M L Chen and Z T Cui and Commissioner of Taxation

[2012] AATA 884

Division	GENERAL ADMINISTRATIVE DIVISION
File Number	2012/1585
Re	M L Chen and Z T Cui
APPLICANT
And	Commissioner of Taxation
RESPONDENT

DECISION

Tribunal	Mr Frank O'Loughlin, Senior Member
Date	19 November 2012
Place	Melbourne

The Tribunal affirms the decision under review.

[sgd]........................................................................

Mr Frank O'Loughlin, Senior Member

GST – Margin Scheme, penalty

Legislation

A New Tax System (Goods and Services Tax) Act 1999 (Cth)

Taxation Administration Act 1953 (Cth)

Cases

Dixon and Federal Commissioner of Taxation (2008) 167 FCR 287

REASONS FOR DECISION

Mr Frank O'Loughlin, Senior Member

19 November 2012

This application concerns GST[1] liability associated with sale of real property between 2008 and 2009 and, in particular, the applicability of what is called the Margin Scheme in connection with those sales, and, should the Tribunal conclude there is a tax shortfall, penalty,.
[1] Within the meaning of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (the GST Act)
The Applicants purchased, and subsequently sold, a property in the Melbourne central business district. There is no dispute as to the eligibility of the original purchase of the property for the Margin Scheme rules to apply to its eventual sale in subdivided parcels.
In his submission on behalf of the Applicants, Mr Chew indicated, among other things, that the Applicants are lay people who relied on what he describes as legal people, namely, the conveyancers who effected or assisted in effecting the sales of the subdivided parcels of the property.
Mr Chew contends that the Applicant’s never had an intention of not including GST in returns or defrauding the Commissioner of Taxation (the Commissioner) and they wanted their returns to be correct. Further, Mr Chew indicated there was no profit in the property and, therefore, there was an assumption that no GST would be payable. Mr Chew continued that when the property was bought some years before the years of sale it was thought that it could be on-sold promptly and when that didn’t happen, the Applicants began renting the property and even the rental arrangements were unsatisfactory, as it was claimed that the person who rented the property defaulted on the rent. It transpired that the property couldn’t be sold and the Applicants entered into a joint venture for its subdivision and on-sale.
These submissions are just that: submissions. They are not supported by evidence and accordingly, even if those submissions were relevant to the outcome in relation to substantive tax liability they could not be accepted as facts on the material before the Tribunal.
Two observations need to be made in relation to the material before the Tribunal.
(a)First, while the Tribunal is not bound by the rules of evidence, the Tribunal regularly applies them. Those rules have been developed over many decades and provide a robust foundation for the findings of fact which are necessary, at times pivotal, to the resolution of disputes between parties. Accordingly there is very good reason for the Tribunal to apply those rules.
(b)The second is that while a wide range of people, including registered tax agents, are allowed to represent tax payers in applications to the Tribunal, and while Tribunal proceedings are directed to be less formal than a Court proceeding, it remains necessary for the Tribunal to form its conclusions as to facts, and for its conclusions to be based in evidence. Those presenting cases for Applicants must be mindful of this need and if they are not mindful and they do not address this need they do so at their client’s peril.
In this matter, the relevant dispute concerns the applicability of the Margin Scheme and the relevant rules in s 75-5 in the GST Act require that:
(a)there be an agreement in writing that the Margin Scheme is to apply; and
(b)that agreement be made on or before the making of supply.
Accordingly, this case turns significantly on the documents, as opposed to what parties aim to do or what other misfortune occurred in the course of the period of years in which they owned and then subdivided and sold the property
The documents provided to the Tribunal concerning the agreements for the sales of the property at the source of the present issue take one of two forms. The first, form of agreement left GST and whether the margin scheme was to apply to the vendors’ absolute discretion and the second form of agreement simply had a provision that the price was inclusive of GST.
On no view are these documents a reflection of any agreement in writing between the vendor and purchaser of the properties that the Margin Scheme is to apply.
Accordingly the Applicant’s case concerning primary tax must fail.
Penalty issues are therefore relevant. Penalty at the rate applicable for failing to take reasonable care (25%) remitted by 50% to 12.5 per cent was imposed. No evidence of care taken has been led so as to allow consideration of either base penalty or further remission.
The submissions on behalf of the Applicants are, that they have tried to help the ATO, they have tried to obtain information required to assist the ATO, the conveyancing firm involved in the sale of the properties has been difficult and slow in providing information. Further, Mr Chew indicated that the Applicants thought that the Margin Scheme ought to apply, particularly so because the properties were residential properties and the purchasers would be unable to claim GST input tax credits. These remarks were directed either to events that occurred after the incorrect statements were made to the ATO and therefore, are not relevant, or they are directed to a policy and thought, that people had at particular points of time. They are not directed at the wording of ss 75-5(1) and 75-5(1A) and they are not directed to whether or not care was taken to ensure that those provisions were complied with. It can only be seen as careless not to having had regard to the clear words of the section.
The foundation requirement for remission of penalty is that it is harsh in the circumstances.[2] There is no evidence that a penalty of 12.5 per cent is harsh.
[2] See Dixon v F. C. of T. (2008) 167 FCR 287 at [26] per Spender, Ryan and Emmett JJ
Accordingly the objection decision in relation to penalties is affirmed as well.

I certify that the preceding 15 (fifteen) paragraphs are a true copy of the reasons for the decision herein of
Mr F D O’Loughlin

[sgd]........................................................................

Administrative Assistant

Dated 14 December 2012

Date of hearing	19 November 2012
Date of written reasons	14 December 2012
Advocate for the Applicant	Martin Chiew
Tax Agent for the Applicant	Martin Chiew and Associates
Solicitor for the Joined Party	Emily Quarrell
Solicitors for the Joined Party	Maddocks Lawyers

The case of M L Chen and Z T Cui and Commissioner of Taxation [2012] AATA 884 involved a dispute concerning the Goods and Services Tax (GST) liability associated with the sale of real property between 2008 and 2009. The applicants, M L Chen and Z T Cui, sought to challenge the applicability of the Margin Scheme in relation to their property sales and the penalty imposed by the Commissioner of Taxation. The dispute was heard by Mr Frank O'Loughlin, Senior Member of the General Administrative Division of the Tribunal, in Melbourne on 19 November 2012.

The primary legal issue before the Tribunal was whether the Margin Scheme applied to the sale of the property, as claimed by the applicants. The applicants argued that they relied on the advice of their conveyancers and did not intend to defraud the Commissioner of Taxation. However, the Tribunal found that the applicants' submissions were not supported by evidence and could not be accepted as facts. The Tribunal noted that the rules of evidence, although not binding, provide a robust foundation for fact-finding, and that it was necessary for the Tribunal to form its conclusions based on evidence.

The Tribunal examined the documents provided by the applicants concerning the agreements for the sales of the property. The agreements either left GST and the Margin Scheme at the vendors' discretion or stated that the price was inclusive of GST. The Tribunal concluded that these documents did not reflect any written agreement between the vendor and purchaser that the Margin Scheme was to apply. Therefore, the applicants' case concerning primary tax liability failed. The Tribunal also affirmed the penalty decision, as there was no evidence that the penalty of 12.5% was harsh in the circumstances.

In conclusion, the Tribunal affirmed the decision under review, finding that the applicants' submissions were not supported by evidence and that the Margin Scheme did not apply to the sale of the property. The penalty imposed by the Commissioner of Taxation was also affirmed. The Tribunal's decision was based on the evidence presented and the clear wording of the relevant provisions in the A New Tax System (Goods and Services Tax) Act 1999 (Cth).

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established