• The impact of this case on ATO policy is discussed in Decision Impact Statement: Wynnum Holdings No 1 Pty Ltd and Federal Commissioner of Taxation; FD Dunn & JW Dunn and MAM Sky Superannuation Fund and Federal Commissioner of Taxation (2008/5986; 2011/5618).

WYNNUM HOLDINGS NO 1 PTY LTD v FC of T

Members:
SE Frost SM

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2011] AATA 296

Decision date: 5 May 2011

---

SE Frost (Senior Member)

Introduction

1. This case deals with important issues arising under the GST law.

2. It concerns an attempt by the Commissioner of Taxation to recover from the applicant an amount paid to the applicant, which the Commissioner says should not have been paid, and the applicant's attempt to resist the Commissioner's claim on the basis that it was made out of time.

3. It also concerns a claim by the applicant that the Commissioner is prevented, because of a ruling the Commissioner previously made in the applicant's favour, from recovering the amount in any event.

4. If both of those elements of the dispute (which I will refer to for convenience as the "timing issue" and the "ruling issue" respectively) are decided against the applicant, then there are further, substantive issues between the parties that will need to be resolved, namely:

• (a) whether the applicant was carrying on an enterprise at the relevant time (the "enterprise issue"), and, if it was,
• (b) whether it was entitled to input tax credits (ITCs) in relation to certain acquisitions that it made (the "ITC issue").

5. For the time being the parties have asked the Tribunal to determine only the timing issue and the ruling issue, because if one of them is decided in favour of the applicant then the dispute will be at an end. This is a convenient way to proceed, and for that reason I agreed to consider those two preliminary issues before proceeding to the two substantive issues.

6. In agreeing to that course, I raised with the parties my reservations as to whether, if the applicant succeeded on either of the preliminary issues, it would have shown that the assessment made by the Commissioner is "excessive" for the purposes of s 14ZZK of the Taxation Administration Act 1953 (TAA). The parties have made extensive (joint) written submissions on that question and I am grateful to them for the clarity those submissions have brought to my consideration of the issue. They submit that to decide either of the preliminary issues in the applicant's favour would be to accept that the applicant had proved the assessment excessive. I agree with their submissions and will deal with them briefly later in these reasons.

The background facts

7. The applicant purchased a property in August 2003 for $4.27 million. Included in the purchase price was an amount of $388,182 representing GST.

8. At the time of acquisition of the property the applicant was registered for GST purposes. Some time in October 2003, but in any event no later than 7 October 2003, the applicant lodged its Business Activity Statement (BAS) for the period 1 July 2003 to 30 September 2003 (the "relevant period"). In that BAS it declared no GST payable on taxable supplies, but claimed as ITCs the GST amount of $388,182 included in the purchase price of the property. The amount of $388,182 (claimed by the applicant to be its net amount) was credited to the applicant's running balance account (RBA) on 31 October 2003 and appears to have been paid, either on that date or subsequently, to the applicant.

9. On 23 October 2007 - more than four years after the lodgement of the BAS for the relevant period - the Commissioner issued to the applicant a "Notice to repay incorrectly paid refunds for the tax period 01/07/2003 to 30/09/2003" (the "Notice to Repay"), claiming from the applicant the repayment of the $388,182 previously paid. That notice was followed on 28 April 2008 by a "Notice of Assessment of net amount for the periods 01/07/2003 to 31/12/2007" (the "Notice of Assessment"). A schedule to the Notice of Assessment specified an "Assessed net amount" of $0 for the relevant period and also for every other period referred to in the notice.

10. It seems that the BAS lodged for every period from October 2003 to December 2007 (with the exception only of the month of October 2003 itself) had declared an amount owing to the Commissioner. However, when the Commissioner assessed the net amount for each of these periods as zero, the result was that the applicant owed an amount of $345,153 to the Commissioner. This amount was, according to the schedule, "applied to [the applicant's] running balance account".

