• The impact of this case on ATO policy is discussed in Decision Impact Statement: The Private Tutor and Commissioner of Taxation (2012/0114).

CASE 3/2013

Members:
SE Frost DP

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2013] AATA 136

Decision date: 14 March 2013

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SE Frost (Deputy President)

INTRODUCTION

1. The taxpayer in this case has been registered for GST purposes since at least 2007.

2. In the first half of 2011 the Commissioner decided to undertake a review of the taxpayer's activities. This appears to have been prompted by the taxpayer's Business Activity Statement (BAS) history, which showed that, for every quarterly tax period over a period of four years, he had lodged BASs in which he claimed input tax credits (ITCs) that exceeded the amounts of GST that he declared as owing to the Commissioner.

3. The Commissioner formed the view that the taxpayer was not carrying on an "enterprise"; that he had not done so at any time during the four year review period; that he was not entitled to the ITCs that he had claimed; and that his GST registration should be cancelled.

4. The Commissioner made assessments of the taxpayer's "net amount" for each quarterly tax period from 1 April 2007 to 31 March 2011 (the relevant period). He also, apparently, cancelled the taxpayer's GST registration, although the documents before the Tribunal do not include any document recording such a decision.

5. The taxpayer lodged an objection, which the Commissioner (correctly, in my view) treated as challenging both the disallowance of the ITCs and the cancellation of the GST registration. The objection was disallowed. The taxpayer has asked the Tribunal to review the objection decision.

6. I have concluded that the taxpayer was carrying on an enterprise during the relevant period, and so it is necessary to set aside the objection decision relating to the Commissioner's cancellation of the taxpayer's GST registration.

7. However, I am not satisfied that the taxpayer is entitled to any of the ITCs he has claimed, and so the objection decision relating to the assessment of the taxpayer's net amounts must be affirmed.

THE RELEVANT LEGISLATION

8. An "enterprise" for GST purposes is defined in s 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), relevantly, as follows:

9-20 Enterprises

• (1) An enterprise is an activity, or series of activities, done:
  • (a) in the form of a *business; or
  • (b) in the form of an adventure or concern in the nature of trade; or

    …

• (2) However, enterprise does not include an activity, or series of activities, done:
  • (a) by a person as an employee …; or
  • (b) as a private recreational pursuit or hobby; or
  • (c) by an individual … without a reasonable expectation of profit or gain;

    …

9. ITCs are available for any entity making a "creditable acquisition". Section 11-5 explains that concept:

11-5 What is a creditable acquisition?

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

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  ATC 558

• (d) you are *registered, or *required to be registered.

10. Paragraph (a) of that provision is the critical one for this case. The expression referred to there, "creditable purpose", is defined in s 11-15, relevantly as follows:

11-15 Meaning of creditable purpose

• (1) You acquire a thing for a creditable purpose to the extent that you acquire it in *carrying on your *enterprise.
• (2) However, you do not acquire the thing for a creditable purpose to the extent that:
  • (a) …
  • (b) the acquisition is of a private or domestic nature.

THE NOTICE OF ASSESSMENT, AND THE CONCEPT OF "NET AMOUNT"

11. The "Notice of Assessments of Net Amount" issued by the Commissioner to the taxpayer on 27 June 2011^[1] Exhibit R1, T12-91 included the following table:

