Tax update - GST credits
Posted 14 Mar 13
The Administrative Appeals Tribunal (AAT) released an interesting GST decision last week, concerning input tax credit entitlements and a group of related companies.
In the decision (Bayconnection Property Developments Pty Ltd and Ors and Commissioner of Taxation  AATA 40), the AAT affirmed the view of the Commissioner of Tax that the taxpayers were not entitled to input tax credits because they were not carrying on an enterprise.
The entities contended that they were establishing an institution for vocational training. However, they provided little evidence to detail what activities had been undertaken as part of carrying on an enterprise or to substantiate their claims.
The AAT was concerned that GST refunds, by way of input tax credits, were primarily being generated by the taxpayers to assist with the cash flow of the group of companies. Further, the taxpayers were hit with 95% penalties for intentional disregard of the GST law.
Our Tax team has seen many similar cases in recent times, and despite the broad definition of "carrying on an enterprise", the ATO is closely scrutinising taxpayers. They usually target businesses in the start-up phase - where costs often outweigh sales so GST refund positions arise, and evidence of an enterprise being undertaken might be unclear. The ATO often takes a hard line approach in these circumstances, evidenced by the high level of penalties imposed.
The important message is to ensure that the level of activity of the business clearly constitutes an enterprise. It also highlights the importance of maintaining records and documentation as evidence of these activities.
If this situation is relevant to you, our Taxation specialists are able to assist. Please feel free to contact Andrew Porvaznik, Partner on 0409 135 434 or Dale Matthews, Manager on (02) 8346 6047 to discuss.