CYONARA SNOWFOX PTY LTD v FC of T

Members:
PE Hack SC DP

Tribunal:
Administrative Appeals Tribunal, Brisbane

MEDIA NEUTRAL CITATION: [2010] AATA 137

Decision date: 24 February 2010

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PE Hack SC (Deputy President)

1. Cyonara Snowfox Pty Ltd (Cyonara) engages in land development and sales. It is in dispute with the Commissioner of Taxation about its liability for GST arising from land transactions undertaken by it between 2004 and 2006.

2. The matter is listed for hearing on 24 and 25 March 2010. Cyonara, with the concurrence of the Commissioner, seeks to have a preliminary issue determined in advance of the hearing. It says that if that is done and the issue is determined in its favour, the factual issues will be considerably narrowed with a consequent reduction in the public and private expense in conducting the hearing. The issue is not presently part of the grounds of Cyonara's objection however the Commissioner has indicated that an amendment of the grounds to raise the issue is not opposed. It is, in my judgment, a proper matter in which to determine the issue in this way.

3. At the outset I should record that Cyonara, helpfully, lodged its written submissions, and provided them to the Commissioner, in advance of the hearing. The practice is to be commended. Counsel for the Commissioner was not so helpful. The Commissioner's submissions, which were dated two days prior to the hearing, were provided to the Tribunal and to Mr Pitman, the solicitor for Cyonara, part way through the Commissioner's oral submissions and after Mr Pitman had advanced his oral argument. That practice is to be deprecated, a fortiori where it is engaged in by the party having a statutory duty to assist the Tribunal. The result, in the present case, is that Cyonara found it necessary to prepare additional written submissions after the hearing and seek leave to rely on those submissions. I give that leave and will have regard to Cyonara's supplementary submissions. The Commissioner did not seek to lodge any further responsive submissions.

4. It is not necessary to descend into any great detail about the facts. It will suffice for present purposes to say that the GST liability in issue in the present case arises, on the Commissioner's case, from five sales of real property made by Cyonara in September 2004, November 2004, December 2005, February 2006 and October 2006, and from a purchase of real property by Cyonara made in December 2005. It is necessary, as well, to notice that on 24 May 2007 the Commissioner made an assessment of Cyonara's^[1] Under its name at the time, Zonebar Pty Ltd. "net amount under s 105-5(1) of Schedule 1 to the Taxation Administration Act 1953" for six tax periods that encompass the months of these transactions.

5. The general scheme of the GST legislation is that liability to pay GST, unlike the liability for income tax, is not dependant upon the making, or the deemed making, of an assessment. Liability to pay GST, or the entitlement to receive an input tax credit, arises from the transaction not any determination by the Commissioner. GST is a tax on "taxable supplies" and "taxable importations". The tax is imposed on the entity that makes the taxable supply or the taxable importation. Thus s 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act) provides,

"You must pay the GST payable on any taxable supply that you make."

6. The GST Act requires the taxpayer to account to the Commissioner on a regular basis, generally monthly or quarterly, having ascertained the "net amount"^[2] See s 17-5, GST Act. by offsetting entitlements to input tax credits against GST payable. In the case of a taxpayer accounting on a quarterly basis the net amount must be paid by the 28^th day after the end of the quarter.

7. Despite the nature of GST as a transaction tax the Commissioner has power to make an assessment of the net amount for a tax period.

8. The collection and recovery of GST is dealt with in the Taxation Administration Act 1953 (Cth) (the TAA). The starting point is s 105-50 of that Act. It is necessary to consider the history of that section.

9. Prior to the time of the events in question s 35 of the TAA provided as follows:

"A net amount or an amount of indirect tax that has not been paid within 4 years after the time when it became payable by you (together with any relevant penalty under section 40 for unpaid indirect tax) ceases to be payable at the end of that period, unless:

• (a) within that period the Commissioner has required payment of the amount by giving a notice to you; or
• (b) the Commissioner is satisfied that the payment of the amount was avoided by fraud or evaded."

At that time s 24(1) of the TAA provided:

"Your liability to pay indirect tax, and the time by which a net amount or an amount of indirect tax must be paid, do not depend on, and are not in any way affected by, the making of an assessment under this Division."

