The general subject of “Recourse to foreign authority in deciding Australian tax cases” has recently been addressed by my colleague
Justice Richard Edmonds in an article bearing that title and published at (2007) 36 AT Rev 5, which I commend to you.
The subject of this keynote address is more specific: it is the horribly named A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act).
I will use “GST” as an abbreviation for “goods and services tax”, “VAT” as an abbreviation for “value added tax”, and “AAT” as an
abbreviation for the Administrative Appeals Tribunal.
I will not repeat material in Justice Edmonds’s article but it is worthwhile noting the following points from it.
In Avon Products Pty Ltd v Commissioner of Taxation (2006) 230 CLR 356, the question was whether a taxpayer was entitled to a credit for sales tax overpaid. The answer depended on whether
the taxpayer had passed on the amount overpaid. In the Full Court of the Federal Court ((2005) 223 ALR 259) the taxpayer had relied
on United States and United Kingdom authorities but the majority said that it had derived little or no assistance from them (at [11],
[17]). Similarly, the High Court said (at [28]) that the international authorities relied on by the taxpayer must be treated with
considerable caution because they were decided under different statutory régimes. The High Court said that the international authorities
tended “to muddy the waters rather than to eliminate them” (at [28]).
Another case noted by Justice Edmonds in his article was a GST case, Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256. In that case the question was whether a packaged holiday tour of Australia sold by Saga to non-Australian residents
was, within the meaning of s 9-5 of the GST Act, to any extent a taxable supply. Before the Full Court of the Federal Court, Stone
J, with whom Gyles J agreed, said that she agreed with the primary Judge, Conti J, that the United Kingdom case Beynon and Partners v Commissioner of Customs and Excise [2005] 1 WLR 86 was of little assistance. Her Honour referred to the High Court’s comment in Avon at [28] (noted above) that considerable caution must be exercised before international authorities dealing with different statutory
régimes are relied upon.
In his article, Edmonds J referred to Roxborough v Rothmans of Pall Mall Australia Ltd (2001) 208 CLR 516 in which the question was whether a claim for restitution could be made in respect of overpayment of tax which
was declared unconstitutional and therefore invalid, notwithstanding that the amount had in fact been passed on. In this case, unlike
Avon, the High Court freely referred to foreign cases in support of its conclusion. They included cases from the United Kingdom, the United
States, Canada and the European Union.
It will be noted that the issue before the Court was not one going to the construction of a particular provision of a foreign taxing
statute but one of more general principle. Edmonds J remarked that the recourse to foreign authority in Roxborough was not decisive for the members of the Court but supported a conclusion that they had reached otherwise.
Edmonds J next referred to Federal Commissioner of Taxation v Spotless Services Ltd (1996) 186 CLR 404 in which exceedingly brief statements from two United States Supreme Court opinions were cited.
Finally, his Honour referred to Federal Commissioner of Taxation v Myer Emporium Ltd (1987) 163 CLR 199 dealing with the concept of income. The High Court referred to United States and United Kingdom authority.
I will take up at the end of this paper the question of the lessons to be learned from the cases to which Edmonds J referred in his
article and those to which I will refer below.
First, however, a digression.
The courts have emphasised a specific limitation on the role of extrinsic materials as aids in the construction of statutes. It is
this. Materials extraneous to the text of a statute are not admissible to prove the subjective intention of the Minister, any other
speaker in the Parliamentary debates, the drafter, any relevant law reform body, or any other person or institution as to the meaning or effect that the statutory text was intended to have. Of the many cases that could be cited for this proposition, see Re Bolton; Ex parte Beane (1987) 162 CLR 514 at 518; Plaintiff S157/2002 v The Commonwealth of Australia (2003) 211 CLR 476 at [55];Wilson v First County Trust Ltd (No 2) [2004] 1 AC 816 at [66], [139], [178]; Harrison v Melhem (2008) 72 NSWLR 380, esp per Mason P at [159] ff. However, extrinsic materials are admissible to establish the object of an Act,
including, the mischief that the Act was intended to remedy.
In recent times, a different approach has been countenanced in the United Kingdom. In Pepper v Hart [1993] AC 593, for example, the relevant Minister gave an assurance to the Parliament as to the effect of a proposed taxing statute.