11. The applicant objected against the various assessments of net amount but the Commissioner disallowed the objection. The applicant asks the Tribunal to review that objection decision.

The legislation

12. The relevant law is found in the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and the TAA.

13. For the purposes of this proceeding it is sufficient to note that the GST Act provides that an entity carrying on an enterprise will generally be liable to GST on "taxable supplies" that it makes, but it will be entitled to offset, against that GST liability, any "input tax credits" to which it is entitled. Those input tax credits - ITCs - will be available in respect of "creditable acquisitions" - generally, acquisitions made in carrying on the entity's enterprise. The difference between GST payable and ITCs available in any given tax period is known as the "net amount", defined in s 17-5(1) of the GST Act in the following way:

"The net amount for a tax period applying to you is worked out using the following formula:

GST - Input tax credits

where:

GST is the sum of all of the GST for which you are liable on the *taxable supplies that are attributable to the tax period.

input tax credits is the sum of all of the input tax credits to which you are entitled for the *creditable acquisitions and *creditable importations that are attributable to the tax period.

For the basic rules on what is attributable to a particular period, see Division 29. (Original emphasis.)"

14. In Lergou and Commissioner of Taxation
[2009] AATA 292 I noted at [42] - [44]:

"[42] It is strange that 'GST' for a tax period is identified as the GST 'on the taxable supplies that are attributable to the tax period', since an examination of Division 29 of the GST Act confirms that 'taxable supplies' are not attributable to tax periods. In terms of Division 29, there are only three things that are attributable to tax periods. They are GST, input tax credits and adjustments: see s 29-5 for GST, s 29-10 for input tax credits and s 29-20 for adjustments. 'Supplies' and 'acquisitions' are not attributable to tax periods.

[43] The only sensible way to read that part of the definition of 'net amount' in s 17-5 that refers to GST is to read the reference to 'GST for which you are liable on the taxable supplies that are attributable to the tax period' as if it were a reference instead to 'GST for which you are liable that is attributable to the tax period'.

[44] Similarly, 'input tax credits' in the definition of 'net amount' must be 'input tax credits to which you are entitled that are attributable to the tax period'."

15. I adhere to that view.

16. Division 33 of the GST Act deals with a taxpayer's obligation to pay its net amount to the Commissioner - but only if the net amount is greater than zero. There is no suggestion here that the applicant made taxable supplies during the relevant period, so its net amount for the period cannot be greater than zero. Division 33 does not apply.

17. Division 35 of the GST Act is headed "Refunds". Section 35-5 provided at the relevant time (notes omitted):

"If the *net amount for a tax period is less than zero, the Commissioner must, on behalf of the Commonwealth, pay that amount (expressed as a positive amount) to you."

18. Section 35-10 provided:

"Your entitlement to be paid an amount under section 35 5 arises when you give the Commissioner a *GST return."

19. Division 35 will have some relevance only if the applicant's net amount for the relevant period is "less than zero".

20. Now, the applicant claims that its net amount is less than zero, but the Commissioner does not agree. The Commissioner says the net amount is exactly zero - nothing payable under Division 33, nothing refundable under Division 35. If the applicant is right, and its net amount is less than zero, then its entitlement "to be paid an amount under s 35-5" arose when it lodged its BAS - and that happened no later than 7 October 2003. Of course, the only amount that can be paid under s 35-5 is the net amount (expressed as a positive amount) - which, in a case such as the present (where no taxable supplies were made), will be equal to the ITCs available.

21. We now move to the TAA. Section 105-5 in Schedule 1 to that Act provides (note omitted):

" 105-5 Commissioner may make assessment of indirect tax

• (1) The Commissioner may at any time make an assessment of:
  • (a) your *net amount, or any part of your net amount, for a *tax period; or
  • (b) your *net fuel amount, or any part of your net fuel amount, for a tax period or *fuel tax return period.
• (2) The Commissioner may at any time make an assessment of the amount of *indirect tax payable by you on an importation of goods.
• (3) The Commissioner may make an assessment under this section even if he or she has already made an assessment for the *tax period, *fuel tax return period or importation concerned.

