STERLING GUARDIAN PTY LIMITED v FC of T
Judges:Stone J
Court:
Federal Court
MEDIA NEUTRAL CITATION:
[2005] FCA 1166
Stone J
Introduction
1. I have before me six applications each of which involves the same parties and each of which is an appeal against an appealable objection decision made by a delegate of the respondent (``Delegate'') and notified to the applicant by letter dated 15 May 2003. The Delegate disallowed, in full, the applicant's objection to an assessment issued to the applicant under s 22(1) of the Taxation Administration Act 1953 (Cth) in respect of six tax periods, each of one month, the first of which was for the period 1 April 2002 to 30 April 2002. The assessment was of ``net amount'' as that term is used in the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (``GST Act'') payable in respect of each tax period. Identical issues are raised by all six applications.
2. The issue in these proceedings concerns the application of the margin scheme in Division 75 of the GST Act in relation to the sale of stratum units that were developed on land in Camperdown, Sydney (the ``Camperdown land'') purchased prior to the introduction of the GST. Affidavit evidence of the primary facts was given by Mr Patrick Yu, a director of the applicant, and Mr Michael Bugden who, at the relevant time, was the project director for the Sterling Group of companies of which the applicant is a member. Mr Bugden supervised the tender bid for the acquisition of the Camperdown land and the development of the stratum units. Those facts were not in dispute and, for the purpose of these proceedings, the parties have provided a statement of agreed facts from which I have drawn the following account of the factual background to the present dispute.
Factual background
3. The Forest Lodge No. 4 Unit Trust (``the Trust'') is an entity for the purposes of the GST Act. At all relevant times it has carried on an enterprise and has been registered for the purposes of the GST Act since 1 September 2001. With effect from 1 January 2002 the respondent has approved the inclusion of the Trust as a member of the GST group (``the GST Group'') of which the applicant is the representative member. For the purposes of the GST Act the tax period of each member of the GST Group has been and remains one month.
4. In March 2000 the Trust completed the purchase of the Camperdown land and subsequently constructed a development known as ``Etage'' consisting of a number of residential dwellings (``the Home Units''). In March 2002, Strata Plan SP 67386 (``the Strata Plan'') in respect of the Home Units was registered under the Strata Schemes (Freehold Development) Act 1973 (NSW) (``Strata Schemes Act''). The Home Units comprise the stratum units in the Strata Plan. The agreed statement of facts states that in constructing the Home Units the Trust incurred expenditure of not less than $33,928,325.70 which is calculated as follows:
Land cost $4,000,000.00
Stamp duty $216,104.70
Construction costs $23,097,982.00
Civil works $3,704,930.00
Authority fees $57,677.00
Design consultants $1,318,070.00
Project management $1,533,562.00
$33,928,325.70
5. In respect of part of that expenditure, the Trust received tax invoices for amounts of not less than $26.4 million inclusive of GST and the applicant, as representative member of the GST Group, claimed input tax credits of not less than $2.4 million. During each month from 1 April to 30 September 2002 the Trust made taxable supplies of the stratum units for a total, after the usual settlement adjustments, of $32,709,049.18. The agreed statement of facts shows the monthly break-up of that amount as follows:
April $26,963,099.85
May $3,219,337.89
June $933,405.93
July $215,428.16
August $594,967.73
September $782,809.62
Total $32,709,049.18
6. In calculating the GST on the supply of the stratum units the Trust chose to apply the margin scheme pursuant to s 75-5 of the GST Act. To understand the margin scheme it is necessary to consider some fundamental provisions of the GST Act.
The GST Act - Relevant provisions
7. Pursuant to s 9-40 of the GST Act, liability for GST is imposed on an entity that makes a ``taxable supply''. An entity includes a trust; s 184-1(1).
8. The expression, ``taxable supply'' is defined in s 9-5 as follows:
``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.''
9. ``Supply'' is widely defined and includes ``a grant, assignment or surrender of real property'': s 9-10(2)(d). The following definitions of terms used in s 9-5 are found in s 195-1:
``consideration , for a supply or acquisition, means any consideration, within the meaning given by section 9-15, in connection with the supply or acquisition.
...
real property includes:
- (a) any interest in or right over land; or
- (b) a personal right to call for or be granted any interest in or right over land; or
- (c) a licence to occupy land or any other contractual right exercisable over or in relation to land.''
Section 9-15(1) of the GST Act states that ``consideration'' includes:
``(a) any payment, or any act or forbearance, in connection with a supply of anything; and
(b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.''