10. With effect from 1 July 2006, s 39 of the Fuel Tax (Consequential and Transitional Provisions) Act 2006^[3] No. 73, 2006. repealed Part VI of the TAA, in which ss 24 and 35 were included, and replaced it with Part 3-10 dealing with the collection, recovery and administration of indirect taxes. Within that Part, s 105-15 of Schedule 1 of the TAA then provided:

• "(1) Your liability to pay *indirect tax or a *net fuel amount, and the time by which a *net fuel amount or an amount of indirect tax must be paid, do not depend on, and are not in any way affected by, the making of an assessment under this Subdivision."

Section 105-50 of Schedule 1 provided:

"Any unpaid *net amount, *net fuel amount or amount of *indirect tax (together with any relevant *general interest charge under section 105-80) ceases to be payable 4 years after it became payable by you unless:

• (a) within those 4 years the Commissioner has required payment of the amount by giving a notice to you; or
• (b) the Commissioner is satisfied that the payment of the amount was avoided by fraud or evaded."

11. A further amendment was made to s 105-50 of Schedule 1 to the TAA by the Tax Laws Amendment (2008 Measures No 3) Act 2008 (Cth)^[4] No. 91, 2008. such that, effective 1 July 2008, the section read, so far as is presently relevant:

• "(1) Any unpaid *net amount, *net fuel amount or amount of *indirect tax (together with any relevant *general interest charge under this Act) ceases to be payable 4 years after it became payable by you.
• (2) …
• (3) However, subsection (1) does not apply to an amount, …, if:
  • (a) within those 4 years the Commissioner has required payment of the amount … by giving a notice to you; or
  • (b) the Commissioner is satisfied that:
    • (i) the payment of the amount was avoided by fraud or evaded; or
    • (ii) …"

12. Cyonara contends that so much of the GST that became payable more than four years ago, which would appear to be that relating to the 2004 and 2005 transactions, has ceased to be payable by operation of s 105-50 of Schedule 1 to the TAA. It has not been required to pay those amounts because the Commissioner has not given it a notice within those four years. And, it says, the Commissioner's reliance on the notice of assessment of 24 May 2007 (the only document said by the Commissioner to constitute notice), cannot constitute notice because of the provision in s 105-15 that liability to pay, and the time by which an amount of indirect tax must be paid, do not depend on, and are not in any way affected by, the making of an assessment.

13. The parties did not refer to the change in legislation so it seems safe to assume that there is no relevant difference in the ways in which the legislature has expressed the ideas over time. I will make reference to the sections as they now stand.

14. The arguments of the parties throw up two questions for determination:

• (a) is the notice of assessment capable of constituting the notice referred to in s 105-50(3)(a) of Schedule 1 to the TAA?
• (b) if it is, does s 105-15 of Schedule 1 to the TAA operate to prevent s 105-50(3)(a) taking effect according to its terms where the notice is given by service of a notice of assessment?

15. So far as the first question is concerned the Commissioner submits that the 24 May 2007 notice of assessment is "plainly" a notice requiring payment. Cyonara takes issues with that contention.

16. Cyonara submits that the "primary … purpose" of, and the "dominant work done by", the notice of assessment was to notify Cyonara of the assessment decision and of its rights to object. It points to a variety of matters that it contends lead to the conclusion that it was not a notice requiring payment. Those matters include:

• (a) the absence of any reference to, or stated reliance on, s 105-50;
• (b) the absence of any requirement to pay on demand or at some specified date in the future;
• (c) the fact that the notice is not described as a notice of demand and is not expressed in the language of demand;
• (d) the fact that the Commissioner can rely upon the notice of assessment to evidence liability;
• (e) the fact that the notice deals with debts that are not the subject of the notice;
• (f) that the notice leaves the recipient to speculate about what payment is demanded by the creditor;
• (g) that the form of the notice of assessment is quite different to the shortfall penalty assessment made and served at the same time which demands payment by a specified date and details ways in which that payment can be made.

17. Much of what Cyonara says about the notice of assessment may be accepted however it is necessary to put the matter in its statutory context given that that context informs the determination of what is required by s 105-50(3)(a) of Schedule 1 to the TAA.

