Cyonara Snowfox Pty Ltd V Commissioner Of Taxation - Case Analysis

Discuss about the Cyonara Snowfox Pty Ltd v Commissioner of Taxation.

The current report considers the long and expensive history concerning the GST. The study considers the “Cyonara Snowfox Pty Ltd v Commissioner of Taxation 2012 FCAFC 177” where the federal court of Australia unanimously terminated the taxpayer’s petitions arising from the verdict of the tribunal (Tang 2015). The tribunal held its decision concerning the number of sales of real property;

1. The taxpayer was unable to select the margin scheme
2. The taxpayer failed to establish that the supply made was free of GST in the form of going concern
3. The commissioner was barred from recovering the GST since it failed to issue a legitimate notice under “section 105-50 of schedule 1 of the TAA”.

The proceeding primarily dealt with GST treatment for the disposal of certain lots for the development of the property conducted by the taxpayer. The land was purchased by the taxpayer during 1977, which was further subdivided for sale. This includes;

Lot 1 was sold with a selling price of $1.5 million. No agreement of sale was produced during settlement and the amount of $1,655,981 paid for settlement took place in 16 September 2004. This included an amount of $150,534 towards GST. The taxpayer did not account for GST on this sale in its statement (Woellner et al. 2016). Upon audit the commissioner issued an assessment and increased the GST by $150,543 to impose GST on the sale of first lot. Additionally, the commissioner also laid down the penalties of 50% for being irresponsible, which was remitted down to 20%. The taxpayer further sold other plot of land where GST was payable by the taxpayer. During the month of October 2005 a sale of 3.7 million was made and subjected to the condition that the taxpayer would have a two-year lease over the property beginning from 7^th December 2005. However, the purchaser became registered for GST on 1^st January 2006. It was found that the tax payer issued an invoice of tax to the purchaser reflecting GST payable of $370,299 since the commissioner turned down the tax payer claim that the supply made was free of GST in the form of going concern.

The commissioner imposed a penalty of 25%, which was remitted in full. The proceeding also concerned an acquisition of property lot 202 during December 2005 for a sum of $3.4 million for which the settlement took place on 23 December 2005. On march 21 2007 the taxpayer lodged a BAS for February 2007 where it made a claim of input tax credit of $3.4 million (Liu, Huang and Freudenberg 2014). It was found that the commissioner reduced the input tax credit to zero based on the condition that the taxpayer did not accepted that he was entitled to claim the credits.

Case Analysis

Upon the analysis of this case, three substantial matters were introduced before the tribunal. These are as follows;

1. It raises a question whether the taxpayer was entitled to make use of the margin scheme for sale of lots 1 and 9 (Yong and Ma 2015). The taxpayer made the choice after the elapse of two years time on the amount of GST payable for supply made on the purchase price with 10% GST.
2. It also raises question whether the taxpayer had discharged its obligation of illustrating that the sale of Lot 8 was free from GST in order to represent the supply of going concern.
3. Whether the commissioner was entitled to recover the unpaid amount of GST under the operation of “section 105-50 of Schedule 1 of the TAA”. It was contented by the taxpayer that the GST had ceased to be payable since the commissioner had failed to provide Cyonara a notice requiring it to pay GST (May 2016). Prior to the tribunal the commissioner conceded that the taxpayer was entitled to input tax credit on acquiring the lot of 202.

Primarily, it should be noted that the “Division 75” was modified to give effect that the parties must agree in writing prior to the supply made to make use of the margin scheme. The issue raised in the preceding was concerned with the provision in force before that time (Nguyen 2016). This allowed the supplier to select from the margin scheme in working out the sum of GST payable on the supply made.

The taxpayer contented that the tribunal can choose to apply the margin scheme while working out the sum of GST on the supply made. However, it should be construed in such a manner that the taxpayer retains the choice of margin scheme until GST is finally worked out. The tribunal further contributed that the scheme of GST Act states the supplier to ordinarily work out the amount of GST while making any taxable supply (Ramli et al. 2015). The option of executing the option scheme must be made prior to any supply is made.

