• The impact of this case on ATO policy is discussed in Decision Impact Statement: WYPF and Commissioner of Taxation (2020/3713-3714).

WYPF v FC of T

Members:
R Olding SM

Tribunal:
Administrative Appeals Tribunal, Melbourne

MEDIA NEUTRAL CITATION: [2021] AATA 3050

Decision date: 25 August 2021

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R Olding (Senior Member)

WHAT IS THIS CASE ABOUT?

1. The applicant company is in dispute with the Commissioner of Taxation regarding its GST liability on sales of apartments in a residential development it carried out in the Australian Capital Territory.

2. The dispute raises issues regarding whether, for margin scheme purposes, certain works constructed by the applicant are part of the consideration for the acquisition of the development land and in respect of the 'passing on' provisions in the GST law.

The consideration issues

3. The applicant is entitled to work out its GST liability on these sales under the margin scheme.^[1] A New Tax System (Goods and Services Tax) Act 1999 (Cth) (‘ GST Act’ ), Division 75. This means its GST liability on the sale of each apartment is, broadly speaking, one-eleventh of the difference between the sale price of the apartment and the relevant proportion of the consideration provided by the applicant for the acquisition of the undeveloped land.

4. The dispute about the calculation of GST concerns whether the value of certain works carried out by the applicant constitutes non-monetary consideration for its acquisition of the land. The applicant paid $14,000,000 (' Monetary Consideration ') for the land to the ACT Land Development Authority (' SLA ')^[2] For convenience, the abbreviation ‘SLA’ refers to the SLA and its delegates and predecessor as applicable from time to time. , and also carried out certain works described as ' Preparatory Works ' and other works described as ' Building Works '. Subject to an issue concerning an unpaid invoice the applicant issued to SLA for GST, the parties have agreed that the value of the Preparatory Works is $29,700,648.39 and the value of the Building Works is $77,034,265.61.

5. The Commissioner accepts that the Monetary Consideration was paid for the acquisition of the land and that the Preparatory Works constitute non-monetary consideration for the acquisition of the land. However, the Commissioner says the Building Works, which substantially comprised the construction of apartments for sale by the applicant, were carried out for the applicant's own commercial ends. So those works, the Commissioner says, are not non-monetary consideration for the applicant's acquisition of the land.

The passing on issues

6. Despite applying for private binding rulings and engaging in correspondence with the Australian Taxation Office (' ATO ') to clarify the Commissioner's view regarding the treatment of the Preparatory Works, in particular, the applicant remained uncertain as to the precise value that the ATO would accept as the value of those works.

7. In the circumstances, the applicant chose to bring GST on its sales of the apartments to account in its GST returns conservatively. In calculating the GST disclosed in its returns, the applicant treated the Monetary Consideration as consideration for the acquisition of the land, but did not deduct the value of the Preparatory Works or the value of the Building Works in calculating the margins on the sales.

8. By not taking into account the value of the Preparatory Works and the Building Works, the applicant says it overpaid GST and is entitled to a refund of the overpaid amount. The Commissioner says the applicant passed on any overpaid GST to the purchasers of the apartments. Under s 142-10 of the A New Tax System (Goods and Services Tax) Act 1999 (' GST Act '), amounts overpaid as GST (called ' excess GST '), but passed onto the recipient of the relevant supply, are treated as payable. In effect, such amounts are not refundable unless the taxpayer reimburses the recipient of the supply for the excess GST that it passed on.

9. The applicant disputes that it passed on the excess GST. Even if it did pass on excess GST, the applicant says s 142-10 should be treated as not applying in accordance with s 142-15(1).

Questions for determination by the Tribunal

10. The Commissioner disallowed the applicant's objections to:

• (a) the deemed assessments of net amount for the relevant tax periods; and

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• (b) the decision not to treat s 142-10 as not applying.

It is those objection decisions that are before the Tribunal for review.

11. The applicant bears the burden of proving the assessments of its net amounts for the relevant tax periods are excessive and what amounts should be assessed. The applicant also bears the burden of proving the Commissioner's decision not to treat s 142-10 as not applying should not have been made or should have been made differently; effectively, that s 142-10 should be treated as never having applied.^[3] Taxation Administration Act 1953 (Cth), s 14ZZK. With the consent of the Commissioner, I ordered that the applicant’s grounds of objection be extended to include the ss142-10/142-15 issue.