The Crown subsequently argued for a contrary meaning. The House of Lords gave effect to the Minister’s assurance.
Similarly, in Harding v Wealands [2007] 2 AC 1, the House of Lords, invoking Pepper, examined a statement made by the Lord Chancellor in Committee in the nature of an assurance as to how English courts would continue
to deal with claims that might be affected by the bill before the House of Lords. In Harrison v Melhem (at [165]) Mason P observed that the Lord Chancellor’s statement “deflected an amendment that would have put the matter beyond doubt”.
Such cases as Pepper and Harding are controversial and their approach to statutory construction would, I suggest, not be followed in Australia.
Consistently with the general principles to which I have referred, if we found a statement by the Minister to the effect that the
objective of the GST Act when it was being proposed was to introduce a tax similar to a particular identified foreign GST or VAT
tax, would be permissible to show the general objective of the GST Act. However, a Ministerial statement of such generality might
or might not be of great assistance in the construction of any particular provision of the GST Act. And it is with particular provisions
that we are concerned.
Decisions of foreign courts are not “extraneous materials” in the sense discussed above. They are not binding precedents either. They
are at most persuasive – and only as persuasive as the language and the context of the foreign statutory provision are similar to
the language and the context of the provision of the GST Act being considered.
Of importance for today are the decisions of foreign courts on particular provisions of foreign legislation comparable to the GST
Act. The foreign Acts of present interest are:
· Value-Added Tax Act 1983 (UK)
· Value-Added Tax Act 1994 (UK)
· Excise Tax Act RSC 1985 (Canada)
· Goods and Services Tax Act 1985 (NZ)
It was to be expected that cases decided under these Acts would be referred to in argument and in decisions under the GST Act. A major
source of references to such cases is: Richard Krever, GST Legislation PLUS (Thomson Reuters, 2009). See also Richard Krever and David White (Eds), GST in Retrospect and Prospect (Thomson Brookers, 2007).
Professor Krever’s GST Legislation PLUS helpfully refers to foreign cases in the annotations to the various sections of the GST Act. There are many of them. This does not
imply, however, that all of them have been referred to in Australian courts or in the AAT – the matter to which I will next turn.
I propose here to refer in chronological order to twelve Australian cases in which there has been reference to overseas decisions
under VAT or GST legislation. These twelve cases have been singled out as the Australian cases in which there has been more a more
or less significant reference to a foreign case on a particular statutory provision similar, or said to be similar, to the Australian
provision under consideration. (I have already referred above to Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256.)
Underwood J held that the plaintiff was entitled to recover damages for negligent misstatement. The question was whether the plaintiff
would or might have to pay GST on receipt of the judgment sum. The plaintiff submitted that it was or might be, and that the defendant
should indemnify the plaintiff. The defendant submitted that the plaintiff was not so liable, but that in any event the defendant
was not liable to indemnify him.
The question depended upon whether, upon being paid the judgment sum, the plaintiff would be making a “taxable supply” (see ss 7-1(1)
and 9-5 of the GST Act). Section 9-10(1) of the GST Act defines a “supply” as “any form of supply whatsoever”. Under s 9-10(2) “supply”
is defined to include, relevantly, a “surrender of any right” (para (e)) and a “release from an obligation” (para (g)).
Underwood J referred (at [13]) to the definitions of “supply” in s 5(1) of the New Zealand Act, and s 5(2)(a) of the UK Act of 1994.
Common to them was a reference to “all forms of supply”. His Honour compared that expression to the reference to “any form of supply
whatsoever” found in s 9-10(1) of the Australian Act.
Counsel did not, however, refer his Honour to any case in the United Kingdom or New Zealand in which the issue before the Court had
had to be considered.
Importantly, however, the United Kingdom and New Zealand Acts did not contain an inclusory subsection comparable to s 9-10(2) of the
Australian Act.
Underwood J decided that while payment would extinguish the debt created by the judgment, this did not depend on the surrender of
any right or the release from any obligation by the plaintiff.
His Honour thought that essential to a surrender or a release was a voluntary act by the person effecting the surrender or release.
