The High Court recently had to consider the operation of the GST General Anti- Avoidance Rule (GAAR).
In this case there were 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. This resulted in a reduction in the margin used under the margin scheme through an uplift in the cost base on which the margin was calculated as a result of the earlier GST free transfers using market value.
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 GST General Anti-Avoidance Rule 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 intragroup transfers that had occurred in these cases.
The Commissioner made an antiavoidance declaration under of 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 Full Federal Court had held that the GST GAAR did not apply in these circumstances because the GST benefit was attributable to the making of a choice or agreement expressly provided for by the GST Act.
However the High Court disagreed with the decision of the Full Federal Court. The High Court held that this provision was to be read as meaning that the getting of the GST benefit by the avoider from the scheme is not attributable to the making of a choice. This means that the “non-attribution” with which this provision is concerned is the absence of statutory entitlement to get that GST benefit by the making of a choice authorised by the GST Act. The High Court said that the words “not attributable to” do not invite an inquiry as to causality to differentiate the effects of the scheme from the exercise of a statutory choice but rather the phrase is concerned with whether the GST benefit which has been got from the scheme, is not one to which the exercise of a statutory choice has entitled the taxpayer.
The High Court held that on the facts, the GST benefit obtained by the taxpayer was not attributable to the making of a statutory choice provided by the GST Act. The relevant GST benefit that was obtained by the taxpayer from the scheme was not attributable to the choice made by the taxpayer to use the GST grouping or the supplies of a going concern provisions. The choices made by the taxpayer resulted in no GST being applicable to the relevant transfers. The GST benefit that arose from the scheme was not a result of the fact that no GST had been payable with respect to those transfers as a result of a choice made by the taxpayer. The GST benefit that arose from the scheme was a result of the uplift in the cost base flowing from a commercial choice to make the earlier transfers after there had been an increase in the value of the properties and was not attributable to the choice to use GST grouping or the supply of a going concern with respect to the earlier transfers. Further the GST benefit was not attributable to the choice of the taxpayer to apply the margin scheme. The GST benefit was attributable to making of the earlier transfers to cause an uplift in the cost base for the margin scheme.