Column A	Column B	Column C	Column D
Tax period	Original net amount	Assessed net amount	Difference (Col C - Col B)
01/04/07-30/06/07	311.00 refund	79.00 payable	390.00
01/07/07-30/09/07	39.00 refund	67.00 payable	106.00
01/10/07-31/12/07	79.00 refund	15.00 payable	94.00
01/01/08-31/03/08	369.00 refund	27.00 payable	396.00
01/04/08-30/06/08	517.00 refund	27.00 payable	544.00
01/07/08-30/09/08	263.00 refund	50.00 payable	313.00
01/10/08-31/12/08	115.00 refund	77.00 payable	192.00
01/01/09-31/03/09	235.00 refund	147.00 payable	382.00
01/04/09-30/06/09	210.00 refund	84.00 payable	294.00
01/07/09-30/09/09	1,314.00 refund	154.00 payable	1,468.00
01/10/09-31/12/09	431.00 refund	84.00 payable	515.00
01/01/10-31/03/10	663.00 refund	125.00 payable	788.00
01/04/10-30/06/10	353.00 refund	304.00 payable	657.00
01/07/10-30/09/10	48.00 refund	379.00 payable	427.00
01/10/10-31/12/10	308.00 refund	381.00 payable	689.00
01/01/11-31/03/11	120.00 refund	230.00 payable	350.00
Totals	5,375.00 refund	2,230.00 payable	7,605.00
The total amount applied to your running balance account is:	$7,605.00

12. It is surprising that the Commissioner has assessed the taxpayer to a positive net amount for each tax period, given that the Commissioner's central proposition is that the taxpayer was not at any stage carrying on an enterprise. If the Commissioner is right with that central proposition, then surely the taxpayer could not have a positive net amount. This is because:

• • The expression "net amount" is defined in s 17-5 as the difference between the GST payable on taxable supplies, and the ITCs available in respect of creditable acquisitions;
• • The "net amount" will be a positive amount only if the GST payable exceeds the ITCs that are available;
• • One of the requirements of a "taxable supply" is that the supply is made "in the

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  ATC 559

  course or furtherance of an enterprise that you carry on": s 9-5(b);
• • If an entity does not carry on an enterprise, then it cannot make taxable supplies. Its GST liability must be zero;
• • Similarly, if it does not carry on an enterprise, it cannot make creditable acquisitions. Its ITC entitlement must also be zero;
• • Therefore, its net amount must be zero.

13. Counsel for the Commissioner explained that the reason for making the assessments for a positive net amount in each tax period was to give effect to the Commissioner's discretion to withhold refunds from the taxpayer under s 105-65 in Schedule 1 to the Taxation Administration Act 1953 (TAA). (Section 105-65, as it existed at the time of the Commissioner's assessment - prior to the amendments made by the Indirect Tax Laws Amendment (Assessment) Act 2012 - is reproduced in the Schedule to these reasons.)

14. The Commissioner's approach and his explanation are unsatisfactory.

15. As mentioned above, s 17-5 of the GST Act defines the "net amount" for a tax period as the difference between the GST payable on taxable supplies and the ITCs available in respect of creditable acquisitions. But s 17-15 also has something to say about "net amount". That section provides as follows:

17-15 Working out net amounts using approved forms

• (1) You may choose to work out your *net amount for a tax period in the way specified in an *approved form if you use the form to notify the Commissioner of that net amount. The amount so worked out is treated as your net amount for the tax period.

  Note: Choosing to use section 17-5 to work out your net amount does not mean your GST return is not in the approved form: see subsection 31-15(3).

• (2) This section has effect despite section 17-5.

16. Section 17-15 speaks directly to taxpayers. It does not speak to the Commissioner. It tells taxpayers that they may choose to work out their net amount in the way specified in an approved form, and if they make that choice, then the amount that they work out in that way is their net amount, no matter what the net amount might have been if it had been worked out under s 17-5.

17. The taxpayer evidently chose, as virtually all taxpayers do, to work out his net amount in the way specified in an approved form - namely, the quarterly BASs that he lodged. To take his BAS for the April to June 2007 quarter as an example, the amount that he "worked out" by using the way specified in the BAS was minus $311. Because of s 17-15, that amount became his net amount. (It does not seem to matter that the "way" of working out the net amount as specified in the BAS and the "way" of working out the net amount as specified in s 17-5 are exactly identical, and it also does not seem to matter that the figures that the taxpayer used in that "working out" exercise may have been wrong: see
Commissioner of Taxation v Multiflex Pty Ltd [2011] FCAFC 142 at [25].)