In so concluding, his Honour drew on (1) the use of the word “make” in s 9-5 of the GST Act itself, and (2) the New Zealand decision
in Databank Systems Ltd v Commissioner of Inland Revenue (NZ) (1987) 9 NZTC 6213, in which it was said that “supply” means “to furnish or provide” – an active concept.
In the result, his Honour was not satisfied that upon the defendant’s paying the judgment sum, the plaintiff would make a “supply”
within s 9-10 and consequently be liable to pay GST. Moreover, his Honour was not persuaded that there was even a substantial risk
that that would be the case. Accordingly, there was no occasion to consider whether the defendant must indemnify the plaintiff against
that liability or possible liability.
This case was a challenge to the constitutional validity of the GST Act. Hely J referred in passing (at [23]) to the comparable legislation
of the three countries mentioned in support of the proposition that at the time of the enactment of the GST Act, GST was a familiar
form of “tax”.
This case concerned a lease of a supermarket. The lease was dated 5 January 1995 and was for a term of 25 years with options of renewal
for two further terms of 10 years each. The annual rent was to be computed by reference to the lessee’s “Gross Sales”. The case turned
on the definition of that expression in the lease. The question was whether GST payable by the lessee in respect of its supplies
of goods and services was to be excluded from the “Gross Sales”.
The expression “Gross Sales” was defined in the lease to mean “the amount of the actual sales price (including any sales tax but excluding
value added tax, retail tax, goods and services tax, or any similar tax which the Lessee is required to add to the price of goods
sold)…”. The lease also provided that there was to be excluded “the amount of any value added tax or any tax calculated in
respect of sales by retailers payable in respect of gross sales…”.
Blow J accepted that the terms of the lease showed that it contemplated the possibility of new taxes being introduced. However, his
Honour upheld the lessor’s contention that while the definition of “Gross Sales” required the exclusion of any tax which the lessee
was required to add to the price of goods sold, GST did not fit that description because it was calculated as a fraction of the sale price and paid by the supplier
of a taxable supply.
His Honour distinguished between the Canadian legislation on the one hand and that of the United Kingdom and New Zealand on the other.
The Canadian tax was payable by the recipient of a taxable supply. VAT in the United Kingdom, on the other hand, was a liability
of the supplier and was a component of the consideration payable to that person for the goods or services supplied. The New Zealand
GST was similar to the VAT of the United Kingdom in this respect. His Honour thought it clear that the Australian GST was of the
same kind in this respect as the British VAT and the New Zealand GST.
It will be appreciated that the case concerned the construction of a private contract – not the GST Act or any similar enactment.
It was common ground that in attempting to identify the intention of the parties to the lease, the Court was entitled to have regard
to the three overseas legislative régimes.
At [35], Blow J stated:
In my view there is no logical reason why the parties would have wanted to discriminate between taxes like the Canadian GST, which
is paid by the consumer but collected by the seller, and taxes like the New Zealand GST, which is paid by the supplier out of the
gross price. The fact that one sort of tax is imposed on the consumer but the other on the supplier was unlikely to be of significance
in relation to the profitability of the lessee’s business. The extent of its profitability depends on its turnover, net of either
such species of tax. I accept that it would not be reasonable for the lessee’s rent to be increased in consequence of the lessee
collecting tax payable by its customers, which it was obliged to remit to the Commissioner of Taxation. However, it would be equally
unreasonable for the lessee’s rent to be increased in consequence of the introduction of a tax which in any other manner resulted
in an increase in prices without a corresponding increase in profits.
His Honour thought (at [36]) that it must follow that the parties intended the definition of “Gross Sales” to be worded widely so
as to catch any tax that might have the effect of increasing the lessee’s turnover or gross receipts without correspondingly increasing
its profits.
In the result, Blow J concluded (at [37], [40]) that the Australian GST was a “value-added tax” within the meaning of the definition
of “Gross Sales” and was to be excluded in the computation of the amount of “Gross Sales”. In the case of each taxable supply to
which the GST Act applied, GST equal to one eleventh of the price was excluded (at [42]).
The primary issue in this proceeding was whether the applicant was entitled to claim input tax credits in relation to its cost of
supplying accommodation. The premises were two garages adapted to residential use and in fact the subject of long term “licence agreements”.