10. Where a taxable supply is made to an entity, that entity is entitled to an input tax credit if the supply results in the entity making a ``creditable acquisition''; ss 7-1, 11-20. A creditable acquisition is any acquisition for consideration in the course of the entity's business where the entity is registered or required to be registered for GST purposes; ss 11-5, 11-10, 11-15 and 11-20. There is an exception to this entitlement where ``the acquisition relates to making supplies that would be input taxed''; s 11-15(2)(a). The amount of the input tax credit is an amount equal to the GST payable by the supplier on the supply of that which is acquired; s 11-25.
11. Generally, the amount of GST payable on a taxable supply is 10% of the value of that supply; s 9-70. Section 9-75 provides that the value of the supply is 10/11ths of the price which, for present purposes, is the amount of money paid for the supply without any discount for the amount of GST payable, if any. In other words, the GST payable is 1/11th of the (GST inclusive) consideration for the supply. However, the margin scheme provided in Division 75 of the GST Act permits a taxpayer to use an alternative method of calculating GST, which is 1/11th of the margin or profit derived by the taxpayer, that is the maker of the taxable supply.
The margin scheme
12. The relevant provisions of Division 75 are as follows:
``75-5 Choosing to apply the margin scheme
(1) If you make a taxable supply of real property by:
- (a) selling a freehold interest in land; or
- (b) selling a stratum unit; or
- (c) granting or selling a long-term lease;
you may choose to apply the margin scheme in working out the amount of GST on the supply.
ATC 4799
(2) However, you cannot choose to apply the margin scheme if you acquired the freehold interest, stratum unit or long-term lease through a taxable supply on which the GST was worked out without applying the margin scheme.
75-10 The amount of GST on taxable supplies
(1) If taxable supply of real property is under the margin scheme, the amount of GST on the supply is 1/11 of the margin for the supply.
(2) The margin for the supply is the amount by which the consideration for the supply exceeds the consideration of your acquisition of the interest, unit or lease in question.
...
75-15 Subdivided land
For the purposes of section 75-10, if the freehold interest, stratum unit or long-term lease you supply relates only to part of land or premises that you acquired, the consideration for your acquisition of that part is the corresponding proportion of the consideration for the land or premises that you acquired.
75-20 Supplies under a margin scheme do not give rise to creditable acquisitions
(1) An acquisition of a freehold interest in land, a stratum unit or a long-term lease is not a creditable acquisition if the supply of the interest, unit or lease was a taxable supply under the margin scheme.
(2) This section has effect despite section 11-5 (which is about what is a creditable acquisition).''
13. In the Dictionary contained in s 195-1 of the GST Act, the expression, ``stratum unit'' is said to have the meaning given by subsection 124-190(3) of the Income Tax Assessment Act 1997 (Cth) (``ITAA 1997''). Section 124-190 of the ITAA 1997 defines a ``stratum unit'' as:
``a lot or unit (however described in an Australian law or a foreign law relating to strata title or similar title) and any accompanying common property.''
14. The margin scheme must be understood in the broader context of the GST Act of which it is a part. The underlying policy of the legislation is explained in the Explanatory Memorandum (``EM'') to the Bill that, without relevant amendment, became the GST Act:
``Broadly speaking, the GST is a tax on private consumption in Australia. The GST taxes the consumption of most goods, services and anything else in Australia, including things that are imported....
This is generally achieved by:
- • imposing tax on supplies made by entities registered for GST; but
- • allowing those entities to offset the GST they are liable to pay on supplies they make against input tax credits for the GST that was included in the price they paid for their business inputs.''
15. The offset of the GST an entity is liable to pay against input tax credits means that although suppliers are responsible for remitting the GST they do not bear its burden. The input tax credit reimburses the supplier for the GST paid on acquisition or importation and the GST remitted is included in the price of what they supply. Consumers, that is purchasers who make an acquisition for consideration other than in the course of a business where they are registered (or required to be registered) for GST purposes, do not get input tax credits so they bear the burden of the GST. The imposition of the GST at each step in the supply chain reflects its character of a value-added tax. The provision for reimbursement at each stage prior to acquisition by the consumer ensures that the ultimate consumer bears the tax, which amounts to 10% of the value-added price.
16. The margin scheme is designed to correct what would otherwise be an anomaly in the legislative scheme arising where GST is attracted on the supply of land but no input tax credit is available. This occurs, most usually, where the supplier acquired the land before the commencement of the GST or the vendor was not subject to GST, as for instance, where the vendor occupied the land as a residence. In this case the purchase of the Camperdown land was completed before the commencement of the GST (see [4] above) and, as no GST was included in the purchase price paid by the Trust, no input tax credit arose.