18. Now, as the Full Court pointed out in Multiflex at [26], that amount of minus $311 can be "superseded" as the net amount if, for example, the Commissioner makes an assessment of the taxpayer's net amount under the power that is available to him in s 105-5 in Schedule 1 to the TAA. That is what the Commissioner did here. But in arriving at the taxpayer's net amount (under s 17-5, since s 17-15 has no relevance to the calculation of net amount by the Commissioner), the Commissioner used, as one of the integers in the calculation, the "GST payable" figure that the taxpayer reported in his BAS. The only apparent reason for doing so was that it was one of the integers that the taxpayer used when he worked out his net amount in the way that s 17-15 says he can. The Commissioner clearly did not think that was the correct amount of "GST payable", because by the time of making the assessment, he had formed the view that the taxpayer was not carrying on an enterprise. The Commissioner was therefore bound to conclude, based on that view of the facts, that s 9-5(b) was not satisfied, and so the taxpayer could not have an amount of "GST payable". The Commissioner should have applied the reasoning set out in [12] above, and assessed a net amount of zero.

19.

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ATC 560

Instead, and for the presumed purpose of creating an opportunity to claw back the $79 declared by the taxpayer on what the taxpayer thought were taxable supplies, the Commissioner assessed the taxpayer for that amount, namely $79. In doing so, he committed at least two errors. First, he assessed a net amount which, on his view of the facts, cannot possibly satisfy the requirements of s 17-5 of the GST Act. And secondly, he sought to invoke s 105-65 (a provision dealing with restrictions on refunds to a taxpayer) as authority for recovering an amount from a taxpayer. Section 105-65 is neither designed nor drafted to play that role.

20. If I had agreed with the Commissioner's assertion that the taxpayer was not carrying on an enterprise, I would nevertheless have set aside the objection decision and allowed the objection in part, so as to reduce the net amount for each tax period to zero.

21. That is not to say that the Commissioner is unable, in an appropriate case, to recover the amount declared by a taxpayer as GST payable by him in the mistaken belief that he made a taxable supply. It simply means that it should not be done by making an assessment which, assuming that the Commissioner's view of the facts is correct, contains obvious (and, arguably, deliberate) errors.

THE TAXPAYER'S ACTIVITIES

22. There are several activities which, according to the taxpayer, constitute his enterprise. In a document dated 9 January 2012^[2] Exhibit R1, T1-4 to T1-9 , which accompanied his application to the Tribunal for review of the objection decision, he provided the following brief "overview" under the heading "Business Information":

My business consists of several areas. One area is that of tuition in mathematics, chemistry, science, biology, computing and English. At the moment I have approximately 10 hours of tuition per week, however, this can reach up to as much as 25 hours a week in peak season.

Another area of my business consists of computer troubleshooting, repair and construction side. This also includes things like website design and online marketing. At the moment I have two clients for websites which amount to a total of $2000 income for the business.

The tutoring activities

23. The taxpayer's tutoring activities fall into two broad categories. The first category involves arrangements between the taxpayer and a range of coaching colleges, where the work to be undertaken by the taxpayer results from the college's introduction of the taxpayer to a student. The second category is private tutoring, where the arrangement is directly between the taxpayer and the student, perhaps as a result of a word-of-mouth referral, or a response to the taxpayer's own marketing or advertising.

24. The first category of tutoring arrangement was inadequately explained. The documents provided to the Tribunal^[3] Exhibit R1, T15-104 to 109 show that the taxpayer was appointed as a tutor with two colleges (which I will refer to as College A and College B), but the relationship between him and each college remains vague. In respect of a third college (College C), there is a statement from the owner that the taxpayer "has been working as a casual contractor for 1-2 hours per week since March 2011".^[4] Exhibit R2, Volume 2, Tab 9, page 3

25. In respect of each of Colleges A and B there is a document noting that tutors are not employees of the college^[5] Exhibit R1, T15-104 and T15-108 respectively - but merely saying so does not make it so. College B asserts in its Coaching Enrolment Form (which is to be signed by the student being tutored) that the college "is not liable for any claims made against [the college] for actions of your tutor".^[6] Exhibit R1, T15-108 The Enrolment Form also instructs the student to pay the tutor (not the college) at the end of each lesson tutored.

