Decision impact statement
MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd v Commissioner of Taxation
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Court citation:
[2012] FCAFC 89
2012 ATC 20-323
84 ATR 349
(2012) 203 FCR 415
Venue: Federal Court of Australia
Venue Reference No: VID 1325 of 2011
Judge Name: Gilmour, Perram & Jagot JJ
Judgment date: 20 June 2012
Appeals on foot: No.
Decision Outcome: Favourable
Impacted Advice
Relevant Rulings/Determinations:
Subject References:
Goods and Services Tax
Refund claim
Lease
Refunds
Exercise of discretion
Précis
Outlines the ATO response to this case which concerns the taxpayer's claim, by reference to s13 of GST Transition Act 1999, to a refund of GST paid on a lease entered into in 1998. The lease payments had been increased to take account of GST.
Brief summary of facts
By way of a contract dated 27 February 1998, the taxpayer, in a partnership, purchased the property on which a building known as R G Casey Building ("the Building") had been constructed, and commenced a lease with Department of Foreign Affairs and Trade ("DFAT") for the occupation of part of the building effective from 25 April 1998. The term of the lease spanned the whole of the period from the date of royal assent to the GST Transition Act, namely 8 July 1999 to 30 June 2005.
The consideration under the lease had four components: rent component, amortisation costs, statutory outgoings and an annual fee for carparking spaces.
The lease also provided for 'review dates' from March 1999 to 2005 under which the rent was increased by 10% on account of GST from 1 March 2001. The lease did not provide for review of the amortisation or outgoings components.
From 1 March 2001 to 30 June 2005, the taxpayer remitted GST of approximately $7.5 million to the Commissioner on the rent and the car parking components. Equivalent amounts had been paid to it by DFAT such that the taxpayer was not out-of-pocket. There was no evidence that DFAT had not claimed input tax credits.
Subsequently the taxpayer claimed that section 13 of the GST Transition Act applied and that GST was not payable at all. It sought a refund of $7,457,531 which the Commissioner refused on the basis that that the supply was correctly treated as 'taxable'. The taxpayer then lodged an application for review of the Commissioner's decision with the Administrative Appeals Tribunal.
On the 31 October 2011, the Tribunal handed down a decision favourable to the Commissioner (other than on the s105-55 notification issue). The Tribunal (comprised of the then President, Downes J and Senior Member O'Loughlin) in MTAA Superannuation Fund (R G Casey) Building Property Pty Ltd v Commissioner of Taxation [2011] AATA 769 held that section 13 of the GST Transition Act did not render the supplies GST-free because after the royal assent date the supply and consideration identified in the lease were materially different to the supply and consideration identified before the royal assent date and therefore section 13(1) did not apply. The Tribunal also found that there was a review opportunity as nearly all of the consideration was reviewable under section 13(5).
The Tribunal considered that the taxpayer's notification of an entitlement to a refund was valid for the purposes of section 105-55 of Schedule 1 to the Taxation Administration Act 1953 ("TAA"). The Tribunal further considered that, if there was an amount refundable without consideration of the discretion under section 105-65 of Schedule 1 to the TAA, the discretion ought to be exercised to refuse to pay any refund as neither party was out-of-pocket and the intention of the legislation was to prevent windfall gains.
The taxpayer appealed the Tribunal's decision to the Full Federal Court.
Issues decided by the Full Federal Court
The main issue in dispute was whether the taxpayer was entitled to recover, what it claimed was, overpaid GST from the Commissioner in respect of quarterly tax periods from 30 June 2001 to 30 June 2005, inclusive.
The Full Court dismissed the taxpayer's appeal. It upheld the Tribunal's finding that section 13 of the GST Transition Act did not apply to the lease from 1 March 2001 as the relevant supplies from that date were not made for consideration "satisfactorily identified" in the pre-royal assent lease [at paragraph 45]. The Full Court noted [at paragraph 53] that, by agreeing to pay an additional 10% on account of GST, MTAA and DFAT departed from the consideration specified in the pre-royal assent lease, and section 13 does not afford protection to suppliers who make supplies after the date of royal assent for a consideration which is not specified, or worked out pursuant to an agreement entered into before the date of royal assent.
Further, the Full Court held that the Tribunal was correct in finding that the consideration was varied by a two-step process involving (i) the agreement to increase the rent on account of GST and (ii) the increase in the rental resulting from the rent review process provided for in the pre-royal assent agreement.
The Full Court agreed with the Tribunal's finding that a review opportunity within the meaning of section 13(5) did arise from 1 March 2001 because "nearly all" (other than 2.86%) of the consideration under the lease was reviewable and that this constituted the necessary "general" review amounting to a "review opportunity" for the purposes of section 13(5) of the GST Transition Act. The Full Court held [at paragraph 71] that the word "general" qualifies the nature of the review but does not require that the review be "universal". It is enough that it is "almost universal". It is not correct that only trivial or de minimis amounts may be excluded from reviewable consideration. Such expressions are unjustifiable glosses on the meaning of "general" qualifying the word "review" and are at odds with the meaning adopted by the Full Court in DB Rreef Funds Management Limited v Commissioner of Taxation [2005] FCA 509, (2005) 218 ALR 144 and Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115, (2006) 152 FCR 461.
