Case Study On Australian Taxation Issue – AATA 810

Introduction:

Discuss about the Case Study for Australian Taxation Issue.

Australian Government has distinct taxation systems in many forms to earn revenue for the people and organizations of Australia as per the set method and standard. Every individual and business organization has to pay taxes to all levels of government authorities. Normally taxes are collected to transfer payments and pay public services with the compulsory expenses to be borne by the government for the interest of the nation. 

There prevail various types of taxes in Australia namely Personal Income Taxes, Capital Gains Tax, Corporate Taxes, Trustee Liability Taxes, Goods and Services Taxes, Property Taxes, Departure Tax, Excise Taxes, Fuel Taxes, Luxury Car Tax, Customs Duties, Payroll Taxes, Fringe Benefit Tax, Inheritance Tax, Superannuation Taxes etc. The most significant form of Australian Taxation is Income Tax which is collected by federal government through Australian Taxation Office. The Goods and Services Taxes or GST is also collected by the federal government of Australia (Reinhardt & Steel, 2010). 

The various Acts are applied on taxation systems. Section 14ZZC implies the Taxation Administration Act 1953, Section 29 implies Administrative Appeals Tribunal Act 1975, Section 995-1 refers Income Tax Assessment Act 1997, and Section 105-5 refers to Administrative Act etc. 

In this article we will discuss a case study of appeal to the Administrative Appeals Tribunal of Australia. The case to be discussed here is related to Goods and Service Tax and the parties to this case are FKYL as applicant and Commissioner of Taxation as respondent. The petition has been made to the Administrative Appeals Tribunal of Australia by the applicant to get rid of the penalties imposed by the Commissioner of Taxation. Referred case number is AATA 810 dated 14^th October 2016. 

Section 14ZZK of the Administrative Act implies that applicants must bear the onus of the taxes to prove that the assessments were excessive since the most of the applicants apparently have no legal issue for objections but rather they are concerned with the justice of the reassessment of the process. 

Section 105-5 provides that the assessment of the net amount of part of the net amount for a tax period can be levied at any time by the Commissioner. This is a discernable issue to go to the right of the Commissioner to make the assessments outside what was declared as time bound (ATO, 2015). 

Section 155-65 of the Administrative Act infers that within 4 years of starting of the day the Commissioner first gave the notice, he/she may also amend the assessment which is simply lawful. There have few instances. On 27^th November 2014 the applicant with notices of assessment of net amount was issued by the Commissioner, the quarterly tax period was between 1^st July 2010 and 30^th June 2012. A notice of amended assessment of the net amount in respect of the quarter between 1^st July 2012 and 30^th September 2014 was issued by the Commissioner later. 

Outline of the Section Breached:

The Commissioner called attention to a point that the applicant has misdirected the focus of the taxation on the purchased land or completed house onto the years rather than the date of supply of each of those properties occurred. The date of supply rather the date of purchase or completion of construction attracts GST liability (Austlii, 2003). 

According to Section 40-75 of the GST Act, the Applicant refers that they can sell a house being used more than five years. The Applicant claimed that they were no longer subject to any GST. This is not an accurate description. 

Section 40-35(1) (a) of the GST Act refers to input tax to the five-year rule which applies only of the residential premises which are new residential premises and have only been used for making supplies. The day starts on that day on which the premises or building or land is being used as a residential accommodation. In other words, time is only being counted once a person has a right to occupy the premises; it’s not that the period during the construction continues. The property should be examined to determine if that becomes residential premises whether the five-year rule applies. There was an instance on email dated 18^th February 2015 to the ATO, the Applicant said that each house was built and expressed the purpose of selling it (Austlii, 2017). 