26. A representative of College A provided the following information to the Tribunal in response to a summons to produce documents (emphasis in the original)^[7] Exhibit R2, Volume 2, Tab 3 :

Background

• • [The college] was a franchised business.
• • The business was one of procuring a tutor for parents (clients) for academic home tuition for their children.
• • Once a tutor accepts a student, the tutor contacts the client and makes his/her own arrangements about lesson

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  ATC 561

  times & days, where the norm was one hour per week for a school Term.
• • Each tutor keeps the parents' contact details and liaises directly with parents.
• • Our businesses do not keep a record of the number of lessons or hours that any tutor teaches.
• • Parents paid the tutor lesson by lesson. Tutors were not paid through our business.
• • Parents paid [the college] directly for a 'booking fee' each Term, separate from anything paid to a tutor.
• • Tutors were not employees of [the college] and they were not paid anything by [the college].
• • …
• • I (for [the college]) ran the territory in which [the taxpayer] lived, only between around January and September 2010 .
• • I offered [the taxpayer] a few students during the period January to September 2010 (see further).
• • [The taxpayer] himself will have to provide you with any details of any other students he had prior to 2010.
• • …

27. The representative also noted^[8] Exhibit R2, Volume 2, Tab 3 that:

• • no invoices were issued to the taxpayer by the college;
• • no invoices were issued by the taxpayer to the college;
• • the college did not pay "finders fees" to tutors;
• • no "finders fees" were paid by the taxpayer to the college.

28. The concept of "finders fees" was not explained. It is an expression that was used in the summons which was prepared by the Commissioner for issue by the Tribunal. The expression probably originated from the taxpayer's document dated 9 January 2012, referred to in [22] above. In that document the taxpayer had explained his arrangement with College A in the following way:

My business with [College A] is conducted in the following manner:

• 1) The client is found by [the college] and their details are forwarded onto me to arrange a time and place for tutoring
• 2) The client is tutored by me and as agreed with [the college] I pay them the first lessons amount of money as a finder's fee
• 3) The student is tutored by me the rest of the term and I am always paid directly by the student

From the above information I employ [College A] to find students for me and thus I am not an employee of [the college] as they are a finding/advertising service I employ for my business.

29. As far as College B is concerned, an undated explanatory letter sent to the taxpayer by the college^[9] Exhibit R1, T15-109 refers to a "tutor's agreement", said to have been enclosed with the letter but unfortunately not provided to the Tribunal. This agreement is said to set out the "terms and conditions of the professional relationship" between the college and the taxpayer. It seems that neither the taxpayer nor the Commissioner considered the document to be of sufficient significance to ensure that it was put before the Tribunal.

30. The taxpayer's explanation of the arrangement with College C was as follows^[10] Exhibit R1, T1-5 :

My business with [College C] is conducted as such:

• 1) I am made aware of an available client by [the college]
• 2) I attended the premises of [the college] at the required times to tutor the students
• 3) I collect my money from [the college] for my services

In this instance I can see how I could be interpreted as being an employee of [College C] however, [the college] is invoiced under my ABN and they also have no formal contract with me. While this is a borderline employee case my other tutoring facets are quite different.

31. The taxpayer explained the arrangement he had with what appears to have been a fourth college (which I will refer to as College D) in the following way^[11] Exhibit R1, T1-5 :

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ATC 562

My business with [College D] is conducted in the following manner:

• 1) The client is found by [the college] and their details are passed on to me in order to contact the client directly and organize their lessons
• 2) The client is then tutored by me and I am paid directly by them
• 3) I then pay [the college] a small amount as a finder's fee for each successfully organized client
• 4) [The college] is at no time the receiver of the monetary funds from the client

From the above information I employ [College D] as a finding service to supplement my business with their advertising services and thus am not an employee of [the college] as they are hired by me.