12. In summary, the issues to be resolved are whether the applicant has discharged the burden of proving:

• (a) that the Building Works constitute consideration for the acquisition of the land (' Building Works issue ');
• (b) the value of the Preparatory Works - this issue arises because, although the parties have generally agreed the value of the Preparatory Works, there is an issue concerning the effect of an outstanding invoice issued by the applicant to the SLA for GST on the Preparatory Works (' Invoice issue' );
• (c) that the applicant did not pass on excess GST to the purchasers of the residences (' Passing on issue ');
• (d) if the applicant did pass on excess GST, s 142-10 should be treated as never having applied (' Section 142-15 issue ').

BUILDING WORKS ISSUE

13. Do the Building Works constitute consideration for the applicant's acquisition of the land? The parties' submissions in this regard mainly focused on the circumstances leading up to the execution of, and the terms of, the suite of documents executed by the SLA and the applicant, along with the High Court decision in Commissioner of State Revenue (Victoria) v Lend Lease Development Pty Ltd ('Lend Lease case').^[4] (2014) 254 CLR 142 .

14. Before turning to those matters, it is helpful to set out the relevant statutory provisions.

Statutory provisions - margin scheme

Margin scheme

15. The applicant is entitled to work out its GST liability on its sales under the margin scheme. The GST liability is 1/11^th of the 'margin' for the supply.^[5] GST Act, s 75-10(1).

16. Section 75-10(2) of the GST Act relevantly defines the 'margin' for a supply as follows:

. . .the margin for the supply is the amount by which the *consideration for the supply exceeds the consideration for your acquisition of the interest, unit or lease in question.

17. In the case of subdivisions, s 75-10 is, by s 75-15(2), relevantly applied using the corresponding proportion of the consideration for the acquisition of the land from which the real property was subdivided. In this case, the dispute is limited to the calculation of the consideration for the acquisition of the land; there is no dispute regarding the method of apportionment of the consideration under s 75-15(2).

Meaning of consideration

18. 'Consideration' is relevantly defined in s 9-15(1) of the GST Act as follows:

(1) Consideration includes:

• (a) any payment, or any act or forbearance, in connection with the supply of anything; and
• (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

19. It has been held that consideration is what is given 'in order to obtain' a supply.^[6] AP Group Ltd v Federal Commissioner of Taxation (2013) 214 FCR 301 , 310 [33]. In other contexts, it has been said that the consideration for real property is the thing that 'moves' the conveyance or transaction.^[7] Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 , 152 . I see no relevant distinction between these two formulations. Both are consistent with 'consideration' being defined, not as a stand-alone concept, but as consideration 'for' a supply or acquisition.^[8] GST Act, s 195-1, ‘ consideration ’.

20. Hence, the question for determination is whether the Building Works were undertaken for the applicant to obtain the Consequent Leases or 'moved' the supply of the leases to the applicant.^[9] After reserving my decision, it occurred to me that s 75-14(1) was, depending on the view of connection considered to be required by the provision, potentially capable of applying in this matter. I therefore asked the parties for a short note regarding the relevance, if any, of s 75-14 and, in particular, the basis on which it is considered the Preparatory Works and Building Works are not required to be disregarded by this provision. Both parties responded with submissions that s 75-14 does not apply in the current circumstances. Since the position adopted by the parties is at least arguable, it is appropriate to proceed on the basis of their agreed position that s 75-14 does not apply.

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The acquisitions in summary

21. The director of the applicant (' the Director ') became aware that the SLA proposed to offer residential development land for auction and was provided with drafts of what would become the relevant transaction documents between the SLA and the successful bidder.

