax credit for a creditable acquisition. As per the facts, you do not hold a valid tax invoice from the vendor for the sale of the property N to you. | Section 11-5 of the GST Act refers to what is a creditable acquisition and provides that you make a creditable acquisition if: | (a) you acquire anything solely or partly for a creditable purpose; and | (b) the supply of the thing to you is a taxable supply; and | (c) you provide or are liable to provide consideration for the supply; and | (d) you are registered or required to be registered. | You acquired property N for commercial leasing purposes and provided consideration for the supply. You are registered for GST. Therefore, you satisfied paragraphs 11-5(a), (c) and (d) of the GST Act. However, it is necessary to ascertain whether the supply of the property to you was a taxable supply. Section 9-5 of the GST Act provides that you make a taxable supply if: | (a) you make the supply for consideration; and | (b) the supply is made in the course or furtherance of an enterprise that you carry on; and | (c) the supply is connected with Australia; and | (d) you are registered or required to be registered. | However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. | In this case, it is necessary to ascertain whether the executor of the deceased estate made a taxable supply in supplying property N to you. | Property N was owned by J Citizen in their own name. The executor of the deceased estate supplied the property to you for consideration. The supply was connected with Australia. Therefore, paragraphs 9-5(a) and (c) were satisfied. It is necessary to ascertain whether J Citizen carried on an enterprise in relation to property N and whether the executor as the representative of J Citizen, was required to be registered for GST. | As per the available facts, the enterprise was carried out by J Citizen Pty Ltd and not by J Citizen themself. | We are informed that property N also was used for carrying on the enterprise by J Citizen Pty Ltd. However, there is no evidence to indicate that this property was leased by J Citizen to their own company and the company paid a commercial rental for leasing the property. We have also not been provided any evidence that J Citizen carried out a leasing or any other enterprise using the property. The information provided does not allow us to make an informed decision as to whether J Citizen was required to be registered for GST in relation to the property. | Our records indicate that J Citizen was not registered for GST. Where they did not carry on an enterprise on their own account, they would not have been required to be registered for GST. | Although the settlement statement indicates that the GST exclusive purchase and the GST amount separately, the executor is adamant that the supply could not have been taxable. | PS LA 2004/11 | The ATO Practice Statement Law Administration PS LA 2004/11 (practice statement) refers to the Commissioner's discretion to treat a particular document as a tax invoice or an adjustment note. | We have quoted below a number of paragraphs from the practice statement, which are relevant to the issues raised in this case: | 10. Exercise of the Commissioner's discretion should be considered in situations where: | • there is a creditable acquisition | • a recipient is required to hold a tax invoice to claim an input tax credit (ITC) but the document held does not meet the requirements of a tax invoice - (see paragraph 17 for when the recipient is not required to hold a tax invoice) | • the request is within the 4 year time limits under Division 93 (which broadly imposes a four-year time limit on the claiming of ITCs); and | • it is reasonable to exercise the discretion on the basis of the relevant facts and circumstances, and the exercise of the discretion would not be inappropriate or unnecessary. | Relevant factors to consider in the exercise of the discretion | 13. Some factors that may be relevant are set out below. Officers should consider all the relevant factors when reaching a decision. This list is not exhaustive. The decision will usually involve a consideration of a number of factors together rather than just one factor alone. No one factor is determinative on whether the discretion should or should not be exercised. | • Did the recipient make a reasonable attempt to obtain a valid tax invoice from the supplier? The ATO expects the recipient to make a genuine attempt to contact the supplier and request a valid tax invoice before the recipient makes a request to the Commissioner to exercise the discretion. However, the recipient is not expected to go to extraordinary lengths or great expense. | • Does the recipient have evidence that demonstrates an entitlement to claim an ITC despite not having a valid tax invoice? This can be any type of evidence that demonstrates that a creditable acquisition was made and that the recipient was entitled to the ITC. | • ..... | Third party enquiries | 35. Officers may need to make enquiries of the supplier or other parties in order to obtain the necessary information about a transaction. There may be a reason for the supplier's behaviour (not issuing a valid tax invoice) that the recipient does not know. For example, if the supplier is not registered or required to be registered or if the margin scheme has been applied in cases, there is no obligation for the supplier to provide a tax invoice. In such cases, officers must follow their work area procedures for obtaining information from other parties (for example, the Access and Information Gathering Manual). | Parties in dispute over some aspect of the transaction | 36. If the parties to a transaction are in dispute (for example over the terms of the contract, performance or payment) officers must take care not to become involved in the dispute itself (for example by appearing to 'take sides'). However, it may be necessary to ascertain various facts in order to determine whether to exercise the Commissioner's discretion. For example, it may be necessary to determine whether a taxable supply has been made or the price of that supply. In these circumstances there will be a need to gather sufficient information or evidence to make a decision. This may include needing to interpret a term of a contract or make contact with the supplier. If legal action or arbitration between the parties has commenced, officers must discuss the issue with their manager who may need to consult with the Review and Litigation area. | Third party inquiries | As provided under the practice statement, we have made inquiries from the representatives of the executor for the deceased estate. The executor claims that property N was a capital asset belonging to the deceased estate. The sale of property N was never meant to be a taxable supply. Therefore, they believe they have no obligation to provide a tax invoice to the purchaser of the property. | In determining whether a property sale is part of an enterprise or a mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. No single factor will be determinative. Rather it will be a combination of factors that will lead to a conclusion as to the character of the sale. In this case the parties to the transaction are in dispute over the terms of the contract and the classification of the supply. It is very difficult for the Commissioner to make an informed decision where the parties to a transaction cannot decide on the terms of a contract. | If the parties can agree on the terms of the contract and inform the ATO of their decision, then the Commissioner may reconsider this decision. | To reiterate, according to the facts provided, the ATO cannot make an informed decision as to the classification of the supply. Therefore, the Commissioner cannot exercise his discretion to treat the sale contract and the settlement statement as a tax invoice.