32. The Commissioner characterised the taxpayer's arrangements with the colleges in the following way:^[12] Reasons for the objection decision, Exhibit R1, T2-24

In your situation you have agreements with tutoring colleges/schools to supply them with your personal services. The agreements you have entered into state that you will provide these services to another entity. The other entity being the student with whom the tutoring colleges/schools have entered into an agreement to supply tutoring services.

In your situation it is not considered that you meet the requirements of carrying on an enterprise in the form of the business. You are in the situation where you provide services being more in the nature of an employee of the coaching colleges/schools. You provide a service of tutoring and you invoice the body (the coaching college/school), that provides you with the student to tutor. Therefore you are not carrying on an enterprise for the purposes of the GST Act and you do not have an entitlement to GST registration.

33. As far as the second-last sentence of that extract is concerned, there is evidence that the taxpayer issued invoices to College C,^[13] Exhibit R2, Volume 2, Tab 9 but not to any of the others. Indeed, the response from the representative of College A^[14] Exhibit R2, Volume 2, Tab 3; see also [26] of these reasons indicated that there were no invoices at all flowing between the college and the taxpayer, in either direction. In any event, and irrespective of the proper characterisation of the arrangements between the taxpayer and the various colleges, the taxpayer agreed with a number of propositions put to him by counsel for the Commissioner, and, in particular, that:

• • tutoring is seasonal, the peak service period being between March and September;
• • in the taxpayer's circumstances (where, for most of the relevant period, he was in full-time employment) he could only devote a few hours per day to his tutoring activities;
• • it was accurate to describe his tutoring activities as a "side line".

The computer-based activities

34. The evidence about the computer-based activities is scant. In his letter dated 9 January 2012^[15] Exhibit R1, T1-6 to T1-7 the taxpayer explained the activities as follows:

The computing side of my business is conducted in the following manner:

• 1) I advertise my computing services through the Internet, existing clients, via business cards and advertising agencies
• 2) I receive a call for a computing job
• 3) I organise a time and place to have a meeting and discuss the clients needs
• 4) If the computing job is for a repair I will go to the clients premises where the computer is located and attempt a repair
• 5) In the event that a repair is not possible I will take the computer from the client and return to my premises to carry out the repair work
• 6) If the job is a website I will sit with the client and plan out the website layout and details
• 7) I will then return to my premises to code the website and meet with the client a week or two later to discuss further design points or do so by email or telephone
• 8) If the job is to build the client computer I will discuss the clients needs with them
• 9) I will then go and find the ideal components for the job and quote them for their computer

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  ATC 563

• 10) Once they give the go ahead I will purchase the components and construct the computer
• 11) When the computer is finished I will attend the clients premises to set up and install any necessary software
• 12) I am then paid directly by the client

With all of the above computing work I am paid directly and I always perform the work myself. At the moment I have just landed two clients which are worth a total of $2000. These types of clients are usually the most lucrative in the short term however they are not frequent (typically it can be several months in between clients) and thus I need to rely on the tutoring side of the business to not only keep me afloat but to provide the capital means to expand both businesses to a point where they will both be extremely profitable.

Other activities

35. Apart from the tuition activities and the computer-based activities described above, there was one instance of an additional activity undertaken by the taxpayer during the relevant period. That was the importation and sale of a batch of mobile phones. The activity was accurately described in the Commissioner's written submissions as a "one-off"^[16] Respondent’s Submissions (RS) [25] . The taxpayer's records indicate that the phones were all sold in the 2007/08 income year,^[17] Exhibit R2, Volume 3, p. 25 but they were not brought to account for GST purposes, either on importation or on disposal. They were all second-hand or refurbished; some of them were damaged. When asked why no GST had been paid on importation, the taxpayer explained that it was because the phones were second-hand. When asked why no GST had been paid on their sale, he explained that it was because "I couldn't get a refund of import GST". He explained that his father, an accountant, had advised him that this was the correct way to deal with the phones.