A supply is not a “taxable supply” to the extent that it is “GST-free” or “input taxed”: GST Act, s 9-5. Section 11-20 of the GST
Act provides that an entity is entitled to an input tax credit for any “creditable acquisition” it makes. Section 11-5 sets out the
circumstances in which one makes a creditable acquisition. However, s 40-35 provides that a supply of “residential premises” (other
than “commercial residential premises” – s 35(1)(a)) by way of lease, hire or licence is “input taxed”. It follows that subject to
the exclusion of commercial residential premises, a supply of residential premises is not a creditable acquisition and does not generate
an entitlement to an input tax credit.
The expression “residential premises” is defined in s 195-1 to mean land or a building that is occupied as a residence or is intended
to be, and is capable of being, so occupied. The expression “commercial residential premises” is defined in s 195-1 to mean, relevantly,
“a boarding house”.
An issue in the proceeding was whether the subject premises were a “boarding house”. That expression is not defined in the GST Act.
The AAT noted in passing (at [15]) that in its definition of “commercial residential premises”, s 195-1 appears to have been influenced
by the definition of “commercial dwelling” in the New Zealand legislation (the AAT cited Case L75 (1989) 11 NZTC 1,435) and the British VAT legislation (the AAT cited The Lord Mayor and Citizens of the City of Westminster (1988) 3 BVC 847). Nothing more was said on the matter.
The Senior Member referred to dictionary definitions of “boarding house” and “boarding”, and was satisfied that at no time were the
premises a boarding house. In the result they were not “commercial residential premises” and were therefore not excluded by s 40-35(1)(a)
of the GST Act from being input taxed.
This case also concerned the lease of a supermarket and the calculation of the rent payable. The A New Tax System (Goods and Services Tax Transition) Act 1999 (Cth) applied and the question was whether or not a “review opportunity” within the meaning of s 13(5) of that Act had arisen.
In passing, Kenny J referred (at [79]) to Case M58 (1990) 12 NZTC 2333 decided under New Zealand’sGoods and Services Tax Act 1985 on the meaning of the expression “general review” as explained in that case by Bathgate DJ (at 2,338).
In this case Downes J, President of the AAT, distinguished United Kingdom cases cited under that country’s VAT legislation.
The starting point is that a supply of food is GST-free: GST Act, s 38-2. This means that no GST is payable on the supply.
In the course of its business, the applicant supplied food products such as instant coffee. From time to time it supplied non-food
items with its food products for promotional purposes. Examples of the non-food items were alarm clocks, radios and cricket balls.
Sometimes the non-food item could be used as a cup or as a container for the food. The non-food items were packaged with the food
items and branded with the applicant’s name. They were marked as free. The combined packages were sold for the same price as the
food alone. The question was whether the promotional items attracted GST.
For the supply of a product to be a “taxable supply” it must be made for a consideration: see s 9-5(a) of the GST Act. “Consideration”
includes any payment or any act or forbearance “in connection with” or “in response to or for the inducement of” a supply of anything.
However, a supply is not a “taxable supply” to the extent that it is “GST-free” or “input taxed”: s 9-5.
The applicant claimed that its supply of the non-food items to retailers was not for consideration and, further, that because the
food component was GST free, no GST was payable in respect of the promotional non-food item.
Downes J decided that the supply of the package as a whole was a supply for consideration; that the promotional non-food item was
a part of each such supply; that each supply was partly subject to GST because there was consideration for the supply of the whole,
including the promotional item; and that because the supply was partly a taxable supply and partly GST-free, there had to be an apportionment
of the consideration under s 9-80(1): at [20]-[21].
His Honour referred to the distinction between a “composite supply” and a “mixed supply”. In a composite supply, items which are integral,
ancillary or incidental to the main item may be treated for GST purposes in the same way as the main item, such as a paper serviette
supplied with food. In effect, this was the approach that the applicant urged Downes J to adopt. Usually the main item in a composite
supply will be food and the incidental item will be GST free because the food is GST free.
A mixed supply, on the other hand, is a supply together of separate items, each of which has intrinsic value. The incidental item
will not be consumed with the food and will be mostly unconnected with it, even where, for example, it is a mug in which a drink
is served. In the case of a mixed supply, the supply will attract GST if one or more of the items is a taxable supply.