22. Upon becoming the successful bidder, the applicant progressively entered into transaction documents, in similar terms to the drafts provided earlier by the SLA, which included terms to the effect summarised below:

• (a) Contract of Sale - providing for the grant of a Holding Lease on completion in exchange for a purchase price of $14,000,000 inclusive of GST calculated under the margin scheme;
• (b) Holding Lease - granted upon completion of the Contract of Sale, for a term of 66 months at a nominal rent; for the purpose of subdivision and construction of works in accordance with the Deed of Agreement; requiring the construction of works to be completed within 48 months, subject to termination if the works were not completed in that period; the applicant to apply for a Consequent Lease within six months of completion of each stage of the development;
• (c) Deed of Agreement - requiring the land to be developed at the applicant's cost in accordance with the Deed of Agreement and Holding Lease; providing for the progressive, stage-by-stage grant of Consequent Leases to the applicant and corresponding progressive surrender of the Holding Lease;
• (d) Consequent Leases - granted to the applicant progressively on a stage-by-stage basis upon completion of the Preparatory Works and the issue of a Certificate of Practical Completion of those works; for a term of 99 years; requiring the Building Works to be completed within 48 months in default of which the Consequent Leases may be forfeited.

23. From his long experience as a property developer, the Director was aware that the SLA's main purpose in auctioning the land was to secure the construction of a residential development and that if the applicant failed to complete the development it would be in jeopardy of contractual remedies including potentially forfeiting the Consequent Leases.

Do the Building Works form part of the consideration for the acquisition of the land?

The parties' submissions in summary

24. The applicant contends that:

. . . because it was obliged to construct the Building Works under a suite of documents that included the Consequent Leases, the Building Works "moved" the transfer of the Consequent Leases and therefore constituted consideration for the Consequent Leases for the purposes of the margin scheme.^[10] Applicant’s Outline of Submissions dated 18 February 2021, [4(b)]. The applicant sought to draw support from Goods and Services Tax Ruling Goods and Services Tax: development lease arrangements with government agencies . However, this is not a case in which the applicant claims to have relied upon and be entitled to the protection of a public ruling. Accordingly, I have mainly focussed upon the relevant legislation and authorities cited by the parties.

25. On this view, the applicant says, there would be no mischief from claiming input tax credits on building materials and other inputs to the Building Works, as well as including the value of the Building Works in the calculation of the margin for the apartment sales. That is because, if it is correct to include the Building Works in the margin scheme calculation, it would be on the basis that the applicant made a taxable supply of the Building Works to the SLA on which it is liable for GST.

26. The Commissioner denies the Building Works 'moved' the supply of the Consequent Leases. He says the Building Works were only of value to the applicant as they were carried out in order for the applicant to sell the apartments it constructed on the land. The Building Works were, the Commissioner points out, a condition of the Consequent Leases but were not required to be completed for the Consequent Leases being granted.

Consideration of the submissions

27. The applicant eschewed submitting that entry into an obligation to carry out the Building Works was non-monetary consideration for the Consequent Leases. Rather, the applicant's submission is that it supplied the Building Works to the SLA and as such those works form part of the non-monetary consideration for the Consequent Leases.^[11] Transcript, P-48, Lines 26-30.

28. Central to the applicant's submission is the contention that the various documents, starting with the draft documents provided before the auction and including the Contract of Sale, Deed of Agreement, Holding

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Lease and Consequent Leases, point to 'a commercial and practical reality' of one set of commercial rights and obligations.^[12] Applicant’s Outline of Submissions, [73]. Pursuant to that single set of rights and obligations, the applicant says the Monetary Consideration, Preparatory Works and Building Works were provided by the applicant to the SLA for the supply of the Consequent Leases. The applicant carried out the Preparatory Works and the Building Works, the applicant says, 'in order to obtain' the Consequent Leases as part of a single arrangement or bargain with the SLA.^[13] Applicant’s Outline of Submissions, [73].

29. The applicant highlighted various aspects of the draft and final transaction documents in support of its argument. Key aspects included:

• (a) that the applicant was aware of the requirement to construct the development from the outset;
• (b) that it was required to meet specified timeframes in carrying out the development by the development approval provided with the draft transaction documents;
• (c) that it could, and did, commence construction of the Building Works before it obtained the Consequent Leases; and
• (d) purpose clauses referencing the construction of a residential development in the Deed of Agreement and Holding Lease which in turn referenced in the Contract of Sale.

30. The Building Works were carried out, at least in part,^[14] The construction of apartments in some stages of the development was undertaken before the Consequent Leases were granted, as permitted by the transaction documents. on land held by the applicant in the form of the Consequent Leases. That is not, in itself, a barrier to concluding that the carrying out of the Building Works was non-monetary consideration for the Consequent Leases. I also accept that, upon entering into the Contract of Sale, the applicant became committed in a practical and commercial sense to undertaking the development which included carrying out the Building Works. But does it follow that the Building Works were consideration for the Consequent Leases?