FINANCIAL SUMMARY

36. The Commissioner's summary of the taxpayer's income for the income years 2006/07 to 2010/11 inclusive (not corresponding exactly with the relevant period) shows the following^[18] Exhibit R3, page 1 :

2006-07	Total Receipt	GST Amount	GST-exclusive Amount [19] In each table this column was labelled “Net Amount” by the Commissioner but “GST-exclusive Amount” is a more accurate label
Students	3378.00	306.90	3071.10
Miscellaneous	0.00	0.00	0.00
Computer based	0.00	0.00	0.00
Phone	0.00	0.00	0.00
Total	3378.00	306.90	3071.10

2007-08	Total Receipt	GST Amount	GST-exclusive Amount
Students	1521.00	138.12	1382.88
Miscellaneous	0.00	0.00	0.00
Computer based	0.00	0.00	0.00
Phone	24280.00	0.00	24280.00
Total	25801.00	138.12	25662.88

2008-09	Total Receipt	GST Amount	GST-exclusive Amount
Students	2505.00	227.59	2277.41
Miscellaneous	0.00	0.00	0.00
ATC 564 Computer based	1450.00	131.82	1318.18
Phone	0.00	0.00	0.00
Total	3955.00	359.41	3595.59

2009-10	Total Receipt	GST Amount	GST-exclusive Amount
Students	7160.00	651.00	6509.00
Miscellaneous	0.00	0.00	0.00
Computer based	195.00	17.73	177.27
Phone	0.00	0.00	0.00
Total	7355.00	668.73	6686.27

2010-11	Total Receipt	GST Amount	GST-exclusive Amount
Students	10330.00	939.04	9390.96
Miscellaneous	580.00	52.72	527.28
Computer based	0.00	0.00	0.00
Phone	0.00	0.00	0.00
Total	10910.00	991.76	9918.24

2006-2011

2006-2011

Total	Total Receipt	GST Amount	GST-exclusive Amount
Students	24894.00	2262.65	22631.35
Miscellaneous	580.00	52.72	527.28
Computer based	1645.00	149.55	1495.45
Phone	24280.00	0.00	24280.00
Total	51399.00	2464.92	48934.08

THE ENTERPRISE QUESTION

37. Both parties approached this dispute on an all-or-nothing basis, the Commissioner arguing that the taxpayer did not carry on an enterprise, and the taxpayer arguing that he did. It is not surprising that the main focus was on the tutoring activities, but that focus has led to the other activities being almost ignored.

38. In those circumstances it is appropriate that I confine my formal findings to the question whether the tutoring activities, and only those activities, constitute an enterprise.

39. The first question is whether the tutoring activities were done "in the form of a business": s 9-20(1)(a) of the GST Act. If the answer to that question is yes, then the second question is whether the activities are nevertheless excluded from the concept of "enterprise" as having been done "without a reasonable expectation of profit or gain": s 9-20(2)(c). (The case was not argued on the basis that either of the disqualifiers in paragraphs (a) and (b) of s 9-20(2) might apply.)

40. The Commissioner's written submissions note that his own public ruling, MT 2006/1, lists a series of factors which have been recognised in the income tax area as being indicators of whether a particular activity is a "business", namely^[20] Paragraph 17 :

• • a significant commercial activity;

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  ATC 565

• • a purpose and intention of the taxpayer to engage in commercial activity;
• • an intention to make a profit from the activity;
• • the activity is or will be profitable;
• • the recurrent or regular nature of the activity;
• • the activity is carried on in a similar manner to that of other businesses in the same or similar trade;
• • activity is systematic, organised and carried on in a businesslike manner and records are kept;
• • the activities are of a reasonable size and scale;
• • a business plan exists;
• • commercial sales of product; and
• • the entity has relevant knowledge or skill.