17. It is consistent with the purpose of the margin scheme that it is not available where the land was acquired pursuant to a supply that was taxable and thus gave rise to input tax credits
ATC 4800
unless that supply was also one to which the margin scheme applied; see s 75-20 set out at [ 12] above. Where the margin scheme is available it allows a taxpayer to pay tax on the ``value added'' by that taxpayer's business, that is on the sale price less the cost of the land sold. The EM gives the following explanation of the margin scheme:``6.98 The margin scheme applies to supplies of real property and premises that are held at 1 July 2000 and subsequent supplies of real property. Under the margin scheme, you calculate GST on the supply as 1/11 of your margin on the sale of real property and premises.
Subsection 75-10(1).
6.99 Generally, your margin is your tax inclusive sale price less your original purchase price. Subsection 75-10(2) . However, if you held the real property and premises at 1 July 2000, your margin is the sale price less the value of the real property and premises at 1 July 2000 if:
- • you are holding real property and premises when the GST commences (1 July 2000);
- • you obtain a valuation of the real property and premises at 1 July 2000; and
- • it is the first supply of the real property and premises.
Subsection 75-10(3)
6.100 This will ensure that GST is only payable on the value added after the commencement of the GST system....
6.101 If your original purchase price is less than your sale price, or if the value of the real property and premises held on 1 July 2000 has decreased, there is no GST payable because there is no positive margin - subsections 75-10(2) and (3) .
6.102 You should not include the cost of any improvements made since 1 July 2000 to the real property and premises when calculating the original purchase price. You will have already received an input tax credit for GST paid on the improvements. If the value of the improvements was added to the original price or the value of the real property or premises at 1 July 2000, the amount of GST payable would be reduced by an amount equal to the input tax credit available on the improvements. In other words, you would receive a double benefit.
6.103 If you acquired real property that was purchased as a taxable supply on which GST was calculated on the full value of the supply, it cannot be resold under the margin scheme - subsection 75-5(2) .
6.104 However, if you purchase real property GST-free you will be able to resell it under the margin scheme. If the real property you acquired GST-free was to be excluded from the margin scheme, the effect would be that tax would be payable on the value added to the land before 1 July 2000.
6.105 If you purchase real property and premises where GST on the supply to you was calculated on the margin, you cannot claim input tax credits on the supply - section 75-20 .''
Application of the margin scheme
18. The taxable supplies made by the applicant consisted of sale of the fee simple in the stratum units in Etage. The stratum units, being individual lots and associated common property, are part of a strata scheme within the meaning of the Strata Schemes Act. The Strata Schemes Act, which governs the creation and incidents of the lots and common property, relevantly provides:
- (a) the lots and common property are created by subdivision of land by registration of a plan as a strata plan; ss 7(2), 41(2);
- (b) in this context ``land'' means land held in fee simple under the Real Property Act 1900 (NSW) (``Real Property Act''); s 7(1);
- (c) registration occurs when the Registrar- General makes an appropriate recording in the Register; s 41(2);
- (d) each lot in the strata plan consists of one or more cubic spaces the base of whose vertical boundaries is delineated on the floor plan and the common property is that part of a strata parcel that is not comprised in any lot; s 5(1);
- (e) separate folios of the Register are issued for lots and common property; ss 6(2), 18(2);
- (f) the common property is not capable of being dealt with except in accordance with the Strata Schemes Act; s 21;
ATC 4801
- (g) in general the Real Property Act applies to the lots and common property in the same way as it applies to other land; s 6(2).
19. As indicated above, the issues in this application are, under Division 75 of the GST Act:
- (a) whether the margin scheme can be applied to the supplies of stratum units in Etage made by the Trust; and if so
- (b) whether for the purpose of calculating the margin pursuant to s 75-10(2) of the GST Act the consideration for the Trust's acquisition of each stratum unit includes all the costs of bringing the stratum units into existence.
The costs of bringing the stratum units into existence are those listed in [4] above.
20. The applicant's position is that, during the relevant period, the Trust made taxable supplies of real property by selling the stratum units which involved taxable supplies of ``real property'' as that term is defined in the GST Act; see [9] above. In accordance with its entitlement under s 75-5, it chose to apply the margin scheme in working out the GST payable on those supplies. The applicant submits that the exclusion in s 75-5(2) does not apply because the stratum units were not acquired ``through a taxable supply''. In support of this proposition the applicant makes the following points. First, the only ``real property'' (as defined in the GST Act) that went into the creation of the stratum units was the Camperdown land, which was acquired before the commencement of the GST Act and therefore was not acquired pursuant to a taxable supply; the construction materials used were not real property and therefore it is irrelevant if they were acquired through taxable supplies. As Senior Counsel for the applicant submitted at the hearing of these applications, the property acquired through a taxable supply, namely the materials, was quite different from the property sold by the taxpayer under the taxable supply to which it sought to apply the margin scheme. Second, because the stratum units did not exist until they were created by registration of the Strata Plan, there was not the identity that s 75-5(2) requires between the interest acquired by the taxpayer and the interest supplied by it. According to the applicant's written submissions:
``The sub-section only operates where the taxpayer acquired ` the freehold interest, stratum unit or long-term lease' through a taxable supply. The word `the' indicates the need for a precise identity between the interest sold under the taxable supply and the interest acquired before the application of the margin scheme is precluded.''
