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World Journal of VAT/GST Law Volume 3, 2014 - Issue 1
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Original Articles

Grappling with basic VAT concepts in the Australian GST: the meaning of ‘supply for consideration’

Rebecca Millar Professor of Law, Sydney Law School, The University of Sydney, Australia.
Pages 1-31 | Published online: 07 May 2015

  • The proverb ‘A new brush sweeps clean, but an old brush knows the corners' means that ‘someone with a new perspective can make great changes' but cautions that ‘experience is also a valuable thing’. See www.usingenglish.com/reference/idioms/new+brush+sweeps+clean.html.
  • Australian Taxation Office, Tax Law Improvement Project, Building the New Tax Law: Information Paper No 2 (AGPS, 1995). The project was never completed and Australia's income tax law is now spread across two statutes: Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997. The bills that became Australia's GST law were introduced in 1998, passed in 1999, and imposed GST from 1 July 2000.
  • Michael Evans, ‘Horton's Lesson: Australia's Struggle with “Truth in Drafting”’ (2012) 1 World Journal of VAT/GST Law 21.
  • The A New Tax System (Goods and Services Tax) Bill 1998 (‘the GST Bill’).
  • Executive Summary to Chapter 1 of the Explanatory Memorandum to the GST Bill (emphasis in original). See also Peter Costello, Treasurer of the Commonwealth of Australia, Tax Reform: Not a New Tax, A New Tax System (the Howard Government's Plan for a New Tax System) (August 1998), 80, which states: ‘The new GST will be based on the “value added tax” model adopted by nearly all OECD countries and more than 80 other countries around the world.’
  • The High Court is the highest Australian court in both state and federal jurisdictions; a full court of the Federal Court is the second highest court in the federal jurisdiction.
  • In this section, the word ‘cancelled’ is used in its ordinary English meaning, not as a term of art with a particular legal meaning. The Macquarie Dictionary Online, which expresses Australian English usage, gives the following as its first meaning of the verb ‘cancel’: ‘1. to decide not to proceed with (a previously arranged appointment, meeting, event, etc.)’. Used in this sense in the context of a VAT/GST, a ‘cancelled transaction’ is one in which the customer or supplier does not proceed with a transaction that was intended to occur (though most GST/VAT cases arise when it is the customer that ‘cancels’ the supply by not proceeding). This is not intended to prescribe a definition but merely to explain the general sense in which the word ‘cancelled’ is used in this paper. Under this usage, a customer can cancel a supply by, without explanation, not turning up for a flight (a ‘no show’) or by formally notifying a cancellation to the airline and then not turning up for the flight. Both are dealt with in section 2.1.2 below. Similarly, a sale of land can be cancelled because the intended purchaser failed to complete the contract and the intending supplier therefore rescinded it.
  • Federal Commissioner of Taxation v Reliance Carpet Co Pty Limited (2008) 236 CLR 342, [2008] HCA 22.
  • Federal Commissioner of Taxation v Qantas Airways Ltd (2012) 247 CLR 286, [2012] HCA 41.
  • In Australia, most sales of land by registered entities are taxed, the main exception being residential premises, other than new residential premises, which are ‘input taxed’ (exempt without credit). Some supplies of land are ‘GST-free’ (exempt with credit). See GST Act, subdivs 38-N, 38-O, 40-C.
  • Under the Australian GST, all prices are treated as GST-inclusive. GST is applied to the ‘value’ of the supply, which is 10/11ths of the price of a fully taxed supply. The 10% rate of GST thus equates to a tax fraction of 1/11th of the price paid for a fully taxed supply: GST Act, ss 9–70, 9–75.
  • Case W22 (2003) 21 NZTC 11,212; Ch'elle Properties (NZ) Limited v Commissioner of Inland Revenue (2004) 21 NZTC 18,618.
  • Ch'elle Properties (n 12) [59]. See also Inland Revenue (New Zealand), GST Consequences of a Cancelled Contract (2005), www.ird.govt.nz/technical-tax/questions/questions-gst/qwba-gst-cancelled-contract.html.
