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14 May 1313 Decision Impact Statement - The Private Tutor

The ATO has issued a Decision Impact Statement in relation to the AAT decision in The Private Tutor and FCT [2013] AATA 136; 2013 ATC 1-052.

The case concerned whether the taxpayer was carrying on an enterprise and entitled to input tax credits for expenses, and it makes comments about the Commissioner's approach in raising assessments.

The Commissioner took the view that the taxpayer was not carrying on an enterprise and accordingly cancelled his GST registration. Assessments were made disallowing the ITCs, but requiring the taxpayer pay to the Commissioner amounts on account of GST that the taxpayer had collected. This resulted in assessments of positive net amounts despite the taxpayer not being entitled to be registered for GST.

The AAT found the taxpayer was carrying on an enterprise under s 9-20 of the GST Act, and was entitled to be registered for GST. The Tribunal considered that the Commissioner had placed too much weight on the small scale of activities involved. The Commissioner also failed to consider the true financial position of the activities free from the inflated claims for ITCs in respect of private expenditure in assessing profitability.

The AAT also criticised the Commissioner for attempting to "claw back" GST amounts declared by the taxpayer (on what the taxpayer thought were taxable supplies) by raising assessments of positive net amounts while maintaining that the taxpayer is not entitled to be registered for GST. The AAT said that, if a taxpayer is not entitled to be registered for GST, the net amount in each case must be nil. In these circumstances, in the view of the AAT, s 105-65 of Schedule 1 to the Taxation Administration Act 1953 does not allow the Commissioner to assess taxpayers for positive net amounts in an attempt to "claw back" GST amounts declared by the taxpayer in their GST returns.

The Decision Impact Statement states that the Commissioner accepts that the decision of the AAT on "enterprise" was open on the facts of the case. However, in relation to comments regarding the Commissioner's approach to s 105-65 and, in particular, that assessments in these circumstances may or will contain 'obvious (and, arguably, deliberate) errors' , the Commissioner respectfully maintains his views on s 105-65 as set out in MT 2010/1. These views formed the basis of the approach to raising assessments in the present case. The Commissioner considers that s 105-65 is predicated on an examination of individual transactions, rather than on overall net amounts for particular tax periods.

The Decision Impact Statement also notes that on 26 February 2013, draft legislation was released, which if enacted would have the effect of repealing current s 105-65 and replacing it with a new Division in the GST Act dealing with refunds of overpaid amounts of GST. If the proposed legislation is passed, it would likely remove any uncertainty over the correct approach to cases like this one, insofar as they involve tax periods starting on or after 17 August 2012.


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