18. A notice of assessment in the context of liability for GST is very much the exception because liability arises from the transaction not from the assessment. As s 105-15 of Schedule 1 to the TAA Act makes clear, liability to pay does not depend on the making of an assessment. It can be expected that where an assessment has been made the Commissioner has a different view to that of the taxpayer on the question of the taxpayer's liability to GST from a transaction or transactions. The notice of assessment then performs the function of articulating the Commissioner's view of the taxpayer's liability to GST from the transaction or transactions. And, given that there are mechanisms that allow the taxpayer to contest the Commissioner's view of liability, the notice of assessment performs the function of informing the taxpayer of the fact of those mechanisms.

19. These matters, it may be accepted, are the primary functions of the notice of assessment. But that does not, in my view, prevent the notice of assessment from performing the role of notice requiring payment providing it does otherwise meet that description. There is nothing in s 105-50(3) of Schedule 1 to the TAA Act that would suggest a notice under that sub-section would be invalid were it to perform any other function. Moreover there is nothing in the sub-section that would require any particular form, or any particular form of words, or that reference to be made to the statutory power relied upon. The reliance upon the form of notice of assessment of shortfall penalty is, with respect, misplaced. The Commission is obliged to make an assessment of shortfall penalty^[5] See s 298-30, Administration Act. and to notify the taxpayer of the liability and the date for payment^[6] See s 298-10, Administration Act. . Liability for GST, like that of sales tax where similar expressions were found, is not dependant upon an assessment, it arises by operation of the statute^[7] Section 33-5, GST Act. See e.g. Russell v FCT 2008 ATC ¶20-010 ; [2008] FCA 343 ; (2008) 168 FCR 330 at [35] . .

20. The Commissioner is not obliged to "demand" payment of GST; the statute performs that work. Nor is the Commissioner required to specify a date for payment of GST; again the statute performs that work. All that the sub-section requires is that within the time specified "the Commissioner has required payment [of the unpaid net amount or amount of indirect tax] by giving a notice to [the taxpayer]".

21. I consider that the notice of assessment here met that requirement.

22. There are two parts to the communication to Cyonara. The accompanying letter makes reference to the Commissioner having "reviewed some of the information reported in your activity statements". It continues:

"After reviewing the information, we have made assessments of your net amount under sub-section 105-5(1) of Schedule 1 to the Taxation Administration Act 1953… for the above tax periods. This letter is a formal notice of each of the assessments of the net amount for those tax periods. Schedule A, attached to this notice, gives details of the assessed net amount for each tax period. Your right to object against these assessments is explained in the attachment titled 'Important Information'.

The revised amounts have been applied to your business tax account. You may obtain up-to-date details of your account balance by phoning … and requesting a running account balance.

If your statement shows a debit, you are required to pay the outstanding balance to the Tax Office using the payment slip attached to the statement. On the other hand, if your statement shows a credit, you will be refunded any amount you are entitled to.

You are reminded that where any amount for a particular tax period is not paid by the original due date, the general interest charge (GIC) accrues on the outstanding balance until the entire amount has been paid. For more information and enquiries on the GIC see the attachment titled 'Important Information.'

…"

23. Schedule A, attached to the letter, was headed "Notice of Assessment of Net Amount". It provided the following detail:

Column A	Column B	Column C	Column D
Tax period	Original net amount	Assessed net amount	Difference (Col C − Col B)
1/9/2004 to 30/9/2004	−$966	$149,577	$150,543
1/11/2004 to 30/11/2004	$149,010	$150,788	$1,778
1/12/2005 to 31/12/2005	−$8,043	$362,256	$370,299
1/1/2006 to 31/1/2006	$215,634	$210,634	−$5,000
1/10/2006 to 31/10/2006	−$22,251	$80,230	$102,481
1/2/2007 to 28/2/2007	0	$313,892	$313,892
Totals	$333,384	$1,267,377	c$933,993
The total amount applied to your running balance account is:	$933,993

"Date of the notice of assessments to which this schedule relates: 24 May 2007

Explanation of schedule

This schedule details changes to your activity statement for GST Your 'net amount' is the difference between labels 1A and 1B on your BAS.

The amounts in Column B are the amounts originally included in your activity statements for each tax period.