  • The object of the scheme had been to take advantage of a mismatch between the rules for cash and invoice accounting in order to generate a refund of around NZD 9 million, 18 years in advance of when the corresponding output tax would be payable. The transactions were cancelled after the tax period in respect of which the dispute arose—in part because of the Commissioner's refusal to pay the refund. Thus, although noting that the cancellation meant there was no tax payable and no input tax to deduct, the courts had to consider whether the Commissioner should have paid the refund before the cancellation. The focus of the case, and in particular of the appeals, was on the application of New Zealand's GST general anti-avoidance rule.
  • Case C-277/05 Société Thermale d'Eugénie-les-Bains v Ministère de l'Économie, des Finances et de I'ndustrie 2007 [ECR] I-6415.
  • ‘GST is payable on taxable supplies and taxable importations': A New Tax System (Goods and Services Tax) Act 1999 (‘GST Act’), s 7–1(1). This can be compared with the EU VAT, under which ‘taxable’ transactions are supplies that in principle fall within the scope of VAT but which might not be taxed, eg if they are exempt: Council Directive (EC) 2006/112 of 28 November 2006 on the common system of value added tax [2006] OJ L347/1 (EU VAT Directive): Title IV (Taxable Transactions), chs 1–3. Like Australia, New Zealand also defines taxable supplies as supplies that are subject to tax: see the definition of ‘taxable supply’ in Goods and Services Tax Act 1985 (New Zealand) (‘NZ GST Act’), s 2. However, because New Zealand (unlike Australia) uses zero-rating to effect exemption with credit, its taxable supplies include supplies that in fact bear no tax burden.
  • GST Act, s 9–5. A word or phrase in bold italics is being defined where it so appears. ‘GST-free’ means exempt with credit while ‘input taxed’ means exempt without credit: GST Act, ss 9–5, 11–15, 15–10, and ch 3 ‘The Exemptions’, pt 3–1 ‘Supplies that are not taxable supplies'. Throughout this article, asterisks (which generally precede references to defined terms) are omitted when quoting the GST Act.
  • GST Act, s 9–10. The section goes on to deal with specific issues that are not relevant to this discussion.
  • NZ GST Act, s 5(1) (emphasis omitted).
  • Value Added Tax Act 1983 (UK) (‘UK VAT Act 1983′), s 3(2)(a); Value Added Tax Act 1994 (UK) (‘UK VAT Act 1994′), s 5(2)(a).
  • Goods and Services Tax Act c 117A (Singapore) (‘Singapore GST Act’), s 10(2)(a).
  • GST Act, s 9–5(a); NZ GST Act, ss 8(1), 10(2).
  • NZ GST Act, s 8(1); Singapore GST Act, s 8(1); UK VAT Act 1994, ss 1(1)(a), 4(1), previously UK VAT Act 1983, s 2(1).
  • See Commissioner of Taxation, Goods and Services Tax Ruling GSTR 2006/9 Goods and Services Tax: Supplies (ATO, 25 October 2006), consolidated to 6 September 2013, which makes this point in respect of acquisitions (at [53]) and in respect of a supply of real property (at [84]), though does not spell the point out for supplies generally.
  • Excise Tax Act 1985 (Canada) (‘Canadian Excise Tax Act’), s 165(1). The same section defines a ‘taxable supply’ as ‘a supply that is made in the course of a commercial activity’.
  • ibid. ‘Property’ is defined to mean ‘any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money’: ibid. Thus, as in Australia, the basic subdivision into categories of supply is different from the norm.
  • Canadian Excise Tax Act, s 133 provides that: ‘… where an agreement is entered into to provide property or a service, (a) the entering into of the agreement shall be deemed to be a supply of the property or service made at the time the agreement is entered into; and (b) the provision, if any, of property or a service under the agreement shall be deemed to be part of the supply referred to in paragraph (a) and not a separate supply.’ Thus, in Canada, the ‘taxable event’ occurs on entry into the contract, rather than when goods, services, or property are actually supplied under the contract.
  • Reliance Carpet (n 8) [23].
  • ibid.
  • ibid, [24].
  • ibid, [25].
  • ibid, [26].
  • ibid, [24].
  • ibid, [28].
  • Cf Case C-16/93 Tolsma v Inspecteur der Omzetbelasting Leeuwarden [1994] ECR I-743 (3 March 1994); Commissioner of Inland Revenue v New Zealand Refining Co Ltd (1997) 18 NZTC 13,187.
  • Reliance Carpet (n 8) [37]. Entering into such obligations was a supply under s 9–10(2)(g).
  • ibid, [39].
  • GST Act, s 9–10(2)(d).