Downes J stated, however, that the present case was to be determined, not by whether there was a composite or mixed supply, but by
whether the promotional item was supplied for consideration.
His Honour distinguished two English decisions, giving the important warning (at [17]) that care must be taken in applying foreign
cases because of differences in the legislation. The first decision was Kimberley-Clark Ltd v Customs and Excise Commissioners [2004] STC 473, which related to nappies supplied in a box that was more substantial than the more familiar packaging, and could
in fact be used as a toy box. The second case was Tesco plc v Customs and Excise Commissioners [2003] STC 1561 which related to the issue, with purchases, of points that could be converted to vouchers and used subsequently to
acquire goods at lower prices.
The applicant relied on those cases in support of the general proposition that items can be supplied for no consideration even though
supplied with other items for which there is consideration – a proposition that Downes J did not doubt.
In Kimberley-Clark, Lloyd J had held that there was a single supply on the basis that the supply of the box was ancillary or incidental to the supply
of the nappies and took on the tax treatment of the nappies (at 486-487). In other words, according to the categorisation mentioned
earlier, it was treated as a composite supply. Lloyd J said that in economic reality the transaction was a single transaction which
it was not correct to dissect (at 487). His Lordship added:
But as between [Kimberley-Clark] and a supermarket or wholesaler it is unreal to regard the appellant as selling N x 124 [nappies]
for N x £16.24 and as giving the purchaser N free toy boxes. In reality, the appellant sells to the supermarket or wholesaler
N units of its product, consisting of 124 [nappies] in a box, in consideration of the payment of N x £16.24.
In relation to this passage, Downes J said (at [18]) that he understood that nappies in a box that has packaging properties was different
from food with a promotional item such as an alarm clock. At best, however, he thought that Kimberley-Clark did not assist the taxpayer and noted that the English court had not decided that the box was provided without consideration.
In Tesco, the taxpayer was unsuccessful. Although the case involved issues of consideration, it turned on questions peculiar to the English
legislation. But Downes J frankly acknowledged (at [19]) that the 47 pages of reasoning in the decision as reported were “not easy
to follow”. His Honour observed that there was little discussion of the issues of the kind that confronted him. He said that to the
extent that Tesco gave support to the proposition that there was no consideration, it was because the redeemed goods were not paid for with vouchers
for their full price but were supplied at a discount. His Honour did not think that Tesco shed any light on the issues before him.
In the result, the learned President concluded that there was consideration for the supply of the packaged products as a whole, including
the promotional non-food items, and that because the food products were GST-free, the taxed component was confined to that part of
each supply that was taxable, namely, the promotional item (at [20]). (His Honour then turned to s 9-80, referred to earlier.)
Although the two United Kingdom cases were distinguished, it does not follow that reference to them served no purpose. Discussion
of an issue in a foreign case may be illuminating in its own right, by prompting one to appreciate distinctions and refinements,
and in this way to enlarge and deepen one’s understanding.
In this case, the AAT again turned to the question whether a transaction consists of distinct supplies or one composite supply.
The AGR Joint Venture carried on the business of refining and selling gold and silver, as well as of fabricating gold and silver products,
including coin blanks. It sold coin blanks to the Royal Australian Mint and Gold Corporation. The issue before the AAT was whether
the transactions in relation to the coin blanks were subject to GST on the gold or silver components of the blanks.
A coin blank is an unmarked flat metal disc which is a precursor to a struck coin. Coin blanks are supplied to mints which use them
to strike bullion coins and collectors’ coins. Bullion coins are principally for investment and are traded at a price close to the
spot price of gold or silver, whereas collectors’ coins, or numismatic coins, are typically limited in edition and are tradeable
at a price significantly above the spot price. The coin blanks themselves are generally not traded.
The structure of the transaction was complex (see [4]). The taxpayer argued that there were two supplies: a supply of a credit to
the customer’s metal account entitling the customer to a right to the supply of precious metals, and a separate supply of the service
of fabricating the metal into coin blanks.
