Commissioner successful in donations GST case
This proceeding was a tax challenge in relation to reassessments made for six GST periods to include payments that the disputant, CD Trust, has treated as not being subject to GST.
This proceeding was a tax challenge in relation to reassessments made for six GST periods (from the tax year ended 31 March 2012 to the tax year ended 31 March 2015) to include payments that the disputant, CD Trust, has treated as not being subject to GST. The Taxation Review Authority (“the Authority”) found for the Commissioner of Inland Revenue (“the Commissioner”) and upheld the reassessments (during the preparation for the hearing the Commissioner’s investigator identified that there were errors in the calculations underlying the assessments and recalculated what the correct amount of the assessments should be. The Taxation Review Authority varied the assessments accordingly pursuant to s 138P of the TAA.)
This decision was an orthodox application of the law on GST.
The decision highlights that nomenclature used by a party is not decisive. It did not matter how the disputant’s chose to characterise the payments they were receiving for X sport court hire and coaching fees if the true nature of the payments were such that they were taxable supplies which should have been included in their GST returns.
The disputant was an incorporated society for the disputed period but later became a registered charity. Mr Smith was the main trustee and essentially controlled the disputant. Mr Smith leased a property (“the ABX Centre”) he owned to the disputant. The disputant subleased office space and returned the output tax on this in its returns. Mr Smith returned output on the rents he received from the disputant. In all periods the disputant’s GST inputs were greater than its outputs and therefore received a refund.
In 2014 it appeared to the Commissioner that the disputant was utilising parts of the building it leased office space in to hire out X sport courts and charge fees for X sport coaching without returning GST output.
The Commissioner amended the disputant’s GST returns to account for this income which resulted in the denial of all the GST refunds and tax owing to the Commissioner.
Judge Sinclair applied the law of GST to the facts of this case by analysing the following issues:
- Whether the disputant can challenge the Commissioner’s decision under s 108A(3) of the TAA to reopen the time-bar in s 108(1)(a) of the TAA?
- Whether the payments received by the disputant were donations and therefore not subject to GST?
- In the alternative, whether the payments were for exempt supplies under s 14(1)(b) of the GST Act 1985?
- If the disputant is found to have made taxable supplies, whether it is liable for shortfall penalties under s 141A of the TAA?
The Authority dismissed the time bar issue on the basis that pursuant to s 138E(1)(i)(v) of the TAA the decision to lift the time bar for a GST return reassessment under s 108A of the TAA is not a disputable decision that can be challenged to the Authority.
The Authority held that payments received by the disputant for X sport court hire and coaching fees were not donated because these payments were not “unconditional gifts”. The disputant was not a non-profit body because the disputant’s trust deed did not prohibit it from making any distribution to its members. The use of the courts and receipt of coaching services were conditional on fees to be paid.
The Authority held that payments received by the disputant for X sport court hire and coaching fees were not exempt supplies which required a supply of donated goods and services to be made by a non-profit body. The disputant was not a non-profit body. The supply of X sport court hire and provision of X sport coaching services were not donated. A lease agreement showed that the disputant was renting the X sport courts from Mr Smith. The Authority concluded that the disputant was only in the position to pay their rent to Mr Smith by hiring out the X sport courts. The disputant’s bank statements reflected reasonably regular payments being made directly to Mr Smith who conducted some X sport coaching at the ABX Centre. The disputant was not able to discharge their onus of establishing that Mr Smith (and any other X sport coaches) had donated their services to the disputant.
The Authority held that the disputant did not take reasonable care in taking a tax position when it filed its GST returns. The disputant did not establish it relied on professional advice when filing their returns. The Authority accepted that Mr Smith (who prepared and managed the affairs of the disputant) was an experienced businessman who was personally GST registered meaning he had an understanding of the GST legislation. The Authority held that a reasonable person in his position would have known that the supply of X sport court hire and coaching services were taxable supplies and required GST output tax to be included in the disputant’s GST returns.
Goods and Services Tax Act 1985 (GST), ss 2(1), 6(1) and (3), 8, 10(2)(a) and 14(1)(b)
Tax Administration Act 1994 (TAA), ss 3(1), 108, 108A, 138E, 138P, 141A, 141B, 141FB and 149A