41. The ruling goes on to say at paragraph 179:

There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 [dealing with the carrying on of a business of primary production] states that 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'. …

42. The Commissioner's submissions also refer to the following statement in Professor Ross Parsons' book Income Taxation in Australia (Law Book Company, 1985), at paragraph [2.438]:

A continuing business involves a number of transactions which are repetitive and systematic and are overall moved by a purpose to profit.

43. The Commissioner has two main concerns. The first is the scale of the taxpayer's activities. The second is that the taxpayer's claimed business expenses are far in excess of his earnings.

44. As to the first concern, the Commissioner focuses on:

• • the fact that the taxpayer's claimed business activities comprised a relatively small proportion of his total earnings - 9.2% for the 2007 income year; 6.7% for the 2008 income year; 16% for the 2009 income year; and 34% for the 2010 income year;^[21] RS [24]; although noting that the income years do not correspond exactly with the relevant period
• • the taxpayer's admitted status as a "one man show";^[22] RS [26]
• • the taxpayer's admittedly restricted hours of operation of the tutoring activities: he "can realistically only provide this service for a maximum of 2 hours of paid time, five days a week for the 40-42 weeks of school term";^[23] RS [28] and
• • the taxpayer's consequent need to rely on salary and wages to supplement his income: "essentially, it is impossible to earn sufficient income from this activity to make it viable".^[24] RS [30]

45. As to the second concern, the Commissioner notes the significant amount by which the ITCs claimed exceed the GST payable, as declared by the taxpayer. That excess is reflected in the assessment of net amount, set out in the table in [11] of these reasons, and it translates to an excess of "enterprise"-related purchases over sales, amounting to almost $60,000.^[25] Exhibit R3, page 10; the sales of the mobile phones are not included in these figures

46. There are two problems with the Commissioner's position.

47. The first is that he has placed too much weight on the fact that the tutoring activities have been undertaken on a small scale. In
Thomas v FCT (1972) 3 ATR 165, Walsh J said at 171:

There is no doubt that the appellant's chief occupation was the practising of his profession and that the tree farming, if it had a business character, was relatively of minor importance both as to the time devoted to it and as to the returns to be expected from it. But a man may carry on a business although he does so in a small way. …

48. The small scale of the taxpayer's tutoring activities is outweighed, in my view, by other relevant factors of the kind referred to in [40] of these reasons. Specifically:

• • the tutoring activities were recurrent, regular, systematic and organised, and engaged in for a commercial purpose;
• • the activities are of a reasonable scale, given the constraints within which those kinds of activities must be undertaken;
• • the taxpayer had his name put on the books of the various coaching colleges, and

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  ATC 566

  I find that he did so for the purpose of broadening his reach into the available market, and so increasing his income;
• • the taxpayer kept records of his activities, and while he no doubt attempted to attribute far more expenditure to his tutoring activities than was justified (as will be discussed further below), I find that his recording of income (or in GST language, the value of his supplies) during the relevant period was reliable; and
• • objectively viewed, he undertook the activities with a view to making a profit from them.

49. That last point highlights the second problem with the Commissioner's position. In my view, the Commissioner was distracted by the financial results as reported by the taxpayer in his BASs. Those results indicate that the activities were not profitable, and that they were unlikely ever to be so. But the figures that the taxpayer reported are not a true reflection of the debits and credits that the activities were generating, and it is only by reference to the true debits and credits that the existence of a possible profit outcome should be assessed.

50. In reality, very little of the expenditure that the taxpayer has charged to the tutoring activities is attributable to them. And when one examines the income against the truly attributable expenditure, a profit is the only possible outcome - not a sizable profit, but a profit nevertheless.

51. It follows that, not only were the taxpayer's tutoring activities done "in the form of a business", and so satisfying s 9-20(1)(a) of the GST Act, but also they are not excluded by s 9-20(2)(c) as having been done by an individual "without a reasonable expectation of profit or gain". Accordingly, the tutoring activities constitute an enterprise.

52. As a result the objection decision relating to the cancellation of the taxpayer's GST registration will be set aside.