The AAT freely referred to United Kingdom authorities on the question whether a transaction should be treated as several distinct
supplies or a composite supply: Card Protection Plan v Customs & Excise Commissioners [1999] 2 AC 601 at 626-627; Customs & Excise Commissioners v Wellington Private Hospital Ltd [1997] STC 445 at 462; Customs & Excise Commissioners v British Telecommunications [1999] WLR 1376 at 1383; Sea Containers Ltd v Customs & Excise Commissioners [2000] STC 82 at 88. While referring to these case, however, the AAT does not appear to have been influenced by them.
The AAT accepted the Commissioner’s characterisation of each transaction as one supply, not two, in terms of s 9-5 of the GST Act.
Alternatively, it held that if there were two supplies, both were taxable and the amount of the GST payable was the same.
Pursuant to a contract for the sale of land the deposit was forfeited to the vendor by reason of the purchaser’s failure to complete
the contract. The High Court held that upon the forfeiture, the “supply” represented by the making of the contract became “a taxable
supply” within s 9-5 of the GST Act.
The High Court’s reasons for judgment referred to ss 7-1, 9-5, 9-10, 9-15, 9-70, 29-5 and 99-1 of the GST Act. In substance, the Court
held that the vendor supplied its complex of undertakings and obligations upon entering into the contract and that the payment of
the deposit was the consideration for the vendor’s doing so.
Counsel for the taxpayer referred the Court to a statement of the modern French law in respect of deposits to be found in a judgment
of the European Court of Justice (First Chamber) in Socité Thermale d’Eugénie-les-Bains v Ministère de l’Économie, des Finances et de l’Industrie [2007] 3 CMLR 38 at 1019-20 [30]-[31]. That case concerned the operation of a VAT system upon deposits paid for hotel accommodation
that were retained by the hotelier upon the cancellation of reservations. The High Court detected (at [30]) in the statement by the
European Court of Justice elements characteristic of deposits under French law that do not characterise deposits under Australian
law. As well, the High Court distinguished the Sixth Council Directive 77/388 of 17 May 1977 from s 99-5 of the GST Act (Div 99 of
the GST Act deals with “Deposits as security”).
Counsel also referred the High Court to the treatment of the grant and assignment of estates or interest in land under the Value Added Tax Act 1994 (UK). However the Court noted that that Act was fleshed out by expansive delegated legislation, and was of no apparent assistance in the
construction of the GST Act.
Finally, the Court’s attention was directed to materials respecting the treatment of deposits in the taxation systems of New Zealand
and Canada, but the Court considered that those systems appeared to lack any sufficiently close analogue to Div 99 of the GST Act
for assistance to be derived from them (at [31]).
The case is therefore a reminder, if one were needed, of just how important it is that the terms and broader context of the overseas
legislation be in pari materia before decisions under it will be persuasive in Australian courts.
Since the GST Act commenced on 1 July 2000, the applicant company in this case had spent at least $4 million on acquiring various
artworks and antiques. It treated this expenditure as being for “creditable acquisitions” in relation to which it claimed “input
credits” in its various business activity statements (BASs). It made those claims on the basis that the acquisitions were made in
the course of an “enterprise” consisting of dealing in such items.
The critical question was whether the applicant had been carrying on an enterprise for the purposes of ss 9-5(c) and 9-20 of the GST
Act. The Commissioner contended that the objects had been acquired in the course of “a private recreational pursuit or hobby” (within
s 9-20(2)(b) of the GST Act) of the individual who was the beneficial owner of all the shares in the applicant company.
In holding in favour of the applicant, Senior Member Sweidan referred to European VAT cases on the expression “carrying out” an “economic
activity” and United Kingdom and New Zealand cases, but it seems fair to say that Australian cases on 26(a) of the Income Tax Assessment Act 1936 (Cth), and its replacement, s 25A, were more influential.
The objection decision under review raised the issue whether the applicant Council was entitled in respect of its acquisition of a
quarry at Hornsby to an input tax credit. Test case funding was provided by the Commissioner.
The Council compulsorily acquired a quarry owned by CSR Limited (CSR). Prior to the acquisition, the land on which the quarry was
located was rezoned by the Council as “Open Space A (Public Recreation Land)” under the Hornsby Local Environment Plan 1994 (LEP).
Clause 17(5) of the LEP provided that the Council must acquire land owned by a person so zoned if the owner so requested in writing.
CSR did so.