The tribunal laid down that the tax payer was unsuccessful in establishing the facts since each of the integers required under “section 38-325” of the act to be GST free for a going concern. The taxpayer contented that the lot 8, which was partitioned into three units, was earlier leased to entities, hence they subsequently failed to pay on lease. No evidence of such failure was put before the tribunal of the lease being register whereas only one of the three purported leases was used as evidence. Oral evidence was provided on behalf of the tax payer though the commissioner overruled by stating that this did not discharge the taxpayers burden off demonstrating whether it was carrying on a lease enterprise before the sale of lot 8. As stated under “Jones v Dunkel (1959)” the commissioner contented that the taxpayer failed to produce any witness and the tribunal should infer such evidence would hardly assist the taxpayer (Nguyen 2016). The tribunal further laid down that such inference should be drawn due to the absence of witness and most significantly critical documents.

The tribunal also found that it was not satisfied that the taxpayer was carrying on a leasing enterprise during any time before the day of supply. The tribunal identified that the taxpayer on numerous occasions attempted to obtain a tenant to obtain a lease. However, it was not stated by Cyonara that the enterprise of leasing could be carried on by simply seeking to obtain a tenant.

On Appeal

The tribunal dealt with the issue of limitation in the form of preliminary question under “section 137 of AATA”. The taxpayer contented that the commissioner failed to provide the taxpayer with the notice under “section 105-50” within years of GST being payable. Furthermore the commissioners notice of assessment did not construed as notice under “section 105-05 of the Schedule 1 of the TAA” which lays down that the liability to pay GST does not depends or is effected by the making of the assessment (Millar 2014). The tribunal turned down contention and discovered that the notice of assessment was considered in the form of notice under “section 105-50”.

Upon substantial hearing, the applicant further raised an additional contention. The commissioner conceded that the taxpayer was entitled to input tax credit on acquiring the lot 202 and the notice of assessment reflected an amount was payable, which the taxpayer incorrectly inflated with the sum of those credits. The notice of assessment was considered as incapable of being called as notice within the purpose of “section 105-50 of the schedule 1 of the TAA”. Hence, it could not be regarded as valid notice since it failed to acquire payment of the right amount (Millar 2014).

The tribunal turned down the taxpayer’s assertion and remained depended upon the principles derived from “Walsh v Deputy of Commissioner of Taxation v McVardle 2004”. The objective of the notice is to inform the recipient of the sum of debt acknowledged by the commissioner to be paid despite that the sum may be altered by the cause of concession made in the later stages by the commissioner (Sawyer 2014). Hence, the legality of the notice was hardly affected by the commissioners following the change in position on the query of entitlement to input tax credits.

The court further discovered that the tribunal had not made any error of law in the construction of “section 75-5”. “Under section 75-5” a clear purpose of providing the supplier with the choice of a method of working out the amount of GST payable at the time of making taxable supply of the actual property. This avoids the unfairness of the sum of GST being worked out upon the entire price of supply where no input tax credit is generated on the upstream acquisition (McDaniel 2015). The objective is to provide for the computation of the GST upon the described amount of margin. The section is aimed towards the facultative process of calculation while making the taxable supply.

Notice of Motion

The first notice of motion is issued to make declaration that any kind of GST payable on Lot 1 to 10 shall not be not be recoverable due to the operation of “Section 105-50 of schedule 1 to the TAA”. The court was satisfied with the agreement of the commissioner that the notice was inappropriate and must be dismissed since the taxpayer had filed an application of review to the tribunal (Evans et al. 2014). The taxpayer at first reviewed the proceedings in pursuant to “section 5 of the administrative decision act 1977” by challenging the decision passed by the tribunal upon the preliminary question under “section 105-50”.

The commissioner filed a notice motion to seek the dismissal of such proceedings (Ma 2015). The court following the review of the scheme in relation to the “part 3-10 of chapter 3 under schedule 1 of the TAA” pursuant to GST act discovered that the liability to pay arises under the GST act (Lignier et al. 2014). The provision of concerning the notice of assessment functions as notice by the commissioner and the taxpayer should pay to the commissioner on behalf of the commonwealth the net sum of any unpaid GST. The court further stated that it did not found any kind of error ion the tribunal’s construction.

Conclusion:

To conclude with it is found that proceeding raised numerous multifaceted issues as all favoured the commissioner. Concerning the margin scheme issue, one can understand the reasoning required by the supplier to make the choice of applying the margin before the supply made. Concerning the going concern issue, the case laid down the evidence that the amount worked out on the approved form constituted the net amount of entity for a period. However, it is difficult to succeed upon the oral evidence and the decision was handed after the federal court had reserved its decision concerning this case.  

References

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