  …(Original emphasis.)

  "

22. Section 105-50 in Schedule 1, in the form that it took at the relevant time, provided (note omitted):

" 105-50 Time limit on recovering unpaid net amounts, net fuel amounts and indirect taxes

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.

  …(Original emphasis.)"

23. Finally, s 37 of the TAA provided at the relevant time:

37 Reliance on Commissioner's interpretation of an indirect tax law

• "(1) This section applies to you if:
  • (a) the Commissioner alters a previous ruling that applied to you; and
  • (b) relying on the previous ruling, you have underpaid a net amount or an amount of indirect tax, or the Commissioner has overpaid an amount under section 35 5 of the GST Act, in respect of one or more:
    • (i) taxable supplies or taxable importations; or
    • (ii) taxable dealings; or
    • (iii) taxable supplies of luxury cars or taxable importations of luxury cars; or
    • (iv) creditable acquisitions or creditable importations; BREAKthat happened before the alteration.
• (2) Unless the Commissioner is satisfied that you contributed to the giving, or continuing in force, of the earlier ruling by a misstatement or by suppressing a material fact:
  • (a) the underpaid indirect tax ceases to be payable; or
  • (b)the overpaid amount under section 35 5 of the GST Act is taken to have been payable in full; BREAKfrom when the previous ruling was made.
• (3) …
• (4) In this section:

  …

  ruling means any ruling or advice given or published by the Commissioner, including one that has been previously altered, but not including:

  • (a) one given orally; or
  • (b) an assessment. BREAK… BREAK(Original emphasis.)"

The timing issue

24. The applicant submits that both the Notice to Repay and the Notice of Assessment are "ineffective" because of the operation of s 105-50 in Schedule 1 to the TAA.

25. The applicant's argument proceeds in this way (references are to paragraphs in the applicant's written submissions):

• (a) The "debt" claimed by the Commissioner must have become "payable" on the same date on which the applicant became entitled to receive payment of the (negative) net amount shown in the BAS: that is, on or before 7 October 2003 - paragraph 16;
• (b) The Notice to Repay did not, and could not, establish a liability on the part of the applicant. The notice merely established the period in respect of which the Commissioner could raise an assessment - paragraph 38;
• (c) The liability to repay was created by the Notice of Assessment - paragraph 39;
• (d) The fact that the "debt" which is the subject of this proceeding was created by the assessment means that the amount in dispute must be either a net amount or an amount of indirect tax - paragraph 42;
• (e) If the amount is either a net amount or an amount of indirect tax then the Commissioner must require its payment within four years; otherwise, by s 105-50, it "ceases to be payable" - paragraphs 50-51;
• (f) If the amount is neither a net amount nor an amount of indirect tax then "the assessment which the Commissioner has made must be invalid as the Commissioner has no power to make such an assessment" - paragraph 25.

26. At the root of the applicant's argument is the somewhat ambitious attempt to characterise the amount claimed by the Commissioner as either a net amount or an amount of indirect tax , and by extension, an unpaid net amount or an unpaid amount of indirect tax . It is clear that this is the critical element of the argument, for if the amount answers neither of those descriptions, s 105-50 can have no application.

27. It is equally clear that the applicant's argument, at least in relation to the attempted characterisation of the amount in question as an "unpaid net amount", must fail. In
Russell v Commissioner of Taxation [2009] FCA 1224, Logan J said:

"[254] A remaining issue is whether, insofar as it related to a period prior to 1 July 2002, the issuing of the GST assessment was beyond power. The inspiration for Mr Russell's raising this issue would seem to be the supposed expiration of the 4 year period after which, subject to an exception to which I shall shortly refer, in the absence of a notice from the Commissioner within that period requiring payment, an unpaid net amount together with any related general interest charge ceases to be payable: see s 105-50 of Schedule 1 to the TAA. The exception to this statutory expiration arises where the Commissioner is satisfied that the payment of the amount was avoided by fraud or evasion.