Pursuant to a Valuer-General’s valuation, the Council paid CSR $26,508,771.28 as compensation for the divestment of the quarry, and
claimed an input tax credit of $2,409,888 being 1/11th of that amount.
The sum of $26,508,771.28 comprised $25,000,000 being the market value of the land as determined by the Valuer-General, $99,500 representing
loss attributable to disturbance as determined by the Valuer-General, and $1,409,271.28 representing interest under s 49 of the Land Acquisition (Just Terms Compensation) Act 1991 (NSW).
The issue between the parties was whether the compulsory acquisition by the Council was a “supply” under s 9-10 of the GST Act. The
Commissioner accepted that if it was, it was a taxable supply and that the Council was entitled to an input tax credit.
The AAT referred to ss 9-5, 9-10, 11-20 and 11-5 of the GST Act. In terms of s 11-5, which defines the circumstances in which a person
makes a “creditable acquisition”, there was no dispute that the Council satisfied s 11-5(a), (c) and (d). Therefore the only issue
was whether CSR had made a “taxable supply” to the Council – as required by para (b).
In relation to s 9-10(1), the AAT noted (at [56]ff) that according to case law from other countries, the concept of a “supply” requires
some form of positive action on the part of the supplier. The AAT referred (at [58]) to Databank Systems Ltd v Commissioner of Inland Commissioner of Inland Review [1987] 2 NZLR 312, Kirkness (Inspector of Taxes) v John Hudson & Co Ltd [1955] AC 696 and Shell’s Annandale Farm (Pty) Ltd v Commissioner for South African Revenue Service 62 SATC 97. All three cases suggested that in the absence of some act by the person whose property is being acquired, there will
not be a supply by that person.
The AAT noted, however, that in all three cases, the relevant legislation differed from the GST Act. In particular, there was not
in the overseas jurisdictions an inclusory legislative provision similar to s 9-10(2) of the GST Act (cf Shaw v Director of Housing (No 2) noted at [5.01] above).
Of greater influence than the overseas authorities was a decision of the Full Court of the Federal Court in Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd (2006) 152 FCR 461. In that case the Court accepted that the concept of “supply” in its ordinary meaning in s 9-10(1) of the GST
Act itself seemed to require some act of provision, furnishment, conferral or giving of some thing (at [16]).
The AAT found (at [71]) that when CSR gave notice in terms of the LEP to the Council, it did incur legal obligations and did so in
respect of subsequent actions leading up to the acquisition of the quarry by the Council.
In the result, the Tribunal concluded that while the Council did not succeed under either s 9-10(1) or s 9-10(2)(e) or (h), it did
succeed under s 9-10(2)(d) (“a grant, assignment or surrender of real property”) and s 9-10(2)(g) (relevantly, a release from an
obligation). There was a supply, and therefore a taxable supply, by CSR to the Council.
As can again be seen from this case, overseas authorities may be of limited assistance because of differences in the terms of the
legislation being construed.
The question in this case was whether the liquidator of a company was personally liable for GST in respect of the sale of new residential
premises owned by the company, where the liquidator contracted to sell the premises and completed the sale of them after the making
of the winding up order.
Logan J emphasised that upon the making of the winding up order, the property of the company does not vest in the liquidator but remains
vested in the company, that is to say, the body corporate. This would suggest that on a post-liquidation sale, it is the company,
not the liquidator, that makes a supply for the purposes of s 9-5 of the GST Act.
The Commissioner, however, relied on Div 147 of the GST Act which provides for the special position of representatives of incapacitated
entities.
At [55], Logan J noted the absence from Div 147 of any reference to s 9-5 and said that in this respect the Australian provision was
similar to that which prevailed under s 58 of New Zealand’s Goods and Services Tax Act 1985 as originally enacted. The New Zealand Act was amended in 1992 to insert subs (2A) in s 58, which had the effect, in substance, of
making it clear that in the case of liquidations it was the liquidator not the company in liquidation that carries on the “taxable
activity” during the period of the liquidation.
Beyond noting the similarity, his Honour does not seem to have been influenced by the New Zealand legislation.
In the result, his Honour decided that it was s 9-5, not any provision within Div 147, which is the “leading provision” (at [57]).
Division 147 could not be permitted, his Honour thought, to overcome the plain language of s 9-5.
