In this case the Federal Court affirmed a decision from the Tribunal, which reaffirmed conventional wisdom1 that real estate agents do not incur or charge GST for transactions they undertake on behalf of a property owner, such as the collection of rent and payment of property related expenses. Crown Estates are better described as 'property managers', but the logic followed is for all practical purposes the same.
The Tribunal Found:
"I am satisfied the document [the Client/Vendor Agreement] describes a relationship between TPM and each of its property-owning clients in which TPM acts as an agent in the classic sense of that term. The essence of agency is there for all to see: TPM is clearly in a position to “create or affect legal rights and duties as between another person, who is called [the] principal, and third parties”." 2
"I would add that if the taxpayers were liable to pay for goods and services that were found to have been supplied to TPM but which TPM subsequently on-supplied to a property-owning client, any input tax credits that could be claimed by the taxpayers would be offset by the amount of GST they were liable to pay when they were reimbursed by the clients." 3
The decision in the Federal Court was not as straight-forward. Decisions of the Tribunal can only be appealed based on valid questions of law. The taxpayer's notice of appeal identified the following 'questions of law' in regard GST assessments:
- "(1) Whether the Tribunal erred in properly construing and applying s 11.5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) in concluding that the Applicants did not make creditable acquisitions in the course of their dealings with suppliers of goods and services to properties owned by the clients of the Applicants.
- (2) Whether the Tribunal erred in construing and applying the law of agency in determining that the Applicants acted as agents in the course of all their dealings with suppliers of goods and services to properties owned by the clients of the Applicants." 4
"[I]t simply begs the question of law to commence it with the words ‘Whether the Tribunal erred in law’. If the question, properly analysed, is not a question of law no amount of formulary like ‘erred in law’ or ‘was open as a matter of law’ can make it into a question of law." 5
Followed by His Honor's take on present case:
"A specification in a notice of appeal which does nothing more than solicit a broad and hypothetical enquiry as to the construction and operation of statutory provisions is not a specification of a question of law: Screen Australia v EME Productions No 1 Pty Ltd [2012] FCAFC 19; (2012) 200 FCR 282 at 289, [24] per Keane CJ, Finn and Gilmour JJ (Screen Australia v EME Productions).
In my view, each of the so-called questions of law in the amended notice of appeal exhibits the same vice as identified, in respect of Question 2A of the notice of appeal considered, in Lambroglou by Ryan J." 6
For purposes of practicality Logan J then construed the taxpayer's submission as if it did raise valid questions of law to proceed with this case. The Court upheld the Tribunal's decision, finding no error in its decision.
The GST Decision
"That a relationship of principal and agent existed as between TPM and its clients was, given the findings of fact which the Tribunal made, the correct conclusion in law. That, in these circumstances, it was TPM which made the creditable acquisition was the inevitable, consequential conclusion and the one made by the Tribunal." 7
"The Tribunal was entitled to reach this factual conclusion. In itself, the invoice addressed to TPM was neutral as to whether, in fact, there had been an acquisition made by TPM on behalf of a client or by TPM in its own right. It was up to TPM to place evidence before the Tribunal to persuade the Tribunal that the latter was the factual position. This, TPM did not do." 8
On the Subject of GST Penalty Remission
"Section 284-15 of Sch 1 to the TAA defines when a matter is “reasonably arguable”. That definition appears in Subdivision 284-A, which contains a number of general provisions relating to Div 284. It is not though expressly there stated to be a consideration applicable generally for the purposes of that Division. Rather, whether a position is reasonably arguable is expressly made a relevant consideration in relation to the assessment of some but not all amounts under Div 284. It is, for example, expressed to be a relevant consideration in relation to the determination of “shortfall amounts” for the purposes of s 284-80 but its application there is confined to income tax law or the petroleum resource rent tax law cases (see s 284-80, Items 3 and 4), which do not include GST cases. The same restriction of relevance is evident in the table for the assessment of base penalty amount in s 284-90 of Sch 1 to the TAA (see Item 4)." 9
Conclusion
Important points that arise from this case include:
(a) As a general rule, agents (be it property or another kind) are not entitled to GST input tax credits.
(b) A competent appeal to the Federal Court from a decision of the Tribunal must include valid questions of law. Vague hypothetical inquiries are not satisfactory.
(c) Section 284-15 of Schedule 1 to the Taxation Administration Act outlines remission available for taxpayers served with income tax or petroleum tax penalties. The GST penalty regime is not concerned with those provisions.
Notes
ATO Guidance: http://law.ato.gov.au/atolaw/view.htm?docid=GST/GSTR200037/NAT/ATO/00001
1. (p20)
Tribunal's Findings: http://www.austlii.edu.au/au/cases/cth/AATA/2015/949.html
2. (p21)
3. (p24)
Federal Court Findings (by Logan J): http://www.austlii.edu.au/au/cases/cth/FCA/2016/335.html
4. (p4)
5. (p11)
6. (p12 & 13)
7. (p43)
8. (p44)
9. (p50)
Thanks for sharing!
ReplyDeleteThis seems like an interesting case
Tax Professional