[255] The short answer to Mr Russell's reliance on this provision was provided by the Commissioner in submissions. It only applies to the situation where a net amount of GST is payable to the Commissioner. That conclusion flows necessarily from the words "payable by you" in the provision. Section 105-50 of Schedule 1 to the TAA has nothing at all to say where, as is now the case here, there is no controversy about an unpaid net amount, only a controversy about an entitlement to claim particular input tax credits. (Emphasis added.)"

28. The conclusion in the highlighted sentence disposes of this part of the applicant's argument. But what of the alternative possibility, with which his Honour did not deal in Russell, that it is an "unpaid … amount of indirect tax"? In my view, the amount in question does not answer that description either.

29. The expression "indirect tax" appearing in s 105-50 is a defined term. Its meaning is found, because of s 3AA(2) of the TAA, in s 995-1 of the Income Tax Assessment Act 1997 (ITAA). The expression is defined as follows:

" indirect tax means any of the following:

• (a) *GST;
• (b) *wine tax;
• (c) *luxury car tax. BREAK(Original emphasis.)"

30. Paragraphs (b) and (c) of that definition have no relevance here.

31. Section 995-1 of the ITAA defined "GST" (paragraph (a) of the definition of "indirect tax") as having the meaning given by s 195-1 of the GST Act. That meaning at the relevant time was:

"GST means tax that is payable under the *GST law and imposed as goods and services tax by any of these:

• (a) the A New Tax System (Goods and Services Tax Imposition - General) Act 1999; or
• (b) the A New Tax System (Goods and Services Tax Imposition - Customs) Act 1999; or
• (c) the A New Tax System (Goods and Services Tax Imposition - Excise) Act 1999; or
• (d) the A New Tax System (Goods and Services Tax Imposition (Recipients) - General) Act 2005; or
• (e) the A New Tax System (Goods and Services Tax Imposition (Recipients) - Customs) Act 2005; or
• (f) the A New Tax System (Goods and Services Tax Imposition (Recipients) - Excise) Act 2005. (Original emphasis.)"

32. In broad terms, the first three of those imposition Acts impose GST on suppliers and importers, and the last three impose a "reverse charge" GST, in specified circumstances, on recipients of taxable supplies. This multiplicity of imposition Acts is mandated by s 55 of the Constitution, but in practical terms there is no distinction between the Acts referred to in paragraphs (a), (b) and (c), or between those referred to in paragraphs (d), (e) and (f).

33. One may take the Act referred to in paragraph (a) as a representative example for the purposes of the current discussion. That Act provides in s 3(1):

"The tax that is payable under the GST law (within the meaning of the A New Tax System (Goods and Services Tax) Act 1999) is imposed by this section under the name of goods and services tax ( GST ). (Original emphasis.)"

34. There is a similarity of expression between that subsection and the introductory words of the definition of "GST" in s 195-1 of the GST Act. GST, as defined, is the "tax that is payable under the GST law" ("GST law" means, relevantly, the GST Act itself, the imposition Acts, and relevant parts of the TAA). It is only that tax - the tax that is payable under the GST law and imposed as goods and services tax - that is GST within the definition of "indirect tax" in s 995-1 of the ITAA, and it is only that tax that, relevantly, can make up an "amount of indirect tax" for the purposes of s 105-50 in Schedule 1 to the TAA.

35. That tax does not include amounts claimed as ITCs because they are not the "tax that is payable under the GST law and imposed as goods and services tax". ITCs are something else entirely. ITCs are defined in s 195-1 of the GST Act as "an entitlement arising under s 11-20 or 15-15". An "entitlement" of a taxpayer is the exact opposite of an amount that is "payable" by a taxpayer. And it is the fact that ITCs are an "entitlement", rather than an amount that is "payable", that explains why the expression "amount of indirect tax" in s 105-50 in Schedule 1 to the TAA (which talks of amounts that "[cease] to be payable") is no more apt to describe amounts claimed as ITCs than is the expression "net amount": see Russell at [255].

