Print Allied Technology (http://www.austlii.edu.au/au/cases/cth/AATA/2011/555.html)
This is an AAT decision of Member Dr G. Hughes. It concerns a contract entered into (with an associate) for the purchase of plant that was cancelled. The equipment was purchased, instead, by way of hire purchase at approx 2/3rds of the original price and valuation. The taxpayer had “paid” by way of accounting entry a “deposit” of $330,000 (10% of the agreed price).
The taxpayer claimed the ITC of $330,000 in its March BAS lodged in May but the original purchase was been cancelled and the alternative HP entered into in March. A penalty of 50% recklessness was imposed. The case only involved the recklessness penalty.
“The auditor determined that the applicant had acted recklessly because it had claimed input tax credits on a tax invoice that Todisco issued in respect of a transaction stated to be valued at $3 million plus GST, when in fact the value of the transaction was $1.9 million plus GST. On 26 March 2009, Todisco had issued a credit note for the amount of $3.3 million to offset the transaction. The deposit of $330,000 paid by Todisco had been reversed and journalised as a loan to Todisco. Neither the credit note of $3.3 million nor the purchase of the equipment for $2.09 million had been recorded in the applicant’s account when it lodged its BAS for the periods from 1 January 2009 to 31 March 2009 and from 1 April 2009 to 30 June 2009. “
The matter of interest is that the AAT member seems to have proceeded on the basis that the shortfall arose through failure to make the increasing adjustment in the tax period in which it became aware of the adjustment not, as is indicated above, for claiming the ITC.
There is no question that the applicant made a creditable acquisition, as defined in section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), at the time it acquired the equipment.
There is also no dispute that an adjustment event as defined in section 19-10(1) of the GST Act occurred when the transaction was cancelled.
Further, there is no question that the applicant did not properly record the adjustment event in the BAS lodged on 5 May 2009.
But the “adjustment” cannot arise unless the ITC was attributable to an earlier tax period and, as a result of the cancellation, no longer reflects the amount of the ITC on the acquisition (para 19-70(1)(b)). So the problem is not the failure to make the adjustment but the claiming of the ITC.
It is also of interest to note that the Commissioner seems to have argued that the solution to a “cancellation” is found in Division 19. Is this consistent with the view put to the Federal Court in Qantas?
The result of the members deliberation was confirmation of recklessness. As to the fault, the member referred to the professional advisers
It is possible that Todisco placed complete faith in his financial advisers to ensure the accuracy of the BAS. Even if this was the case, it would not affect the Tribunal’s conclusion that the applicant’s conduct was reckless. The applicant, through Todisco, took the risk that his advisers themselves might be reckless: see, for example, BRK (Bris) Pty Ltd v Federal Commissioner of Taxation [2001] 46 ATR 347. However, whether the applicant’s financial advisers were reckless is ultimately not to the point, in view of the applicant’s indifference (through Todisco) to ensuring the correctness of information which Todisco knew, by virtue of the email exchange on 23 April 2009, was the subject of deliberation by the applicant’s professional advisers
It makes me uncomfortable when the reasoning of the AAT creates doubt over the way in which the law works but high penalties are still thought to be appropriate.