The applicant concedes that the construction materials that became fixtures by attachment to the land became real property but, presumably, only after acquisition and, in any event, on registration of the Strata Plan they became entirely different property.
21. Applying the margin scheme, the applicant submits that it is liable to GST only on the difference between the amount of the consideration it received on sale of the stratum units (``sale receipts'') and the amount of the consideration it gave to acquire the stratum units being the cost of the Camperdown land and the non-land costs (``acquisition costs''); s 75-10(2). The respondent notes, however, that on the applicant's calculation the non-land element of the acquisition costs includes ``the consideration for supplies to it which were taxable, and on which the GST was worked out without applying the margin scheme, so giving rise to input tax credits''.
22. The respondent submits that this creates the following logical dilemma for the applicant:
``(a) if the margin on which GST is payable is required to be calculated by including the non-land costs in `the consideration for your acquisition' of the units, then, because the acquisition of the units occurred `through a taxable supply on which the GST was worked out without applying the margin scheme,' being the non-land supplies for which $26.4 million of non-land costs was incurred and on which $2.6 million of GST was payable, sec 75-5(2) precludes a choice to apply the margin scheme; but
(b) if the margin on which GST is payable is to be calculated without including the non- land costs in `the consideration for your acquisition' of the units, the margin is the amount assessed by the Respondent.''
According to the respondent there is no third possibility and either way the applications must be dismissed. However, the applicant's submission quoted in [20] above (the ``identity submission'') involves a third possibility and
ATC 4802
therefore it is necessary to consider this submission in more detail.23. The identity submission focuses on the nature of the property sold (the stratum units) and the distinction between that property and any property that was acquired through taxable supplies. As indicated above, the applicant submits that, since the Camperdown land was acquired prior to the introduction of the GST, the only items of property acquired through taxable supplies were the materials used to construct the home units. It submits that those items of property, even when they became real property by the doctrine of fixtures, are fundamentally different from the stratum units, which were not acquired through a taxable supply but were created by registration of the Strata Plan. Consequently, the applicant concludes, the taxable supply by which the stratum units were sold was one to which the margin scheme could be applied.
24. To support the identity submission the applicant relied on a number of stamp duty cases including
Growing Wealth Pty Ltd & Ors v Commr of Stamp Duties (Qld) 2000 ATC 4679; [2001] 2 Qd R 603 (``Growing Wealth'');
Commr of State Revenue (Vic) v Pattison 2001 ATC 4232; [2001] 3 VR 520 (``Pattison''); and
Sportscorp Australia Pty Ltd & Ors v Chief Commr of State Revenue (NSW) 2004 ATC 5044; (2004) 213 ALR 795 (``Sportscorp''). The applicant submits that these cases establish ``that there is a lack of identity between on the one hand, land acquired for development, and, on the other, the stratum units arising on the registration of a strata plan in respect of that land following its development''. An examination of several of these cases may assist in understanding the applicant's submission.
25. In Growing Wealth the Queensland Court of Appeal considered s 53(9) of the Stamp Act 1894 (Qld) that exempted a transfer of land from ad valorem stamp duty that would otherwise be payable where the transferor had purchased the land as agent for the transferee. The transferor had bought land as agent for appellant taxpayers who held interests as tenants in common in proportion to the amount they contributed. The contract between the agent and the appellants required the agent to construct residential apartments on the land, subdivide it under a community title scheme and then transfer to each appellant a lot or lots as identified in the contract. The Court held the exemption did not apply because it required the property transferred to be the same as the property purchased by the agent. The Court held at ATC 4682 [11] that the property transferred has been created by ``acts done pursuant to the Body Corporate and Community Management Act [1997 (Qld)], property not in existence when [the agent] acquired the land''. The Court added at ATC 4682 [13] that the property that was transferred was ``a bundle of statutory rights created by the [Body Corporate and Community Management Act] upon registration of a community titles scheme.'' Interestingly, in light of the implications I have referred to in [22] above, the Court also observed at ATC 4682 [12]:
``The difficulties which this raises for the application of s 53(9) to the transfer in this case are obvious and, in our opinion, insuperable. Even if the subdivision which had created the property transferred by the transfer had been a traditional subdivision of land it would, in our opinion, have been difficult to bring the transfer within the terms of the section. The property purchased as agent for the transferees would not have been that which was transferred to them. What would have been transferred would have been the whole interest in part of the land which the transferor had acquired as agent for the transferee and others in common.''
