The Full Court of the Federal Court recently had to consider the application of the general anti-avoidance provisions as well as the application of the margin scheme. In this case there was a group of companies that were property developers. They were registered as a GST group for GST purposes. This meant that supplies between group members were not taxable supplies. In addition inter-group transfers of various properties that took place at valuation were done on the basis of a supply of a going concern and therefore were GST free. Units that were subsequently sold were sold under the margin scheme based on the margin above the price paid by the transferee in the intra-group transfer.
There were both transfers under the margin scheme before and after amendments that were made to the margin scheme provisions in 2005. There was no GST benefit in relation to supplies to end purchasers on or after 17 March 2005 when these amendments came into force because from that time the margin for each supply was the amount by which the supply price exceeds an “approved valuation” of a corresponding interest as at 1 July 2000. There was only a GST benefit obtained by the taxpayer in relation to the operation of the margin scheme for supplies to end purchasers by the operation of the grouping provisions and the supply of a going concern provisions prior to that date. The amendments in 2005 prevented uplift in the cost base of the margin through intra-group transfers that had occurred in these cases.
The Commissioner made an anti-avoidance declaration under the GST Act negating the GST benefit the representative taxpayer for the GST group had obtained by applying the margin scheme to sales of the units to end purchasers on the footing of a margin determined on the basis of the difference between the acquisition price paid by the intra-group transferees and the value of the end purchases.
The general anti-avoidance rule has a specific provision that states that the rule does not apply if the GST benefit obtained by the taxpayer from the scheme is not attributable to the making, by any entity, of a choice, election, application or agreement that is expressly provided for by the GST law.
The taxpayer in this case argued that a liability for GST would have arisen on the intra-group sales but for the group transferees either joining the group, or agreeing with the transferor that the intragroup sales should be of going concerns. Therefore the GST benefit the taxpayer obtained was attributable to a choice made by the taxpayer that is expressly provided for by the GST law namely a choice to form a GST group which made intra-group transfers GST free or a choice to apply the going concern exception which also made the intra-group transfers GST free.
The majority held that the statutory purpose of this provision in excluding the operation of the general anti-avoidance rule was to preserve the entitlement to and effect of the specific legislative options, choices, elections etc. expressly provided for under a GST law giving rise to benefits that might otherwise be defeated by an unintended operation of that general rule. Therefore this provision ought to be construed in a way that gives effect to that purpose.
The majority held that the word “attributable” as used in this exclusionary provision imports the notion of causation in the sense of “some connection” or a “causal link alone” or a test of attributability that does not involve any qualification or limitation conveyed by such terms as “sole, dominant, direct or proximate” or the notion that “a contributory causal connection is quite sufficient”.
The majority of the Court also said the fact that it could be said that the benefit is attributable to a “scheme” resulting from a series of such choices etc. does not prevent the GST benefit also being attributable to the making of those choices. This interpretation of the provision arises from the express use of “attributable to” rather than a narrower or more restrictive test.
Therefore in this case the majority held that the taxpayer had satisfied that test of causation and the GST benefit was attributable to a causal link alone consisting of the exercise of one or more choices expressly provided for by the Act namely taking the steps that ensured that the intra-group transfer met the supply of a going concern provisions expressly provided for in the GST Act.
Therefore the general anti-avoidance rule did not apply.