The Full Court did not deal with the issue of the discretion in section 105-65 of Schedule 1 to the TAA,as the discretion was never exercised by the Commissioner nor reviewed by the Tribunal. However, the Full Court made the observation that it would reject the taxpayer's submission that section 105-65 does not operate to restrict a refund in respect of agreements which were GST-free under section 13 because this would otherwise frustrate the purpose of section 13 [at paragraph 81]. We also note that the Full Court said [at paragraph 29] that it was by no means clear why the taxpayer, which is not out-of-pocket, brought the proceedings. The Tribunal had commented that 'any refund to the applicant, before any payment to the Department, would be a windfall gain to a party who has not borne the real cost of the GST overpaid.'
Although the Commissioner filed a Notice of Contention in respect of the validity of the taxpayer's notification under section 105-55 of Schedule 1 to the TAA, he did not press the issue when the appeal was heard.
ATO view of Decision
Transitional contracts
The Full Court confirmed the decision of the Tribunal that section 13 of the GST Transition Act will not apply where the consideration for the relevant supplies is not specified or worked out pursuant to an agreement entered into before the date of royal assent.
This means that, where the parties agreed outside of the terms of the relevant agreement to increase the consideration for GST, their supplies would not be GST-free under subsection 13(1).
The Full Court's conclusion is consistent with the view in GSTR 2000/16 that section 13 ceases to apply where there is a 'new agreement' (see paragraphs 68 to 72 of that ruling). However, as the Tribunal had noted, the issue is not whether there is a 'new agreement', but rather whether the consideration (or way of working it out) was adequately identified by the pre-royal assent agreement.
The Full Court [at paragraph 59] indicated that it could not consider the question of whether the agreement to change the consideration was a product of a 'mistake'. Nevertheless, having regard to the Full Court's analysis at paragraphs 45 and 53, the Commissioner considers that, where consideration is grossed-up for GST outside the terms of the agreement, the question of whether the increase in consideration was by 'mistake' might not be determinative. Consideration for GST purposes is broader than contractual consideration, and a substantial increase of consideration, even founded on a mistake, may result in the agreement ceasing to satisfactorily identify the consideration (or way of working it out) for the supply.
The Full Court also concluded that, in determining whether a review of the consideration was a general review for the purposes of paragraph 13(5)(b) of the GST Transition Act, it is appropriate to consider the percentage of the entire consideration that is subject to review.
The ATO takes a comparable approach in GSTR 2000/16. It is not possible to take a prescriptive view of what percentage of reviewable consideration is sufficient. The question is ultimately whether the review should be described as 'general.'
Section 13 of the GST Transition Act ceased to operate from 1 July 2005. Rather than update GSTR 2000/16 to take account of the Court's reasons for decision in this case, and the decision of the Tribunal in National Jet Systems Pty Ltd v FCT [2011] AATA 766, the Commissioner proposes simply to withdraw the ruling.
Refund restriction provision
The Full Court's conclusion that section 105-65 would operate if a supply was treated as a taxable supply to any extent but should have been treated as GST-free pursuant to section 13 is consistent with the Commissioner's view. The Commissioner notes the observations of the Tribunal and the Full Court that the taxpayer was not out-of-pocket.
Tribunal's decision regarding notification of entitlement
The Commissioner did not seek to challenge before the Full Court the Tribunal's conclusion that the taxpayer's notification was valid for the purposes of section 105-55 of Schedule 1 to the TAA. The Commissioner will issue an addendum to MT 2009/1 refining the explanation of the requirements of a notification in light of this decision and other recent cases.
There may be circumstances where a notification for the purposes of section 105-55 provides some information about a claimed refund, but is framed in a general way such that there is some doubt as to whether there is a particular refund entitlement that is being identified, or whether the notice is merely seeking to reserve the taxpayer's rights in the event it later identifies refund opportunities. Where a notification is fairly general in nature, if and when a subsequent claim for a refund is made, the Commissioner will consider the circumstances to determine if the notification in fact sought to cover the later claimed refund, or whether instead the notification was merely speculative in seeking to reserve rights in case a claim can be identified.
The Commissioner considers that if at the time the notification is made there is no refund that has been identified, the notification cannot be valid. This is consistent with the approach in MT 2009/1 at paragraph 14 and paragraphs 48 to 49.
Administrative Treatment
Implications for ATO precedential documents (Public Rulings & Determinations etc)
Implications for Law Administration Practice Statements
None.
Administrative Treatment
Implications for ATO Precedential documents (Public Rulings & Determinations etc)
Implications for Law Administration Practice Statements
Legislative References:
A New Tax System (Goods and Services Tax Transition) Act 1999
13(1)
13(2)
13(5)
Taxation Administration Act 1953
105-65
Case References:
ACP Publishing Pty Ltd v Commissioner of Taxation
(2005) 142 FCR 533
[2005] FCAFC 57
59 ATR 98
2005 ATC 4151
Commissioner of Taxation v DB Rreef Funds Management Ltd
(2006) 152 FCR 437
2006 ATC 4282
62 ATR 699
DB Rreef Funds Management Limited v Commissioner of Taxation
[2005] FCA 509
(2005) 218 ALR 144
2006 ATC 4282
62 ATR 699
MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd v Commissioner of Taxation
[2011] AATA 769
2011 ATC 10-213
Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd
[2006] FCAFC 115
(2006) 152 FCR 461
2006 ATC 4363
62 ATR 682