36. For completeness, I note that the Commissioner's "Submissions in Reply" included the following explanation in rebuttal of the applicant's submission at paragraph 39 ([25](c) of these reasons):

"[3] However, while the Commissioner issued an assessment under s 105-5, the liability in respect to recovering the incorrectly claimed input tax credit for the acquisition of the premises was raised under s 8AAZN(1) of the [TAA]. This section provides that an administrative overpayment is a debt due to the Commonwealth by the person to whom the overpayment was made and is payable to the Commissioner. An administrative overpayment means an amount that the Commissioner has paid to a person by mistake, being an amount to which the person is not entitled (see s 8AAZN(3))."

37. The applicant filed "Supplementary Submissions in Reply" on 31 March 2011, which included the following:

• [2] The debt in question is not described in any of the document[s] as having arisen by reason of a payment made by mistake.
• [3] The debt in question could not arise under section 8AAZN as asserted by the Respondent because the refund was not paid by mistake The refund was paid after an investigation by the Respondent. The Respondent was aware of all relevant facts and the relevant law at the time of payment so there could not be mistake.
• …
• [6] A payment by mistake can only occur where the Commissioner is not aware of all relevant facts or the law that should be applied to those facts once known. For example, where a net amount is refunded without investigation by the Commissioner. However, the facts in this case are clear, the Commissioner was aware of all the necessary facts and law before the decision was made.
• [7] Irrespective of whether there was a payment by mistake, section 8AAZN is not intended to override section 105-50 [in Schedule 1 to the TAA] which sets a four year time limit on the reclaiming of underpaid liabilities. (Original emphasis.)

38. I do not accept the applicant's submissions. The fact (if it is a fact) that the Commissioner's officers undertook an "investigation" of the applicant's circumstances does not mean that the refund was not paid by mistake. What the subsequent events demonstrate is that the Commissioner once formed a view that he now thinks is wrong. The law does not prevent the Commissioner from changing his mind.

39. As for the assertion in [7] of the supplementary submissions, the question of one provision overriding another does not arise since s 105-50 of Schedule 1 to the TAA does not apply to the applicant's circumstances.

40. The applicant does not succeed on the timing issue.

The ruling issue

41. The applicant states in its written submissions:

• [83] Following lodgement of the BAS by the applicant, the respondent carried out an investigation and sought additional information which was provided. There were, according to the applicant's records 5 separate conversations with the respondent's representative and copies of the purchase contract and tax invoice were provided.
• [84] The applicant was advised by telephone of the successful completion of the investigation and the decision to pay the refund was published when it was formally recorded as a liability owing by the respondent on the applicant's running balance account.
• [85] It is our submission that the actions of the respondent constitute the giving of a private ruling as this term was defined at the relevant time.
• [86] In our submission the exclusion for advice given orally does not and should not apply in circumstances where the Commissioner has made a considered decision after receiving all the information and documentation he considered necessary to form an opinion. The respondent then confirmed this decision through publication in the applicant's running balance account. (Original emphasis.)

42. Those submissions are not well founded.

43. To post an amount to a taxpayer's running balance account is not to "give" or "publish" a "ruling" or "advice". The only other action of the Commissioner which could possibly amount to the giving of a ruling or advice is the indication by one of his officers, over the phone, that the "investigation" had been completed successfully. Even if that conversation had included a statement that the refund would be paid, such a statement, given orally, is specifically excluded from the definition of "ruling". The applicant's submission that the exclusion for rulings or advices given orally should be limited in the way suggested in [86] of its submissions cannot be accepted.

44. The applicant does not succeed on the ruling issue.

If the applicant had succeeded on either the timing issue or the ruling issue, would it have shown that the assessment is "excessive"?