  • Reliance Carpet (n 8) [38]. An extended definition of ‘real property’ in GST Act, s 195–1 includes a ‘contractual right exercisable over or in relation to land’. The same phrase is used in defining ‘services relating to land’ in UK VAT Act 1994, Sched 4A, para 1(2)(c). Thus, what is treated as a service in UK VAT is treated as a supply of real property in Australian GST.
  • Reliance Carpet (n 8) [40].
  • ibid, [32]–[33].
  • ibid, [33].
  • Commissioners of Customs and Excise v Redrow Group plc [1999] 1 WLR 408.
  • ibid, 418.
  • Moreover, Lord Hope has recently suggested that Lord Millet's approach must now be considered to have gone too far: Commissioners for Her Majesty's Revenue and Customs v Aimia Coalition Loyalty UK Ltd (formerly Loyalty Management UK Ltd) [2013] UKSC 15, [110] (Aimia Coalition Loyalty’). Lord Hope's assessment of Redrow was very recently cited with approval by a single judge of the Federal Court of Australia: Professional Admin Service Centres Pty Ltd v Commissioner of Taxation [2013] FCA 1123, [53] (Edmonds J).
  • Reliance Carpet (n 8) [30].
  • GST Act, s 9–15(1)(a). See n 129 below for the New Zealand origins of this phrase.
  • Note that the ‘attribution’ rules are Australia's equivalent of ‘time of supply’ rules.
  • Para 6.169 of the Explanatory Memorandum to the GST Bill gave two examples. Example 1: A $50 refundable security deposit was paid by Rex, who hired a floor-sander. If Rex returned the sander, the $50 would be refunded and it would be pointless to require the supplier to pay GST and then make a subsequent adjustment. If Rex failed to return the sander, he would forfeit the deposit and GST would be payable because of the forfeit. Example 2: Jo-anne ordered widgets and paid a deposit. If all went well, the deposit would be applied to the purchase price. If the supplier could not fill the order, the deposit would be refunded. If Jo-anne failed to proceed with the order, the deposit would be forfeited and GST would become payable. There are problems with both examples. Example 2 seems to involve a normal deposit for a supply, which would generally trigger full payment of the output tax (GST Act, Subdiv 29-A). More importantly for Reliance Carpet, the wording of s 99–5(1)(a) is insufficient to impose a liability in the case of a mere forfeit. Section 99–10(1)(a) merely attributes the GST payable on a taxable supply, but if there is no supply, there can be no GST to attribute. Had the division been drafted to treat the forfeit of a security deposit as a payment of consideration for a supply (ie to create a deemed supply and a nexus to the forfeited deposit), the Reliance Carpet case might never have come to court. Without spelling it out, the Court appears to have been influenced by a sense that Parliament clearly intended that a forfeit should be seen as relating to a supply.
  • New Zealand achieves something similar to Division 99 through general principles. An Inland Revenue interpretation statement clarifies that a deposit held as stakeholder, including a deposit held by the supplier, will not have been received by the supplier and will not trigger GST until it can be applied for the supplier's benefit: Inland Revenue (New Zealand), IS10/03 GST: Time of Supply: Payments of Deposits, Including to a Stakeholder (4 June 2010). Although issued after Reliance Carpet, this confirmed what had already been established by case law. A similar approach is taken in the United Kingdom: see HMRC, VAT Notice 742A Opting to Tax Land and Buildings (June 2013), in the section entitled ‘10.2 Does a deposit create a tax point?’. A similar approach applies for deposits generally: HMRC, VATSC53600—Consideration: Payments that are Not Consideration: Deposits states that ‘A deposit taken as security, for example against the safe return of goods on hire, is not consideration for a supply’, www.hmrc.gov.uk/manuals/vatscmanual/VATSC53600.htm. Of course, both the United Kingdom and New Zealand follow case law by providing that the forfeit of a deposit does not amount to consideration for a supply, but the other aspects of Australia's Division 99 have their equivalents in both the UK VAT and the New Zealand GST. It is highly likely that other countries also apply similar approaches, given that the treatment of deposits in both the UK and New Zealand follows from the necessity of a link between supply and consideration.
  • Reliance Carpet (n 8) [37] (emphasis added).
  • While Australia might have viewed the transaction as involving two supplies—one to the homeowners and the other to Redrow—this is not possible in the UK because the definition of supply (n 20) means that a supply for no consideration is not a supply for VAT purposes.