The Lend Lease case

31. The applicant says that it does, and in that regard places heavy reliance on the decision of the High Court in the Lend Lease case.^[15] Commissioner of State Revenue (Victoria) v Lend Lease Development Pty Ltd (2014) 254 CLR 142 . In that case, a state development authority, VicUrban, entered into a complex agreement with Lend Lease group companies ('Lend Lease') requiring Lend Lease to make various payments and carry out development works and other undertakings. The Court held that all of the various payments, development works and other undertakings, moved the conveyance of the development land to Lend Lease. Thus, the various payments and the performance of the other obligations all formed part of the consideration for the land.

32. A key conclusion underpinning the Court's judgement was that the transaction between Lend Lease and VicUrban was a 'single, integrated and indivisible' transaction. The Court said this was not just because the rights and obligations were provided in a single set of transaction documents but because the rights and obligations were 'interlocked'.^[16] (2014) 254 CLR 142 , 160 [53].

33. The interlocking nature of the obligations was, the Court said, demonstrated by the default provisions. A material default under the development agreement would terminate the contract for the sale of the land. Further, failure to comply with a provision of the development agreement, the land sale contract or any other project document was stipulated to be a default event, with no differentiation in consequences between default under the land contract or under the other documents.^[17] (2014) 254 CLR 142 , 160-1 [53]-[58].

34. On this basis, the Court of Appeal was found to have erred in approaching the matter on the premise that the 'single, integrated and indivisible' transaction could and should be divided between the transfers of the land and other matters or transactions.

35. I acknowledge the force of the applicant's argument that the obligations in this matter are integrated. With some hesitation, however, I have concluded that the approach in the Lend Lease case is not applicable in this case.

36. Rather than the Commissioner seeking to artificially dissect a single, integrated and indivisible transaction as the applicant submitted, I consider the applicant's approach would artificially conflate obligations in respect of which the parties have expressly drawn a clear and material distinction. Completing the Preparatory Works was a condition

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of the supply of the Consequent Leases. Completion of the Building Works was not.

37. Significantly, the obligations in this case do not provide for common consequences of default events across the transaction documents in the way the High Court highlighted in the Lend Lease case. The Consequent Leases did provide for termination if the Building Works were not completed within the specified period of 48 months. However, that does not, in my view, transform the construction of the Building Works into consideration moving the supply of the Consequent Leases. Construction of the Building Works was a condition of the Consequent Leases - the breach of which could lead to forfeiture - but it was not a condition of the grant of the Consequent Leases.

38. Recalling that the applicant submitted the consideration was in the form of the Building Works, not the entry into the obligation to carry out the works, it cannot in my view be said that carrying out the Building Works was consideration for the supply of the Consequent Leases. The contractual requirements for the supply of the Consequent Leases were completed before they were granted. The Consequent Leases allowed the applicant up to 48 months to carry out the Building Works.

39. Failure to complete the Building Works within the stipulated period would have exposed the applicant to the risk of forfeiture of the Consequent Leases. But the potential for forfeiture, 48 months after the applicant completed all the requirements to become entitled to the Consequent Leases, does not, in my view, mean that the Building Works moved the supply of the Consequent leases. The applicant was entitled to the Consequent Leases, and in fact obtained them, without completing the Building Works.

40. Similarly, that the applicant was permitted to carry out a significant amount of the Building Works before, but in anticipation of, the Consequent Leases being entered into, and in fact did so, does not detract from the conclusion that the Building Works did not move the supply of the Consequent Leases. There was no obligation on the applicant to carry out the works in advance of, or as a condition of entitlement to, the supply of the Consequent Leases.

Department of Transport case

41. The applicant also submitted that, in constructing the Building Works, the applicant supplied something of value^[18] Federal Commissioner of Taxation v MBI Properties Pty Ltd (2014) 254 CLR 376 , 390 [34]. to the SLA. The value arose, according to this submission, because the requirement to construct the Building Works was consistent with, and imposed in pursuit of, the SLA's statutory objectives regarding development of housing in the ACT.

