Central Equity
This is a decision of Gordon J in the Federal Court concerning whether a supply of real property (by way of sale) was “made” on or after 1 July 2000 (http://www.austlii.edu.au/au/cases/cth/FCA/2011/908.html).
The question was whether the supply was made on entry into the contract for sale or on settlement. Of particular importance to the case was that contractual arrangements were put in place prior to 1 July 2000 but settlement took place after 1 July 2000 – when GST commenced.
The timing question
The GST Transition Act provides that:
- GST is only payable on a supply to the extent that it is made on or after 1 July 2000 – subsection 7(1); and
- A supply of real property is made when the property is made available to the recipient – subsection6(3).
In Central Equity, the question was when the property was “made available” to the recipient. In considering the question, Gordon J observed that:
“There is no direct authority on what constitutes real property being “made available” in the context of the GST Transition Act. It is common ground that the phrase should be given its ordinary meaning, although the parties did not agree on its ordinary meaning or the time at which the relevant supply was in fact made. Resort to dictionary definitions of the word “available” or cases which have considered the phrase in an entirely different statutory context are of limited, if any, assistance.”
Her Honour considered Reliance Carpets, Qantas and Brady King but concluded that they did not assist in the determination of whether the real property was “made available”. Her Honour concluded that
“as at 1 July 2000, the purchasers under the Metro and Capri Contracts had not in any sense obtained any real or practical ability to use the strata interests in apartments they contracted to acquire, and thus the relevant property had not been “made available” to them …. Rather, the property was “made available” to the purchasers at settlement, which was after 1 July 2000.”
It is not clear from the decision whether either of the parties referred to the UK Value Added Tax law which seems to be the source of subsection 6(3). Section 6(2) of VATA 1994 Act provides:
“… a supply of goods shall be treated as taking place – … if the goods are not to be removed, at the time when they are made available to the person to whom they are supplied;”
Under paragraph 4 of Schedule 4 of VATA 1994
“The grant, assignment or surrender of a major interest in land is a supply of goods … and a ‘major interest’ in relation to land means the fee simple or a tenancy for a term certain exceeding 21 years, and in relation to Scotland means the estate or interest of the proprietor of the dominium utile … “
So, a supply of real property (equivalent to that at issue in Central Equity) is made when it is made available.
The meaning of the term “made available” has been the subject of litigation in the UK. Usefully, in Cumbernauld Development Corporation v. HM Commissioners of Customs & Excise [2002] STC 226, the court considered whether the supply of land, the possession of which had been granted prior to sale, was “made available” when the subject matter of the supply was made available.
The short point in this appeal is: what did the appellant make available to the Club on 1 May 1996? The argument for the appellant is that the Minute of Agreement was a contract for inter alia the supply to the Club of the CDC land and that on 1 May 1996 the appellant made the land available to the Club by granting occupation of the land which the Club was thereafter free to use for its own purposes. [19] In our opinion, that argument is unsound. The basic flaw in it is that it overlooks the nature of what was supplied in this case. The legislation is concerned with the supply of “goods.” By the extended definition of that term in Schedule 4 to the 1994 Act, “goods” includes “a major interest in land.” That, in turn, is defined by section 96(1) as being, in Scotland, “the estate or interest of the proprietor of the dominium utile.” In our opinion, that expression must be interpreted to mean ownership of the land and not any lesser interest such as a right or a mere licence to occupy.
While the land itself was made available to the Club on 1 May 1996 in the sense that the Club was given the occupation and use of it, the interest of the appellant as proprietor of the dominium utile was not made available to the Club at that date. The Club had no more than a right in personam against the appellant to receive a conveyance in the form of a feu disposition. Meanwhile the appellant retained the major interest in the land as defined by section 96(1) of the Act.
It is strange that the interpretative approach in Cumbernauld was not adopted in Central Equity – the supply was of title to the property and the title was “made available” on settlement.
While the written submissions might indicate otherwise, the practice, interpretation and administration of Australia’s GST would, it seems, be better off if:
- The source of many of our provisions from overseas VAT law was recognised; and
- The Commissioner’s rulings and decisions of the courts more clearly showed an approach to interpretation that was consistent with the “practical business tax” that it is asserted to be. In this regard, I find the Cumbernauld decision useful in that it gives a direction to how to approach the question of when a supply is made, rather than a conclusion on the facts in the particular case.
In the income tax context, in Gasparin ((1994) 28 ATR 130, the question was whether income was derived at the time contracts for the sale of land became unconditional or on settlement. Von Doussa J found:
the joint venturers derived income from the sale of the allotments of land which comprised their trading stock not when the contracts became unconditional, but at settlement when a debt accrued due from each purchaser to the joint venturers. The critical consideration is the time when the debt arose. It should also be held that each allotment remained trading stock on hand until settlement, that being the point of time in a transaction for the sale of land under a contract of sale in the terms of those before the Court when the vendor finally loses all dispositive power, and the contingency that the sale will not proceed to completion disappears
Stop the clock
Central Equity served a notice on the Commissioner of its entitlement to a refund under s105-55 of Schedule 1 of the TAA. The Commissioner disputed its validity on grounds of specificity. In affirming the validity of the notice Gordon J stated:
In the present case, the Notification achieved its objectives. It identified the period of the claim. The fact that the claim spanned eight years does not detract from the fact that the time period was specified. Next, although the legislation did not provide for a specific form of notification, the form used stated that details of the refund claim including “the specific nature of the refund” and “the circumstances under which the refund arise” were to be provided. Item 4 of the Notification (see [72] above) contained that information.
The future of a “stop the clock letter” for GST purposes is limited if the proposal to move to an assessment regime as at 1 July 2012 proceeds as planned. The need to lodge objections within the four year period, instead of stop the clock letters, may mean that the degree of specificity argued by the Commissioner becomes a feature of the GST landscape as at 1 July 2016.