  • For the AAT case reports, see Qantas Airways Limited and Commissioner of Taxation [2010] AATA 977 and Reliance Carpet Company Pty Ltd and Commissioner of Taxation [2006] AATA 486. For the Full Federal Court case reports, see Qantas Airways Limited and Commissioner of Taxation [2011] FCAFC 113 and Reliance Carpet Co Pty Ltd v Commissioner of Taxation [2007] FCAFC 99.
  • Reliance Carpet Co Pty Ltd v Commissioner of Taxation [2007] FCAFC 99, [18] (emphasis added).
  • Reliance Carpet (n 8) [13].
  • Given that the intending purchaser in Reliance Carpet acquired neither the land itself nor the title or interest in the land, it is not immediately apparent that the Federal Court did in fact make such a mistake. Nor is it evident why that would negate its approach, which focused on what the customer had paid the deposit as consideration for.
  • Qantas (FFC) (n 53) [56].
  • Qantas (AAT) (n 53) [19].
  • ibid, [24].
  • Of course, this does not mean that ‘holding oneself ready’ to do something could never be a supply, merely that it will only be a taxable supply if it is in itself an object for the parties, for which the consideration is paid.
  • Qantas (n 9) [33].
  • It is not clear why the Federal Court repeated the phrase ‘nothing more, nothing less'. Perhaps it simply felt that the two cases were so different that a different result must be reached despite what had been said by the High Court. Nor is it clear whether the brevity of the High Court judgment was a response to that repetition or merely the result of its view that there was in fact no obvious difference between the cases.
  • ibid, [23] (emphasis added).
  • ibid, [18].
  • This is the view suggested in Gina Lazanas and Robyn Thomas, Qantas: A Landmark Case Or Deja Vu?’ (2012) 12
  • Australian GST Journal 152, 159–60.
  • Qantas (n 9) [27].
  • Evans (n 3) 21, quoting Horton the elephant, who said ‘I meant what I said and I said what I meant’.
  • Qantas (n 9) [14] (second emphasis added).
  • In addition to the two cases on ‘supply for consideration’, there has been one case on the place of taxation rules and one on the general anti-avoidance rule. In the author's view, the only High Court decision on GST to have reached the right result was the anti-avoidance case: Federal Commissioner of Taxation v Unit Trend Services Pty Ltd [2013] HCA 16. Andrew Sommer's note on that case appears in Vol 2 Issue 3 of the World Journal of VAT/GST Law. The place of taxation case related to a foreign exchange transaction and is discussed in Evans (n 3). The Court ruled that the supply of Fijian currency in exchange for Australian currency was a GST-free supply for consumption outside Australia, even though the supply was made in Australia by an Australian entity to a person in Australia: Travelex Ltd v Federal Commissioner of Taxation [2010] HCA 33. The Court's decision is clearly inconsistent with the destination principle yet the complex and unusual approach Australia has taken to defining financial services, and the very general terms in which the place of taxation rules are cast, meant that the Court (or, more accurately, the majority in the 3:2 decision) was barely required to turn its mind to the proper issues: see Evans (n 3) and Rebecca Millar, ‘The Destination Principle: Past Developments and Future Challenges' in Christine Peacock (ed), GST in Australia Looking Forward from the First Decade (Law Book Co, 2011).
  • See, for example, the views expressed by Richard Krever in a 2007 comment on the Full Federal Court decision: ‘GST Treatment of Deposits: Further Developments' (2007) 18(5) International VAT Monitor 362.
  • Krever, Ibid, takes exactly the opposite view, seeing the Full Federal Court's adoption of the more mainstream VAT approach to deposits as an unnecessary restriction on the notion of supply.
  • A recent news report on ‘no shows’ noted that some passengers become so indignant at the high fees charged by airlines for the cancellation and rebooking of a non-refundable flight that they check in online for flights they have no intention of boarding, in an attempt to deny the airline the chance to re-sell the ticket. See Christopher Elliot, ‘With spiraling ticket-change fees, it's cheaper to pull a no-show than to cancel a flight' Washington Post (24 October 2013).
  • Bundesfinanzhof 15.9.2011—case V R 36/09 BStBl 2012, 365.