26. A similar issue arose in Pattison which involved the transfer of title to certain land by a company nominated by the purchaser under the contract of sale, its subdivision under the Subdivision Act 1988 (Vic) into two lots and the transfer by the company of the title to one of those lots to the original purchaser. Hansen J addressed the issue at ATC 4234 [12]:
``Do the lots resulting from subdivision collectively constitute the same real property as the property from which they were subdivided and for which the purchase price was paid? The simple answer is no. Subdivision of real property in Victoria is achieved pursuant to the Subdivision Act 1988 and the Transfer of Land Act 1958 by, registration of a plan of subdivision. Upon registration of the plan, land contained in the lots denoted upon it comes into existence, the parent title is cancelled, and in that sense the land in that former title ceases to exist. By this process, although the overall legal
ATC 4803
and beneficial ownership may remain unchanged, what was one piece of real property becomes two or more different pieces of real property that may be dealt with by reference to the new plan and lot number. They are not somehow carved out of the former title; rather a new scheme of titles is created which may involve rights and burdens which were not previously present or necessary: for example, common property may be created in addition to individual lots; there may be easements; a body corporate may be formed.''[Footnotes omitted]
27. In Sportscorp the issue was the application of s 55(1)(b) of the Duties Act 1997 (NSW). The section provided that duty of only $10 should be charged on a transfer of dutiable property from ``an apparent purchaser to the real purchaser'' where the real purchaser had provided the money for the purchase of the property. Relevantly, the facts were that certain land had been acquired by one of four partners, Q, as apparent purchaser for the other three partners. The land had been developed using funds supplied by the three partners and a strata plan registered. Q then transferred the lots to the three partners as tenants in common in equal shares and the transfer had been assessed as liable to ad valorem duty. In rejecting the partners challenge to this assessment, Gzell J held, at ATC 5052 [53], that s 55(1)(b) had no application because the section ``required an identity between the dutiable property transferred from the apparent purchaser with the dutiable property vested in the apparent purchaser and that identity was lacking in the instant circumstances''. In forming that view his Honour had rejected, at ATC 5050 [36], ``an analysis based upon the substitution of new rights for old rights'' as inapplicable to the Duties Act. At ATC 5052 [51] his Honour expressed his view thus:
``... I accept the partners' submission that the question is not one of change in title but whether the underlying transaction effects the required result. In cases where common property is created upon registration of a strata plan, there can be no transfer of rights that in aggregate are equivalent to the congeries of rights acquired on purchase of the original properties.''
28. While the approaches adopted in each of these cases differ somewhat, each is an entirely conventional analysis of the proprietary rights involved and, on a theoretical level, lend some attraction to the identity submission.
29. Although it is common to speak of the ``stratum units'' or ``home units'' being sold, technically it is the fee simple estate in the relevant stratum unit, being the lot(s) and common property, that is the subject matter of the sale. The fee simple is a proprietary interest in land and, as with all interests (as opposed to the subject of those interests), it is intangible. The point is made in the following extract from an essay by K Gray and SF Gray, ``The Idea of Property in Law'' in Land Law: Themes and Perspectives, Bright and Dewar eds, 1998 at p 15:
``[T]he beginning of truth about property is the realization that property is not a thing but rather a relationship which one has with a thing. It is infinitely more accurate, therefore, to say that one has property in a thing than to declare that the thing is one's property. To claim property in a resource is, in effect, to assert a strategically important degree of control over that resource; and to conflate or confuse this relationship of control with the actual thing controlled may often prove to be an analytical error of some substance.''
30. The attraction of the identity submission diminishes somewhat when its implications are considered. If that approach is correct, s 75-5(2) does not apply in this case because the taxable supplies acquired for the purpose of building the home units were of property that is not identical to the stratum units that were sold. It follows that the margin scheme could apply to any such development, even if the land subject to the development was acquired pursuant to a taxable supply. In other words, on the applicant's approach, a developer could buy the land, the construction materials and everything else required for the building of home units pursuant to a taxable supply and still pay GST only on the margin which, in general terms, is the difference between the costs and the sale price. It would be irrelevant whether the land was acquired before or after the commencement of the GST Act. That would not be the case, however, for a developer who bought individual lots for development as individual residences rather than for strata development.