1. In the referred case of Appeal to the authority by FKYL, it was observed by the appellate authority that FKYL who were registered under GST refer to Division 25 of GST was found to be the sole trader of carrying out the business of house construction. They were engaged in the construction of premises which were used for residential purpose in four blocks of Victoria. FKYL had rented those premises initially and then they were subsequently sold to the intended buyers.
2. There were no production of tax invoice to the Australian Taxation Office with no claim of input tax credit by the applicant refer to the premises as they were purchased by the applicant on Margin Scheme as per section 75-5 of the GST Act.
3. For the quarter ending 31.03.2011, the applicant had claimed input credit of GST for $ 81,635.
4. Commissioner of Taxation had informed KFYL that an audit will take place for the period 01.07.2010 to 30.06.2014.
5. The commission informed the applicant that GST and ABN registration of KFYL is cancelled with effect from 30.09.2014 and also informed an imposition of administrative penalty of $ 40,817.50.
6. Computation of total demand by the Commissioner was $ 81,635 and assessed penalty was $40,817.50.
7. The applicant had lodged and informal complaint against this imposition by ATO which was subsequently attended by officer of Tax department. It was observed by the officer that the registration of KFYL could reinstated related to GST and ABN and the applicant is not eligible for claim under Margin Scheme due to non existence of Agreements between the seller and the buyer as per Section 75-5 of Act no. 78.the process concluded with the fresh determination of GST of Applicant as $ 116,091(Austlii, 2016).
8. Further to the above calculation, input credit allowed to the applicant was $ 45,652 on account of construction cost and $ 8,115 on non-construction costs.
9. Applicant was not satisfied with this decision and had placed their application to the Tribunal as per section 29 of the Administrative Appeals Tribunal Act 1975.

Egon Fice, Senior Member of the Tribunal has depicted following points:

1. It is being observed that the objections of the applicant had no legal basis but were more intended with fairness of the process for reassessment. As per section 14ZZK of Administration Act, liability is to be borne by the applicant to prove the assessment was incorrect so far excessiveness of imposed amount. The proceedings will honor only the claim justified with legality (Austlii, 2017).
2. Basic perceptible issue as raised by the applicant so far the right of the Commissioner related to time limit for assessment are endorsed by Section 105-5 and 155-60 of Administration Act for the purpose of derivation of assessment amount with feasible amendment .
3. It is also noted that the notice of assessment issued by the Commissioner is as per section 155-65 of the Administration Act so far time limit is concerned(Legislation, 2012).
4. As per the notification of the Commissioner, the applicant had tried to mislead the authority related to purchase of land and the completion of the premises instead of the properties being transferred, which is liable to GST liability.
5. As per the applicant, the premises were sold when they were older than five years which is to substantiate non-applicability of GST which was also misleading as per section 40-75 of GST Act.(Austlii, 2003)
6. Refer to compliance of five year rule related to premises sale out, it is being observed that the applicant has not complied with the rule and proved that cost of supply of the properties are to be covered under the GST Act as per supply of new residential properties.
7. Refer to eligibility under margin scheme the same had not been complied with section 75-5 of GST Act due to absence of agreement between the applicant and the buyers. This had authenticated the claim of the Commissioner to levy GST on the supply of the properties beyond the effect of margin scheme (Austlii, 2000).
8. Refer to input tax credit of the case, the same is being conferred in section 11-5 and 11-15 of the said Act related to creditable acquisition whether partly or fully and it is also observed that the Commissioner had considered construction and non-construction costs.
9. Refer to construction cost, it is considered by the Commissioner that part of construction cost is comprised of taxable supplies and part is with input tax supplies which attracted the application of section 11-30 of GST Act and the apportionment of cost was considered by the Commissioner which, as per him, was fair and reasonable with the context. The commissioner had not allowed the claim of the applicant for expenditure spent consequential to renting of the premises. It is rightly done by the Commissioner as the same expenses were not spent for creditable purposes and that should be subsequently disallowed (Legislation, 2012).
10. Refer to non-construction cost, the applicant had applied for time and that had been allowed by the Tribunal. In spite of that allowed time, applicant had sent a mail on 05.05.2016 which had altered the earlier claim of non-construction costs with the justification to rely upon the purpose of the application which was declined as the same was supported by unauthenticated invoices with unclear type of description contained in the invoices.
11. Refer to concluding penalties the same had been provisioned through section 284-75 so far eligibility of penalties to the applicant is concerned, and 284-80 so far the amount of penalties to be imposed. It was found that the Commissioner had levied at the rate of 25% for incomplete submission of BASs.

