In this case the Administrative Appeals Tribunal rejected the Commissioner of Taxation's argument that the longevity of an investment (such as in antiques) should be considered when determining whether or not an enterprise is being carried on for purposes of GST.
Swansea was the company used by a notable project home builder to build and manage his substantive art collection. Swansea claimed GST credits on $4 million worth of art purchased in the mid-2000s and were yet to make any significant sales of the artwork, instead he claimed he was planning to sell the collection at some point in the future to a willing buyer at a profit. True to form, the Commissioner objected to the claiming of GST credits by Swansea claiming that there was no enterprise being carried on and that the activities were that of a hobby, in any case. He also disallowed the claiming of any tax losses. The three key findings of the tribunal were:
1. Swansea were entitled to claim GST credits because they were carrying on an enterprise (see the judge's reasoning below).
2. Swansea were entitled to claim tax losses, because they were carrying on a business.
3. The activities went beyond that of a personal hobby, so the GST registration exemption for personal hobbies did not apply.
Quotes from the judgement:
"The Tribunal is of the view for the reasons which follow, that in its ordinary meaning, an enterprise consists of an activity or activities comprised of one or more transactions entered into for business or commercial purposes." (p 106)
"It appears to the Tribunal that the word “done” in s 9-20(1) in place of the words “carried on” or “carrying on” is used to ensure that a single transaction will suffice to constitute the activity of an enterprise, and to exclude the requirement for there to be a carrying on of business and its notions of repetition and regularity in relation to the enterprise. Those concepts arise in relation to taxable supply." (p 112)
"A business is not a thing or things. It is a course of conduct carried on for the purpose of profit and involves notions of continuity and repetition of actions." (p 128, quoted from high court)
"...the evidence shows that the business and commercial activities of the applicant are conducted in accordance with a pre-formulated policy, coupled with a carefully devised investment strategy. The applicant retains specialist art consultants. It keeps detailed records. It uses a database of records. It has an annual budget and banking facilities. It purchases valuable property, which is insured and properly stored and housed. All its activities are characterised by system, repetition and regularity. Such activities are in the Tribunal’s opinion consistent only with the carrying on of a business and the conduct of an enterprise." (p 163)
"In determining whether what was initially a pastime or hobby has developed and become a business operation or not, the use of a system and the systematic conduct of the activity is often particularly important. " (p 164)
"The Tribunal finds that in both an income tax and GST context there is no doubt that the activities of Swansea constitute the activities of a business." (p 147)
"The Tribunal rejects the respondent’s assertion that the taxpayer’s operations amount to a hobby. The Tribunal finds that the facts do not support any such conclusion." (p 161)
"Overall, the Tribunal finds that the activities of the applicant are consistent with the conduct of a business. The expenditure incurred in relation to the acquisition of paintings and artworks would in the Tribunal’s view be deductible under s 8-1 of the ITAA 1997, and would not be excluded by s 26-50. In fact the taxpayer has accounted for the artwork and paintings as plant and equipment, and has not claimed a deduction for the purchase of such items. The taxpayer has accounted for such items as plant and equipment because the taxpayer did not expect to sell those items within 12 months of purchase. In the Tribunal’s opinion that does not defeat the taxpayer’s purpose of embarking on the acquisition and eventual sale of artwork and antiques at a profit which is a business for both income tax or GST purposes." (p 184)
The case is here [2008] AATA 461: http://www.austlii.edu.au/au/cases/cth/AATA/2008/461.html
This judgment makes sense when considering what approach the Commissioner might take on a business that has just declared $4 million of artwork sales on their tax return, without registering for GST!
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