31. The following examples illustrate the point:
ATC 4804
- (a) In 2003 A buys the fee simple estate in land held under the Real Property Act. A's vendor pays/is liable for GST, which is calculated without reference to the margin scheme and A gets commensurate input tax credits. A builds a block of home units and registers a strata plan in respect of that land under the Strata Schemes Act. The total cost of the development to A (including land, construction and registration) is $10m. Following registration of the strata plan, A sells the stratum units, fully developed, for a total amount of $11m.
- (b) In 2003 B buys the fee simple estate in land held under the Real Property Act. B's vendor pays/is liable for GST, which is calculated without reference to the margin scheme and B gets commensurate input tax credits. B builds a small office block on the land. The total cost of the development to B (including land and construction of the office block) is $10m. B sells the office block for a total amount of $11m.
32. On the applicant's analysis, A, but not B, would be entitled to apply the margin scheme in calculating the GST liability on sale. The exclusion in s 75-5(2) would not apply because the stratum units are not identical to the property that A acquired when he bought the land subject to the development. This would be so even though the GST paid by A's vendor was worked out without applying the margin scheme. The result would be that the amount of GST for which A would be liable would be 1/11th of the margin for the supply whereas B would be liable for 1/11th of $11m. The difference in GST liability would be substantial; the exact amount would depend on the answer to the second question raised in this case, namely the manner in which the margin is to be calculated.
33. Irrespective of the answer to this second question, it is necessary to consider whether the applicant's contended construction of s 75-5 is consistent with the legislature's purpose in enacting the margin scheme and with the context of the section in the GST Act. In considering context the observation of the Full Court in
Chaudhri v FC of T 2001 ATC 4214 at 4216 [6]; (2001) 109 FCR 416 at [6] is apposite:
``... `context' has the wide meaning which extends to the legislative history, the Parliamentary intention and the mischief to which a particular provision has been directed as well as the narrower meaning which would dictate reading the words to be construed by reference to the immediately surrounding or otherwise related provisions.''
In support of this view, the Full Court quoted the following comments of Brennan CJ, Dawson, Toohey and Gummow JJ in
CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 9 ANZ Insurance Cases ¶61-348 at 76,853; (1995-1997) 187 CLR 384 at 408:
``... if the apparently plain words of a provision are read in the light of the mischief which the statute was designed to overcome and of the objects of the legislation, they may wear a very different appearance. Further, inconvenience or improbability of result may assist the court in preferring to the literal meaning an alternative construction which... is reasonably open and more closely conforms to the legislative intent.''
See also,
Network Ten Pty Ltd v TCN Channel Nine Pty Ltd (2004) 205 ALR 1 and s 15AA of the Acts Interpretation Act 1901 (Cth).
34. It is now generally accepted that this approach is equally applicable to tax legislation as to other statutes;
Cooper Brookes (Wollongong) Pty Ltd v FC of T 81 ATC 4292 at 4307; (1980-1981) 147 CLR 297 at CLR 323 per Mason and Wilson JJ. See also the authorities cited in DC Pearce and RS Geddes, Statutory Interpretation in Australia, 5th ed, 2001 at [9.30].
35. The terminology concerning property is notoriously ambiguous. As Gray and Gray (see [ 29] above) point out, on a strict legal analysis it is more accurate to say that one has property in a thing rather than that the thing is one's property. However, the latter is a common way of speaking about property especially where it is intended to refer to the subject matter of the right rather than the juridical concept. It is a matter of interpretation of the individual statute whether terms such as ``property'' or ``real property'' are being used to refer to the juridical concept or to the tangible asset (the commercial commodity) that is the subject of the property right.
36. In
Sun World International Inc v Registrar, Plant Breeder's Rights (1998) 158 ALR 98 the issue was whether a reference in s
ATC 4805
14 of the Plant Variety Rights Act 1987 (Cth) to ``a sale of a plant, or reproductive material of a plant'' was confined to the technical sense that the word, ``sale'' bears at common law subject only to express exceptions in the legislation. Burchett J commented, at 99, that in relying on the technical meaning, the appellant had the advantage that:``... prima facie, where a statute uses a word which is a term of legal art, it uses that word in its technical sense.''
His Honour found, however, that in the context of the particular legislation this was not the case. Carr J, with whom Burchett and Mansfield JJ agreed, elaborated on the point at 105:
``... in my view, it all comes back to whether parliament intended the word `sell' in the Act to be construed as being confined to a transfer of the general absolute property in the plant or reproductive material for a consideration limited to money.