Conclusion: 

The Tribunal Authority had conferred that the Commissioner was entitled legally at any time to do any assessment of the net payable amount of GST less input credit for the specified quarterly period between 01.07.2010 to 30.06.2012. Since 01.07.2012 as per introduction of Subdivision 155-A, the commissioner is empowered to amend the assessment of the assessable amount which is to be exercised with four years with the start day after the day on which first notice had been served by the Commissioner under Section 155-10 of Administration Act.

It is also pointed out that the commissioner had made some arithmetical mistake in determination of input tax credit related to non-construction costs. The amount of input tax credit should be $ 8115 instead of $6,296 which is found correct.

 It is also conferred that the applicant is not entitled for any GST Credit related acquisitions of the properties due to non applicability of margin scheme, but they are eligible GST credit for construction and non-construction costs with the consideration that same expenses are not connected to the rental of the properties.

It was observed that the assessment done by the Commissioner regarding GST credit entitlement percentage had shown reasonable and justified apportionment considering allowable and non-allowable expenditure keeping in mind the role of the applicant to bear the onus of the Applicant to prove the assessment is excessive and the Applicant could not discharge onus in this aspect.

The Commissioner had made reduction of the shortfall penalties of the applicant from 50 to 25% which is right decision as the applicant had not been able to show reasonable care to compete the BASs.

With the above conclusions, it was found to be judicious and lawful on the part of the decision of the Commissioner related to the GST liabilities of the Applicant in each assessed quarter and found those are correct for the period ended on 31.03.2011. The amount thus derived should vary to $ 17,910 following the shortfall penalty of the applicant to be reduced to $ 14,394. There was no such evidence produced by the applicant which can make these amounts reduced.

References: 

ATO, 2015. History. [Online] Available at: https://www.ato.gov.au/About-ATO/About-us/Who-we-are/Our-history/ [Accessed 05 February 2017].

Ato, 2016. Working out your capital gain. [Online] Available at: https://www.ato.gov.au/general/capital-gains-tax/working-out-your-capital-gain-or-loss/working-out-your-capital-gain/ [Accessed 05 February 2017].

Austlii, 1999. A new Tax System (Goods and Services Act) Act 1999. [Online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/antsasta1999402/ [Accessed 05 February 2017].

Austlii, 2000. Commonwealth Consolidated Acts. [Online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/antsasta1999402/s195.1.html [Accessed 05 February 2017].

Austlii, 2000. Taxation Administration Act 1953. [Online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/taa1953269/ [Accessed 05 February 2017].

Austlii, 2003. Taxation Administration Act 1953 – Schedule 1. [Online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/taa1953269/sch1.html [Accessed 05 February 2017].

Austlii, 2016. Administrative Appeals Tribunal of Australia. [Online] Available at: https://www.austlii.edu.au/au/cases/cth/AATA/2016/810.html [Accessed 06 February 2017].

Austlii, 2017. A new Tax System(Goods and Service Tax) Act 1999 – Notes. [Online] Available at: https://www.austlii.edu.au/au/legis/cth/consol_act/antsasta1999402/notes.html [Accessed 05 February 2017].

Legislation, 2012. Indirect Tax Laws Amendment (Assessment) Act 2012. [Online] Available at: https://www.legislation.gov.au/Details/C2016C00974 [Accessed 05 February 2017].

Reinhardt, S. & Steel, L., 2010. A brief history of Australia’s tax system. [Online] Available at: https://www.taxsuperandyou.gov.au/sites/default/files/01_Brief_History.pdf [Accessed 05 February 2017].