The net amount assessed for each of the relevant tax periods is set out in Column C. This is the amount that we have determined to be the correct net amount for the period.

The amounts in Column D represent the difference between the original net amount (Column B) and the new net amount assessed for that tax period."

24. In my view the Schedule makes plain the amounts that the Commissioner requires to be paid. It is the assessed net amount in Column C. Some of that may already have been paid but that seems to me not to matter. That is so because any amount paid is no longer "unpaid". Section 105-50 of Schedule 1 to the TAA only operates on the unpaid net amount or indirect tax.

25. Cyonara refined its argument somewhat in its post-hearing submissions by focussing on the amounts referable to the particular periods. But that argument wrongly assumes that the notice requires the Commissioner to demand payment and to make it plain to the taxpayer what is required to comply with the notice.

26. It follows that I would answer the first question adversely to Cyonara.

27. The next question concerns the interplay between ss 105-15(1) and 105-50(3)(a) of Schedule 1 to the TAA. The argument for Cyonara has an attractive simplicity. It accepts for present purposes that liability for GST was created in 2004, 2005 and 2006 by the fact of the transactions. But it ceased to be payable after the expiry of four years from the date it became payable. The operation of s 105-50(1) of Schedule 1 to the TAA, so the argument goes, cannot be excluded by s 105-50(3) where the "notice" is given by a notice of assessment because to do so would mean that the liability to pay GST was affected by the making of an assessment, contrary to the stipulation in s 105-15(1) of Schedule 1 to the TAA.

28. I am unable to accept the argument despite its simplicity. The flaw in the argument is that it fails to recognise the necessary distinction between an assessment and a notice of assessment. Contrary to the submissions of Cyonara, that distinction is not "artificial or technical without merit". It is a time-honoured distinction drawn as long ago as 1926 when Sir Isaac Isaacs said in
R v Deputy Federal Commissioner of Taxation (S.A.)^[8] (1926) 37 CLR 368 , 372-3 . :

"Before indicating in detail the successive provisions of the Act, one general deduction from those provisions may be stated, a deduction possibly obvious, but very necessary to remember. It is as to the nature of an assessment. An 'assessment' is not a piece of paper: it is an official act or operation; it is the Commissioner's ascertainment, on consideration of all relevant circumstances, including sometimes his own opinion, of the amount of tax chargeable to a given taxpayer. When he has completed his ascertainment of the amount, he sends by post a notification thereof called 'a notice of assessment.'"

29. The form of legislation has changed but the fundamental concept of the Commissioner making an assessment remains in s 105-5 of Schedule 1 to the TAA. And the Commissioner, having made an assessment, "must give … a notice of an assessment as soon as practicable after an assessment is made"^[9] Section 105-20(1), Schedule 1, TAA .

30. Here, on or shortly prior to 24 May 2007, a delegate of the Commissioner undertook the process of determining what the delegate regarded as the amounts of GST payable as a consequence of the various transactions. That is, an assessment was made. The fact that that assessment was made did not affect, in any way, the liability to pay the GST nor the time by which it was payable. The conclusions reached by the delegate were recorded in the notice of assessment dated 27 May 2007 which was, I assume, thereafter served on Cyonara. On the view I take of the matter the notice of assessment is capable of performing the work of the notice spoken of in s 105-50(3)(a) of Schedule 1 to the TAA. Service of the notice of assessment had the result that s 105-50(1) of Schedule 1 to the TAA did not apply and thus any unpaid amount of GST did not cease to be payable.

31. I propose to give effect to my conclusion by determining that, in the events that have happened, s 105-50(1) of Schedule 1 to the TAA does not operate to relieve Cyonara of any liability for GST that may have arisen as a consequence of the transactions subject of these proceedings. That will, I trust, leave Cyonara free to contest the substantive liability at the forthcoming hearing. I would propose, as well, to permit Cyonara to amend its notice of objection to raise this issue as a ground. I will publish these reasons and invite comment by the parties on whether the form of words I propose is apt, the amendment that Cyonara proposes to its notice of objection and as to any further directions that may be required to ensure that the matter is ready for hearing. At this stage I will merely direct that the matter be listed for a directions hearing on 26 February 2010 at a time that is convenient to the parties.