45. In their joint outline of submissions the parties submit that both s 105-50 and s 37 affect, or go to, the "substantive liability" of a taxpayer and, therefore, the excessiveness of an assessment. I agree with that submission.

46. In particular, the joint submissions state:

• "[8] On its proper construction, s 105-50 is not simply directed towards imposing procedural constraints on the recovery of an unpaid net amount or amount of indirect tax - the section has a substantive operation in that the expiry of the 4 year limitation under sub-s (1) extinguishes a taxpayer's underlying liability in relation to an 'unpaid net amount' or 'amount of indirect tax' by providing that those amounts 'cease to be payable'. The references in s 105-50(1) to an unpaid 'net amount' or 'amount of indirect tax' draw on concepts of GST liability embedded elsewhere in Sch 1 to the [TAA] and, more importantly, the [GST Act]
• …
• [10] In the GST Act, the word 'payable' is a word employed to identify a GST liability. For example, s 9-40 of the Act headed 'Liability for GST on taxable supplies' provides that 'You must pay GST payable on any *taxable supply you make'; see also s 7-1, 11-25 and 17-1 of the GST Act.
• [11] Similarly, 'net amount', by reference to s 995-1 of the [ITAA] and s 195-1 of the GST Act has a meaning relevantly given by s 17-5 of the GST Act. If a net amount is greater than zero, the net amount must be paid to the Commissioner: s 33-3 of the GST Act. A net amount under s 33-3 of the GST act is a 'tax-related liability' as identified in Item 5 of the table included in s 250-10(2) of Sch 1 to the TAA. A tax-related liability is a debt due to the Commonwealth and payable to the Commissioner: s 255-5(1).
• [12] Accordingly, the references in s 105-50 to an unpaid 'net amount' or 'amount of indirect tax' identify liabilities which arise under the GST Act. If an unpaid net amount or amount of indirect tax ceases to be payable in accordance with s 105-50(1), the very liabilities that a 'net amount' and 'amount of indirect tax' represent under the GST Act cease to exist.
• [13] Within Pt IVC, s 14ZZK(b)(i) of the TAA provides that the taxpayer has the burden of proving that an assessment is 'excessive'. The word 'excessive' in s 14ZZK(b)(i) relates to 'the amount of the substantive liability':
  McAndrew v Federal Commissioner of Taxation 98 CLR 263, 271 (Dixon CJ, McTiernan and Webb JJ).
• [14] A taxpayer may demonstrate the excessiveness of an assessment in different ways. An assessment made 'without power' will be excessive within the meaning of s 14ZZK(b)(i) of the TAA:
  Copperart Pty Ltd v Commissioner of Taxation 93 ATC 4779; [1993] FCA 462, 4790 (Hill J). Similarly, an assessment which purports to impose a liability on a taxpayer in excess of that which he or she may lawfully be subjected is an assessment which is 'excessive': McAndrew, 282-283 (Taylor J).
• [15] Drawing s 105-5 and 105-50 together in the context of Pt IVC, a taxpayer is entitled to challenge the excessiveness of an assessment on the grounds that liability in relation to the net amount assessed has ceased to exist because of the expiry of the limitation period under s 105-50(1). In other words, an assessment made under s 105-5 will be 'excessive' within the meaning of s 14ZZK(b)(i) of the TAA where the true liability of the taxpayer is 'nil' because the liabilities have been extinguished under s 105-50(1)."

47. Those submissions, in my opinion, are correct. It follows that if the applicant had succeeded in relation to the timing issue, it would have shown that the assessment is "excessive".

48. The same broad considerations apply in relation to s 37 of the TAA. Therefore, I accept that if the applicant had succeeded in relation to the ruling issue, it would have shown that the assessment is "excessive".

Conclusion

49. Since the applicant has failed on both the preliminary issues, it will be necessary for the Tribunal to consider the substantive issues identified in [4] of these reasons.

50. The matter will be listed for directions at a time convenient to the parties.

•