... Accepting that in Australian law the primary meaning of the word `sell' is the conveyance of some article for money, the question is whether parliament intended to use the word `sell' in the Act in some sense other than that primary meaning, that is, in some secondary sense. The point is not an easy one to resolve. However, in my opinion, when parliament provided in s 3 of the Act that `sell' in relation to a plant or reproductive material of a plant, includes let on hire or exchange by way of barter, it intended the word `sell' to be interpreted in a very wide sense and not just in its primary sense.... In my opinion there are sufficient contextual indications that the words `sale' and `sell' were used in the Act, not in their strict technical sense, but in their ordinary English meaning....''
37. The GST Act's definition of ``real property'' (see [9] above) does not indicate an intention to confine its application to real property as it would be understood in the context of property law or even to the category of proprietary interests in land. It includes personal rights in relation to land (including a licence to occupy land) as well as any contractual right ``exercisable over or in relation to land''. This approach may be compared with the use of the term ``land'' in the Strata Schemes Act, which by s 7(1) is confined to land held in fee simple under the Real Property Act. It is not unexpected that a statute such as the Strata Schemes Act that deals primarily with the subdivision of land and the title to the subdivided parts should adopt a technical legal definition.
38. The respondent submitted that the GST Act is not concerned with whether property in land is a matter of physical fact or abstract right but rather with supplies as business transactions ``made in the course or furtherance of an enterprise that you carry on''; s 9-5. According to the respondent, the GST Act proceeds ``on the basis that a supply of real property is a supply of tangible asset'' not the disposal of an intangible interest or bundle of rights. Putting the matter another way, one can say that the applicant acquired the Camperdown land (technically the fee simple estate in the land) prior to the GST Act commencing and disposed of it after subdivision by registration of the Strata Plan and construction of the home units. The disposition was piecemeal as each stratum unit was sold but ultimately the whole of the land (or the entire interest) that was acquired was sold. The reference in s 75-15 (see [12] above) to the stratum unit supplied being a supply of ``part of the land'' acquired supports this practical analysis rather than a technical legal analysis. Had the latter approach been intended one might expect the section to refer to the part as being less than the whole of the interest in the land rather than to the land itself. This practical approach is consistent with the approach taken by Mason J in
Moruben Gardens Pty Limited v FC of T 72 ATC 4147 at 4156-4157; (1972) 46 ALJR 559 at 562.
39. The respondent's approach is also supported by the role of the margin scheme and the context in which it operates as described above at [14]-[17]. The explanation given in the EM and quoted at [17] makes it abundantly clear not only that GST is only payable on value added after the GST Act commenced on 1 July 2000 but also that the cost of improvements to the property made since that date could not be taken into account when calculating the original purchase price. The EM ignores the fact that improvements may not only have added to the value of the real property but become, in law, part of the real property. It is not the juridical nature of the improvements that is critical but the fact that they have been brought about pursuant to a
ATC 4806
taxable supply. The clear thrust of the GST Act, both in its wording and as explained in the EM, is that of a practical business tax imposed with respect to elements of commerce. As Senior Counsel for the respondent pointed out, although in economic terms the burden of the GST is borne by the ultimate consumer, in terms of ``imposition, collection and administration'' it is a tax on business. It is for the taxpayer to prepare business activity statements and pay the appropriate GST and in this context abstract propositions about interests in land and the acquisition of a brand new set of rights arising from registration of a strata plan are irrelevant. As the examples set out in [31] show the applicant's submissions are not consistent with this purpose.40. For these reasons I do not accept the applicant's identity submission. In my view, it therefore follows that unless the margin on which the GST is payable is to be calculated without reference to the non-land costs the application of the margin scheme would be precluded by s 75-5(2) of the GST Act.
Calculation of the margin
41. Under the margin scheme the GST payable is 1/11th of the margin, which, for present purposes, is the amount by which the consideration for the supply of the land exceeds the consideration for the acquisition of the land; s 75-10(2). The applicant submits that the definition of ``consideration'' in s 9-15(1) includes all the costs that the Trust incurred in bringing the stratum units into existence, including the non-land costs.
42. It is not in dispute that the amount that the Trust paid to acquire the Camperdown land should be deducted from the consideration received for the supply of the land. Where, as here, the taxable supply of land is piecemeal, s 75-15 apportions the cost of the land in proportion to that which is supplied. On the sale of a stratum unit, the land supplied is ``part of'' the land acquired and therefore s 75-15 applies. For reasons explained in [39] above the combination of s 75-15 and paragraph 6.102 of the EM precludes the inclusion of the non-land costs in the calculation of the margin. The applicant's submission that s 75-15 is not relevant to a strata sub-division ``because the stratum units are new items of property and are not part of the land originally acquired'' does not survive the rejection of the identity submission above.