42. In support of that submission, and in particular that the applicant made a supply of the Building Works to the SLA, the applicant cited Federal Commissioner of Taxation v Secretary to the Department of Transport (Victoria) ('Department of Transport case').^[19] (2020) 188 FCR 167 . In that case, the majority of a Full Court of the Federal Court found that the provision of taxi services to an eligible participant under a subsidy scheme operated by the Department was a taxable supply to the passenger, and also a taxable supply of taxi services to the Department. The majority said this was because the provision of taxi services to a sector of the public who, because of their disabilities, were unable to access conventional public transport, was in pursuit of the Department's statutory functions.^[20] (2020) 188 FCR 167 , 181-3 .

43. However, I do not understand the majority to have decided the Department of Transport case by reference to a general principle that anything done by an entity that is consistent with the statutory objectives of a public sector body necessarily constitutes a supply to the body. The majority examined the particular aspects of the taxi subsidy scheme, including that the subsidised portion of the fare was paid directly to the taxi service operator.^[21] (2020) 188 FCR 167 , 182 [59]-[60].

44. In my view, the circumstance of transport being provided to members of a specific sector of the public in return for payment of a subsidy is far removed from the applicant's construction of apartments on land held or to be held by the applicant to enable it to sell the apartments. That the construction of housing of a particular character as required under the transaction documents is consistent with the SLA's statutory objects may be accepted. However, it does not

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follow that the applicant supplied Building Works to the SLA. Even less would it follow that those works are part of the consideration for the grant of Consequent Leases which were not conditional upon construction of the Building Works which could occur up to 48 months after the grant of the leases.

Conclusion on Building Works issue

45. Returning to the statutory definition of 'consideration for' an acquisition, this matter reveals itself as ultimately involving a judgement about nexus - that is, whether the degree of connection between the Building Works and the grant of the Consequent Leases requires those works to be characterised as moving the grant of the Consequent Leases. It is undeniable that the Building Works and the Consequent Leases are connected. But is the degree of connection sufficient?

46. In my view, it is not. Taking the guiding principle from the authorities cited earlier, I conclude, for the reasons outlined above, that the applicant did not carry out the Building Works to obtain the Consequent Leases. It was a condition of the Consequent Leases that it do so, but not a condition of the applicant's acquisition of the Consequent Leases. In fact, the applicant obtained the Consequent Leases without completing the Building Works which, under the contractual terms, could be completed up to 48 months later.

47. For the same reason, it would not be correct, in my view, to characterise the Building Works as 'in response to' the supply of the Consequent Leases. While the obligation to carry out the Building Works is a condition of the Consequent Leases, in my view the Building Works were not constructed 'in response to' the supply of the leases. Although the distinction is perhaps a fine one, carrying out the Building Works was in satisfaction of a condition of the Consequent Leases rather than in response to the supply of the leases. It is a condition non-fulfilment of which could lead to forfeiture of the Consequent Leases, subsequent to their supply, but not a response to the supply of the Consequent Leases.

48. Those reasons are, in my view, sufficient to conclude the Building Works were not non-monetary consideration for the applicant's acquisition of the Consequent Leases. Borrowing the applicant's characterisation of the transaction documents, I would add that the view that the Building Works were carried out not to obtain the Consequent Leases but in pursuit of its own business objectives of constructing and selling the apartments for profit reflects the commercial and practical reality of the development. It is also more congruent with the terms of the Consequent Leases and other documents entered into by the SLA and the applicant.

49. For these reasons, I conclude that the applicant has not discharged the burden of proving the Building Works are part of the consideration for its acquisition of the Consequent Leases.

THE INVOICE ISSUE

50. The applicant issued a tax invoice to the SLA on 31 December 2018 claiming $2,869,857 for GST on the applicant's supply of the Preparatory Works to the SLA. Following the parties reaching agreement on the value of the Preparatory Works, the applicant's counsel advised that the applicant intends to issue an adjustment note for $500,499.

51. The Commissioner says that the otherwise agreed value of the Preparatory Works to be allowed as non-monetary consideration for the acquisition of the Consequent Leases should be reduced by the amount claimed under this invoice.

52. The invoice has been outstanding for a considerable time. The Commissioner acknowledges the SLA is not contractually liable to pay the invoice but notes that the applicant could have, but at the date of the hearing had not, withdrawn it.