THE INPUT TAX CREDIT QUESTION

53. The taxpayer's approach to claiming ITCs has been undisciplined and largely unprincipled.

54. He has claimed ITCs in respect of acquisitions that are not subject to GST, including mortgage and loan payments, which are input taxed, and private health insurance, which is GST-free. ITCs are not available in those circumstances because s 11-5(b) of the GST Act is not satisfied.

55. He has claimed ITCs on acquisitions which appear to be entirely private or domestic in nature, including food, beverages, confectionery, magazines, clothing, cosmetics, cinema visits and gifts. ITCs are not available because of s 11-15(2)(b) of the GST Act.

56. He has claimed full ITCs on acquisitions which must be at least partly private or domestic in nature, and must therefore be only partly creditable: s 11-30 of the GST Act. Most notable among these are his mobile phone expenses (totalling between $1,100 and $2,800 per year) and internet expenses.

57. In addition to that, he has claimed ITCs in respect of acquisitions which he concedes are partly creditable because they are partly private or domestic, but he has claimed credits at unjustifiable levels. These include car-related expenses such as repairs and maintenance, petrol, insurance and driver's licence renewal, and gas and electricity charges in his home. As an indication of how unjustifiable his claims are, the Commissioner points out^[26] RS [71] that:

• • the taxpayer consistently claimed ITCs at a rate of 70% on his petrol purchases, despite the fact that his tutoring income varied from a low of 6% of his total earnings, in 2008, to a high of 34% in 2010;
• • he claimed ITCs on his car expenses (other than petrol) at a rate of 52% for 2007, 22% for 2008, 45% for 2009 and 90% for 2010.

Summary

58. I do not accept that any of the categories of acquisitions set out in [55] are creditable to any extent.

59. I do not accept that the acquisitions set out in [56] are fully creditable. In the absence of any reliable evidence as to the extent to which they are (partly) creditable, I agree with the Commissioner's decision to disallow them.

60. In relation to the acquisitions set out in [57], the taxpayer has provided no reliable evidence as to the extent, if any, to which they are creditable. Once again, I agree with the Commissioner's decision to disallow the ITCs.

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ATC 567

DECISION

61. The objection decision in relation to the cancellation of the taxpayer's GST registration is set aside. Instead I decide that the taxpayer's GST registration is not cancelled.

62. The taxpayer has failed to show that the Commissioner's assessment of net amount is excessive. Accordingly the objection decision in relation to the assessment is affirmed.

SCHEDULE

(Section 105-65 in Schedule 1 to the TAA prior to its amendment by the Indirect Tax Laws Amendment (Assessment) Act 2012)

105-65 Restriction on GST refunds

• (1) The Commissioner need not give you a refund of an amount to which this section applies, or apply (under Division 3 or 3A of Part IIB) an amount to which this section applies, if:
  • (a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply, or an *arrangement was treated as giving rise to a taxable supply, to any extent; and
  • (b) the supply is not a taxable supply, or the arrangement does not give rise to a taxable supply, to that extent (for example, because it is *GST-free); and
  • (c) one of the following applies:
    • (i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient;
    • (ii) the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is *registered or *required to be registered.

  Note: Divisions 3 and 3A of Part IIB deal with payments, credits and RBA surpluses.

• (2) This section applies to the following amounts:
  • (a) in the case of a *supply:
    • (i) so much of any *net amount or amount of *GST as you have overpaid (as mentioned in paragraph (1)(a)); or
    • (ii) so much of any net amount that is payable to you under section 35-5 of the *GST Act as the Commissioner has not refunded to you (as mentioned in paragraph (1)(a)), either by paying it to you or by applying it under Division 3 of Part IIB of this Act;
  • (b) in the case of an *arrangement:
    • (i) so much of any net amount or amount of GST to which subparagraph (a)(i) would apply if the arrangement were a supply; or
    • (ii) so much of any net amount to which subparagraph (a)(ii) would apply if the arrangement were a supply.

  Note: Division 3 of Part IIB deals with payments, credits and RBA surpluses.