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30 May 14 Enterprise carried on but input tax credits denied - Davsa Forty-Ninth Pty Ltd

The Administrative Appeals Tribunal has determined, on the evidence, that a taxpayer was carrying on an enterprise of dealing in motor vehicles, but, for a number of reasons, was not entitled to input tax credits in respect of all but one of the motor vehicles.

The taxpayer was a corporate trustee. The taxpayer’s director and principal, K, decided to commence a business activity that he had been considering for some time. K thought that there was a niche market for motor vehicles with the following attributes: quality, class, prestige, distinction and performance. He believed motor vehicles with these characteristics generally increased in value over time. He thought that there was potential for this niche market to be a business opportunity that could be very lucrative in the future. The taxpayer purchased a number of vehicles over a period of time in furtherance of this project.

However, in the relevant period, the taxpayer sold only one vehicle, to K’s daughter, and that was at a loss.

The taxpayer claimed input tax credits in respect of the vehicles acquired as inventory.

The Tribunal decided, on the evidence, that the taxpayer should be regarded as an entity that had engaged in a series of activities that had sufficient indicia of business to be regarded as carrying on an enterprise, or to have been carrying out steps in the commencement of an enterprise. This was the case even though the taxpayer’s activities were disorganised to a degree, included potentially unusual activities when contrasted with what might be expected in the motor car sales sector, did not include selling and marketing activities during the relevant period, had private transactions in the relevant period, and had a degree of private use of three of the motor vehicles.

The Tribunal decided, however, that the Commissioner’s denial of input tax credits, in respect of all but one of the vehicles, was correct because:

  • for some of the vehicles, there was no evidence that the taxpayer held tax invoices either at all or at the requisite time
  • the evidence disclosed that the consideration for the purchases of certain vehicles was paid only to the extent allowed by the Commissioner
  • some vehicles were purchased second hand from people not registered for GST.

On the question of activities undertaken in the course of commencement of an enterprise, the Tribunal said this (footnotes omitted):

“64. Commencing an enterprise is not always the same thing as preparing for commencing an enterprise. Timing becomes an issue. Building up an inventory or collection to the point of eventually being able to sell individual pieces for profit has been accepted as carrying on an enterprise, as has acquisition of a capital asset to be used in carrying on an enterprise or business; the latter as doing something in the course of the commencement or termination of the enterprise. It follows then that acquisition of items that will be the circulating capital and turned over in the course of business activity and held on revenue account, even where the circulating capital is the initial circulating capital of the business, must also so qualify.”

Re Davsa Forty-Ninth Pty Ltd as Trustee for the Krongold Ford Business Unit Trust and FCT [2014] AATA 337 (F D O’Loughlin, Senior Member, 29 May 2014).

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