53. It remains possible that the SLA may pay, or acknowledge a liability to pay, the invoice, but neither has occurred. But even if the invoice were to be paid, that would change the consideration for the supply of the Preparatory Works and probably trigger an adjustment event in relation to the supply and acquisition of those works. It would not change the value of the Preparatory Works that forms part of the consideration for the applicant's acquisition of the Consequent Leases.

54. I am satisfied there is no current basis for reducing the value of the Preparatory Works arising out of the invoice issue.

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THE PASSING ON ISSUE

55. Almost six years after the abolition of sales tax, the High Court had occasion to consider the passing on provisions in the former sales tax legislation in Avon Products Pty Ltd v Commissioner of Taxation.^[22] (2006) 230 CLR 356 .

56. The High Court observed that it is in the nature of sales tax for its economic burden to be passed on rather than borne by the entity liable to remit the tax.^[23] (2006) 230 CLR 356 , 362-3 [7]-[12]. Similarly, the scheme of GST law, like value added tax regimes around the world, is for the burden of the tax to be borne by the consumer. This does not mean that GST must always be regarded as passed on. Section 142-10's reference to passing on would be otiose if that were the case.

57. In Avon Products, though, the High Court pointed out that:

…once it is appreciated that it is in the nature of sales tax to be passed on, there is nothing remarkable in the consequence that proof to the contrary will occur comparatively seldom.^[24] (2006) 230 CLR 356 , 363 [12].

58. These observations suggest it will be a rare case in which GST is not passed on to a customer. However, as Mr Sievers, who presented reply submissions for the applicant, submitted, my task remains to determine whether the applicant has discharged its burden of proof based on the evidence before the Tribunal. In order words, while it may be a rare case in which a taxpayer succeeds in showing excess GST was not passed on, the hurdle the applicant must leap to discharge the burden of proof on this issue remains the civil standard of the balance of probabilities. Nevertheless, I am mindful of the High Court's observations.

59. The applicant submits that it did not pass on any GST in the prices it obtained for the apartments it sold. In essence, the applicant's argument, supported by the evidence of its Director, is that it sold the apartments for the price the market would bear. While it carried out a feasibility study that took into account an estimate of GST at an effective rate of 7%, the applicant did not work up a price on a cost plus a margin basis. This is because it was constrained by the market. The Director being experienced in the property market was aware that purchasers of residential apartments would not accept a mark-up of prices for GST. He said the applicant had based pricing of the apartments on his awareness of the market value of comparable ACT apartments.

60. I accept the evidence of the Director in this regard. However, it does not follow from this that GST was not passed on.

61. Applying the civil standard and fully accepting the evidence of the Director as to how the pricing of the apartments was determined, I am not persuaded that the applicant did not pass on any GST. Although some transactions may be conducted unprofitably, a business that over an extended span of trading does not price its product at a level that covers its costs, will incur losses, contrary to the very reason for embarking upon business activity.

62. The applicant intended the development to be profitable, and it was. For that to be so, it must have passed on all of its costs in its prices, especially a cost as significant as GST. I can see no basis for singling out GST as a cost not passed on, notwithstanding the evidence of the Director regarding how the applicant determined its selling prices. The absence of specific costing of GST in the setting of a price does not mean GST was not passed on in the price.

63. If that were the end of the matter, the outcome would be a harsh one for the applicant. Indeed, as the applicant submitted, it would be perverse. As a consequence of taking a conservative approach to paying GST pending clarification of its liability, the applicant would be out of pocket for the excess GST which the Commissioner acknowledges was never payable. If the applicant had taken a less conservative approach and paid the lesser amount for GST after deducting the value of the Preparatory Works, it would not be out of pocket. It would not be suggested in those circumstances that the applicant had passed on an amount of excess GST that was never payable.

64. The applicant's interactions with the purchasers would have been relevantly identical in both scenarios, since it is well known, and the Director confirmed, that residential apartments are not sold on a basis that would permit the vendor to add GST to the agreed price. The pricing would have been the

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same, and the purchasers both unaware of and indifferent to the applicant's GST liability.

65. However, the task of the Tribunal in deciding whether GST has been passed on is not determined by whether the outcome is perverse. It must be determined by whether the applicant has discharged the burden of proving that it did not pass on GST referable to the Preparatory Works on its apartment sales.