43. As an alternative to its submission that s 75-15 does not apply in the present circumstances, the applicant made the following submissions:
``Alternatively, if s 75-15 does apply, it should be applied on the basis that:
- (a) the home units which were constructed by the [Trust] comprise the `premises' which were acquired by the [ Trust];
- (b) that each stratum unit relates only to part of such premises;
- (c) that, accordingly, the consideration for the acquisition by the [Trust] of each stratum unit is a proportion of the consideration for the home units comprising both the original purchase price of the land and the other costs referred to in para 4(f) above.
In the further alternative, if s 75-15 does apply, it merely determines one component of the consideration for the acquisition and does not restrict that consideration to a proportion of the consideration for the underlying land. In this regard, it is significant that s 75-15 uses the words `that part', rather than `the interest, unit or lease in question' which appear in s 75-10(2).''
44. Neither of these alternative submissions satisfactorily addresses the dilemma posed by the respondent; see [22] above. Neither adequately takes account of the purpose of the margin scheme, as described above at [16]-[17]. As the respondent submitted, on the applicant's interpretation of the margin scheme the taxpayer would be ``double dipping'' in that it would have the benefit of the input tax credits as well as the reduction in the margin. It supported this submission with some calculations annexed to its written submissions. Those calculations, which are self-explanatory, are reproduced as an annexure to these reasons [ which appear at the end of this judgment]. They illustrate vividly the dramatic difference between the competing analyses. In my view the double benefit that a taxpayer would obtain on the applicant's interpretation is not warranted by the words of the statute and is inconsistent with the purpose of the margin scheme as I understand it.
45. The applicant is liable to GST on the difference between the cost of the land and the amount received on sale of the stratum units.
ATC 4807
The tax credits it obtains in relation to the taxable supplies made to it ensure that it pays a net amount of GST calculated with respect to the value added by its construction of the home units. If, in addition to those tax credits, the applicant were entitled to deduct the cost of those taxable supplies in calculating the margin then the effect of the margin scheme would not merely be to prevent an anomalous burden but to confer an additional benefit in respect of those acquisitions. This result is inconsistent with the purpose of the GST Act as evident in the statutory provisions and as explained in the EM. To my mind the position is clear: in calculating the margin for a supply a taxpayer cannot take into account the cost of a taxable supply ``on which the GST was worked out without applying the margin scheme'', namely a taxable supply that yielded input tax credits for the taxpayer. To hold otherwise would subvert the purpose for which the margin scheme was included in the GST Act.46. The application in each of these proceedings must be dismissed with costs.
Sterling Guardian Pty Limited v Commissioner of Taxation
[2005] FCA 1166
Annexure
Annexure to Respondent's submissions
The intended operation of the GST Act on the acquisition and
supply of the stratum lots if a choice to apply the margin
scheme is made is, on the Respondent's submission and adopting
the figures in the agreed statement of facts, as follows:
Sale proceeds 39,361,704
Land costs (4,000,000)
Margin 35,361,704
GST on margin 3,214,700
Taxable supplies to trust 26,400,000
Input tax credits (2,400,000)
-----------
Net GST payable 814,700
The effect of this is that the trust is liable to GST on the
value added to the land by the exertions of the trust and its
employees:
Sale proceeds 39,361,704
Land costs (4,000,000)
Input tax creditable costs (26,400,000)
------------
Profit plus non-credit costs 8,961,704
GST thereon (1/11) 814,700
The Applicant's contention has the result that although it
makes a profit from its dealing in (ie value is added to) the
units, it claims a refund: it ``double dips'' a reduction
in the margin and its input tax credit claim:
Sale proceeds 39,361,704
Land costs (4,000,000)
Non-land costs (excl GST) (29,928,325)
------------
Margin 5,433,379
GST on margin 493,944
Taxable supplies to trust 26,400,000
Input tax credits (2,400,000)
-----------
GST refund claimed (1,906,056)
Moreover, if the Applicant's contention were correct, the margin
would be based on what was actually the consideration for the
non-land supplies, not the notional ex-GST cost:
Sale proceeds 39,361,704
Land costs (4,000,000)
Non-land costs (incl GST) (32,328,325)
Margin 3,033,379
GST on margin 275,762
Taxable supplies to trust 26,400,000
Input tax credits (2,400,000)
-----------
GST refund claimed (2,124,238)
THE COURT ORDERS THAT:
In each of the proceedings, NSD 823, 824, 825, 826, 827 and 828 of 2003, the application be dismissed with costs.
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