Over several years the respondent (Swansea) accumulated a valuable collection of artworks and antiques. It treated the acquisitions
as “creditable acquisitions” for the purposes of s 11-5 of the GST Act, that attracted “input credits” under s 11-20 of that Act.
However, the Commissioner cancelled Swansea’s registration under the GST Act on the basis that it was not carrying on an enterprise
(the similarity to Re “The Taxpayer” noted at [5.09] above is obvious).
The AAT concluded that Swansea was carrying on an enterprise for GST purposes. The Commissioner challenged that conclusion in the
Federal Court. The challenge was based on the contention that Swansea was simply a vehicle for carrying out the hobby of its sole
director or was simply accumulating assets as an investment but without disposing of them.
Compared with the value and number of acquisitions over the years, the value and number of sales was very small. The AAT had concluded
that Swansea’s purpose was eventually to sell at a profit. The Commissioner complained that this conclusion had not been open to
the AAT on all the evidence, and that it was inappropriate to take into account evidence of subjective intention given by Swansea’s
director. The Tribunal had relied on certain United Kingdom VAT cases in aid of its conclusion that Swansea was carrying on an “enterprise”,
but McKerracher J did not refer to any overseas cases.
His Honour dismissed the Commissioner’s application, holding that it had been open to the AAT to conclude that Swansea’s purpose was
to acquire and hold artworks and antiques with a view to turning them to account in order to derive profit when the circumstances
were right.
What lessons can be learned from the cases to which my colleague Justice Edmonds referred in his article and those to which I have
referred above?
First, it is important to remember that in our adversarial system, the courts decide the issues presented by the parties on the evidence
led and submissions made by them. It is not the role of the court to conduct its own independent inquiries as to any relevant overseas
authorities. If a judgment omits to refer to a pertinent overseas authority, no doubt the reason is that the court’s attention was
not directed to it. If you are concerned in litigation and find an overseas case which you think is relevant and persuasive, the
onus is on you to draw the court’s attention to it.
Second, it is of the first importance to look very closely at any differences between the text of the taxing statute under which a
foreign case was decided when the question is whether that case may be persuasive in an Australian court or the AAT. And it is not
only the text that counts: concepts and assumptions underlying the foreign legislation may also have to be taken into account; cf
Reliance Carpet noted at [5.08] above. Nothing that follows is intended to detract from these propositions.
Third, there is a rich vein of foreign case law available to be mined by the legal representatives of taxpayers and the Commissioner
when they seek to persuade Australian courts and Tribunals. It is therefore perhaps a little curious that foreign cases have not
been more frequently cited in Australian judgments to date. Perhaps the court or the AAT has not been referred to many or has been
referred to many but not found them persuasive. Australian judgments to date on the GST Act do not give strong encouragement to the
citation of foreign cases; cf Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256 at [43] per Stone J, citing Avon Products Pty Ltd v Commissioner of Taxation (2006) 227 ALR 398 at [28]. On occasions, however, foreign cases have been referred to liberally, as in Roxborough v Rothmans of Pall Mall, referred to at [2] above.
Fourth, because overseas authorities are only persuasive, it is easy for a court to adopt or reject them. They do not form part of
the hierarchy of binding precedent within the Australian legal system, a Judge is not bound to apply or follow any of them. A court
will tend to cite or distinguish foreign authorities according to whether they support or do not support a view that the court has
already reached on other grounds.
Fifth, I venture to suggest that there has been a greater readiness to find assistance in foreign discussion of general principles
than in foreign decisions on the proper construction of particular statutory provisions. This is not to say that discussion of general
principle may not be relevant to questions of construction. My point is that a foreign line of reasoning will perhaps be more readily
embraced if it encapsulates, particularly in a short pithy statement, a general principle as distinct from construing, a particular
foreign statutory provision. Perhaps the reason is that in the latter case there tends to be an implied suggestion that the Australian
court or the AAT must follow the foreign decision or explain why it will not do so, prompting an immediate reaction in the court or AAT of distinguishing
the foreign case out of account: after all it is not binding. Good advocacy will eschew making that suggestion and will raise the
foreign authority for consideration by the court or AAT in a more attractive and subtle manner.