66. Strictly speaking, to observe that GST is usually passed on does not greatly advance an understanding of whether an amount that is not GST has been passed on. However, since passing on only arises as an issue in respect of amounts that were never payable as GST (or sales tax as the case may be), it seems to be implicit in such statements that amounts wrongly treated as GST but not payable as such are also usually passed on.

67. Even so, it does not follow that that principle leads inexorably to a conclusion that an amount that was never payable must be taken to have been passed on. The design of the regime is premised upon the burden of GST being borne by consumers. It is not premised on amounts that are not GST being borne by consumers.

68. The applicant determined its prices having regard to its perception of market prices for comparable apartments in the ACT. The relentless logic of market forces means it would be unlikely to have achieved higher than market prices. There is no evidence to suggest otherwise. I infer that it did not. That is consistent with the Director's evidence that the applicant endeavoured to set its prices at the prevailing market value, adjusting them as considered necessary from time to time.

69. In considering this issue, in my view it is important not to be unduly distracted by the excess GST being referable to non-monetary consideration, rather than the more common example of monetary consideration. If the circumstances were otherwise similar, but the applicant had mistakenly overpaid a material amount for GST that was clearly not payable by not deducting part of the monetary consideration for its acquisition - for example, due to a keying error - absent contrary evidence it would not be suggested the excess GST had been passed on.

70. To operate at a profit, competing developers and other vendors would be taking into account in their pricing of comparable apartments an estimate of the correct amount of GST payable, not an excess amount not payable. A vendor pricing to the market could not rationally expect to recover a price that included a material amount of excess GST when others were not. It would be clear in such a case that the GST should be calculated on a margin net of the amount mistakenly not deducted.

71. Properly examined, in my view this case is not so different in principle. It is quite clear that the Preparatory Works were consideration for the acquisition of the Consequent Leases. Completion of the Preparatory Works was a condition precedent to the grant of the Consequent Leases. Having regard to the broad definition of 'consideration', it could not seriously be suggested that the Preparatory Works are not part of the consideration for the Consequent Leases. The Commissioner does not submit otherwise and in fact agrees that the Preparatory Works do form part of such consideration.

72. This is not a case where the applicant mistakenly thought a higher amount of GST was payable and should be assumed to have recovered that higher amount in its pricing. Rather, as mentioned earlier, the applicant took the conservative approach of not deducting the value of Preparatory Works in the first instance while it tried to ensure there would be no dispute with the ATO as to the amount to be deducted.

73. In that regard, the applicant's submissions noted that by the time the applicant completed the sales of the apartments, it was aware from private rulings it had received from the ATO that Preparatory Works could be deducted when working out the margin on its sales. However, it did not adjust its prices as a result of receiving the rulings. That is consistent with the value of Preparatory Works being able to be taken into account in calculation of the margin and GST on that amount not being passed on. However, it does not otherwise assist the applicant in those cases where contracts for sale of the apartments were entered

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into, and prices therefore set, before the rulings were received.

74. As already observed, other developers and vendors could be expected to price comparable apartments in a way that took into account an estimate of the correct amount of GST payable where the consideration for the acquisition of the development land was monetary. Likewise, such vendors could not be expected to price their apartments in a way that would recover a materially excessive amount for GST by ignoring non-monetary consideration plainly permitted, indeed required, to be taken into account in their margin scheme calculations.

75. The applicant was competing in the same market and priced its apartments to what the Director considered the market would bear. Absent other relevant evidence, it would defy both common sense and market forces to suggest the applicant sought to achieve prices that included a material extra amount for GST that the market generally did not. The actions of the applicant in deliberately holding back from deducting the value of the Preparatory Works while the quantum was settled with the ATO, against the background of pricing to the market, distinguish this case from others in which GST has been overpaid and the overpaid amount has been passed on.

76. For these reasons, having regard to the particular circumstances of this case, I am satisfied this is one of the rare instances in which a taxpayer has (to the extent of the excess GST referable to the failure to deduct the Preparatory Works from the margin) paid excess GST that it did not pass on to the recipients of its supplies.

77. It follows that I am satisfied the applicant has discharged the burden of proving the assessments are excessive. By a similar formula to that adopted to apportion the monetary consideration between the apartments or other reasonable means, it will be possible to apportion the value of the Preparatory Works to the individual apartments.

