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The Administrative Appeals Tribunal (S E Frost DP) has affirmed the Commissioner’s decision to disallow input tax credits relating to certain property developments, and has also affirmed the Commissioner’s decision on penalty.

The applicant taxpayers in this case were described as “principal contractors”. They seem to have been engaged by the owners of the properties in question to do certain work on the properties. The arrangement was said to be that the principal contractors in turn would engage subcontractors to do the physical work. The subcontractors would do the work and charge the work to the principal contractors. The principal contractors would bundle up the charges, mark them up by 20% and on-charge them to the owners. However, actual evidence of these transactions was scant. The Tribunal described what the taxpayers did in relation to the properties, and the acquisitions the taxpayers claimed to have made from the subcontractors, as a “quite profound mystery”.

On the evidence, the Tribunal was unable to find that the applicant taxpayers were conducting any activities in relation to the properties in question, or that they carried on any activities “in the form of a business” in relation to the properties. There were taxable supplies, but they were not made by the subcontractors to the taxpayers; rather, they seem to have been made to the owners of the properties.

The taxpayers claimed that they had provided consideration for acquisitions, in the form of promissory notes given to the subcontractors. But, as the Tribunal said, the provision of a promise to provide consideration in the future is not the same as the provision of consideration today.

Re Dotrac Pty Ltd and FCT [2014] AATA 336 (S E Frost DP, 29 May 2014).

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