78. As the issues in the case were confined to those outlined in these reasons, I am also satisfied the applicant has discharged the burden of proving the assessments are excessive and the amounts that should be assessed for each relevant tax period.

THE SECTION 142-15 ISSUE

79. Section 142-15(1) relevantly states:

When section 142-10 does not apply

Commissioner satisfied it is inappropriate for that section to apply

• (1) Treat section 142-10 as never having applied to the extent that the Commissioner is satisfied that:
  • (a) applying that section would be inconsistent with the principle that excess GST is not to be refunded if this would give an entity a windfall gain;

80. The heading to s 142-15(1) speaks of the Commissioner being satisfied 'it is inappropriate for [s 142-10] to apply'. That language is consistent with the conferral of a discretion on the decision-maker.

81. However, the language of s 142-15(1) itself is not suggestive of a discretion. Rather, it contains a statutory command to treat s 142-10 as never having applied to the extent the Commissioner is satisfied that 'applying [s 142-10] would be inconsistent with the principle that excess GST is not to be refunded if this would give an entity a windfall gain.'

82. That language suggests the relevant inquiry is limited to whether the Commissioner is satisfied that refunding excess GST would not be inconsistent with the principle that excess GST is not to be refunded if this would give rise to a windfall gain. If so satisfied, s 142-15(1) requires that s 142-10 be treated as never having applied.

83. At least in its terms, I can see no over-arching discretion in s 142-15(1) to treat s 142-10 as not applying. It must be treated as not applying if the decision-maker is satisfied as stated in s 142-15(1)(a). However, on the face of the matter that seems inconsistent with the terms of the heading to s 142-15(1) which, as indicated above, is suggestive of a discretion, and also with statements in the Explanatory Memorandum to the amending bill that introduced this provision.^[25] Explanatory Memorandum, Tax Laws Amendment (2014 Measures No.1) Bill 2014, 2.58.

84. The distinction may not merely be a curiosity. It may determine the breadth of the required inquiry under s 142-15. For example, the applicant referred to the harshness and

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perversity of it being denied a refund because it initially took a conservative approach to its GST return. That may or may not be a permissible consideration if s 142-15(1) confers a discretion. It seems unlikely to be a permissible consideration if s 142-15(1) merely requires consideration of whether applying s 142-10 would be inconsistent with the stated principle and does not confer an over-arching discretion.

85. Both parties cast their submissions on s 142-15 in terms of whether the 'discretion' in s 142-15 should be exercised in the applicant's favour. The submissions then turned to reasons why it was submitted the 'discretion' should, or should not, be exercised.

86. Because I have concluded that the Building Works were not consideration for the acquisition of the Consequent Leases, and that the applicant did not pass on excess GST referable to the Preparatory Works, it is not necessary for me to decide whether s 142-15(1) should apply to treat the restriction on refunds in s 142-10 as not applying. The issue concerning whether s 142-15(1) confers a discretion occurred to me after I had reserved my decision. I have not had the benefit of submissions on this aspect of the construction of s 142-15(1). In those circumstances, it is appropriate that I do not indicate whether, if I am wrong in concluding the applicant did not pass on GST referable to the Preparatory Works, I would conclude that s 142-15(1) applies such that s 142-10 would be treated as not applying.

DISPOSITION OF APPLICATION FOR REVIEW

Objections against assessments

87. The applicant has discharged the burden of proving the assessments are excessive to the extent that the margin on the apartment sales was calculated without deducting the value of the Preparatory Works. It is entitled to have the objection decision in respect of the assessments set aside.

88. Rather than the Tribunal embark upon a re-calculation of the GST liability in respect of the apartment sales in each relevant tax period, the appropriate course is to remit the matter to the Commissioner with a direction that the net amounts for the relevant tax periods be re-assessed. Such re-assessment to be on the footing that the consideration for the applicant's acquisitions of the Consequent Leases includes the appropriate proportion of amount of $29,700,648.39, being the agreed value of the Preparatory Works.

Objection against s 142-15 decision

89. On the view I have taken, the occasion for a decision under s 142-15 does not arise. Although I did not have the benefit of specific submissions from counsel on this eventuality, it seems to me that the appropriate course in these circumstances is to affirm the objection decision declining to make such a decision under s 142-15.

90. I conclude by recording my appreciation of the helpful oral and written submissions of counsel for the applicant and the Commissioner.