  • http://vatresource.com/en/News/News-Items/Sweden---Statement-tax-authorities-regarding-cancellation-and-no-show-fees.html. It appears that only if the service is cancelled and the cancellation fee is less than the full price will Sweden apply Société Thermale d'Eugénie-les-Bains.
  • See CJEU Case 474/00, Kennemer Golf & Country Club v Staatssecretaris van Financiën [2002] ECR I-3293.
  • See Rebecca Millar, ‘Smoke and Mirrors: Applying the Full Taxation Model to Government under the Australian and New Zealand GST Laws’ in Rita de la Feria (ed), VAT Exemptions: Consequences and Design Alternatives (Kluwer, 2013) 135.
  • Cf Council Directive (EC) 2006/112 of 28 November 2006 on the common system of value added tax [2006] OJ L347/1, Art 13(1); cf GST Act, s 9–20(1)(g).
  • Supplies for no consideration are not taxable supplies (GST Act s 9–5) but an entitlement to an input tax credit can still arise because the input tax credit rules do not require a link to taxable supplies, only a link with the enterprise and the absence of a link to ‘input taxed’ supplies or private or domestic activities: GST Act, ss 11–15, 15–10. The following statement by Copenhagen Economics is thus clearly incorrect: ‘[I]n Australia government activities without remuneration (e.g. fire protection, law enforcement) are outside of scope of GST. As a consequence input GST is not credited. This means that the known problems of EU VAT law, like the self-supply bias, reluctance to invest, cascading, are only partially solved.’ Copenhagen Economics, VAT in the Public Sector and Exemptions in the Public Interest, Final Report for TAXUD/2009/DE/316 (1 March 2011), 103. Australia has no notion of government activities being ‘out-of-scope’ because every activity carried on by government is treated as an economic activity. In addition, the input tax credit rules mean that almost all input tax incurred by government is credited. The sentence in the Copenhagen Economics report should have read: ‘[I]n Australia government activities without remuneration (eg fire protection, law enforcement) are not taxable supplies. Despite this, the related input GST is credited. This prevents the problems of EU VAT law, like the self-supply bias, reluctance to invest, and cascading, from arising.’
  • TT-Line Company Pty Ltd v Federal Commissioner of Taxation 181 FCR 400; [2009] FCAFC 178.
  • The phrase ‘government related entity’ is defined in s 195–1 of the GST Act. The exact complexities of its meaning have no particular importance in the context of the issues discussed in this paper and the term can basically be equated with the word ‘government’ or with the EU VAT notion of a ‘public authority’.
  • The case is discussed in more detail in Millar (n 76).
  • Federal Commissioner of Taxation v Department of Transport (Victoria) (2010) 188 FCR 167, [2010] FCAFC 84.
  • TT-Line (n 79) [51]–[52].
  • Again, this is not dissimilar to the approach taken in Redrow (n 44) and indeed that case was noted in both the initial Federal Court decision and the Full Federal Court decision on appeal: Department of Transport (FFC) (n 82) [61]–[62]; Secretary to the Department of Transport (Victoria) v Commissioner of Taxation [2009] FCA 1209, [38], [40]–[41], [56], [58], [61], [71], [72].
  • HP Mercantile Pty Ltd v Federal Commissioner of Taxation [2005] FCAFC 126, (2005) 143 FCR 553, [13] (Hill J), cited in Department of Transport (FFC) (n 82) [38].
  • Commissioner of Taxation, Goods and Services Tax Ruling: Goods and Services Tax: Supplies GSTR 2006/9 (ATO 25 October 2006), consolidated 6 September 2019.
  • Department of Transport (FCA) (n 84) [70] (emphasis added).
  • Department of Transport (FFC) (n 82) (emphasis added). The Court reiterated its point by immediately adding: ‘That is, in transporting the [passenger] in conformity with the [agreement with the Department], the taxicab operator provided the service to the [Department] of transporting the [passenger].’ The Commissioner's arguments in the AP Group case (discussed in section 3 of this article) focused on this elaboration to justify characterising the supply to the Department not as the transport of the passenger but as the service of supplying the transport to the passenger, with an implication that there is some essential distinction between these two formulations of what is supplied. But that is clearly not what the Court actually said. It said that the supply was the transport of the passenger. The elaboration merely states the obvious, which is that transport is a service. See also Professional Admin Service Centres (n 45), [48], where Edmonds J describes the supply in Department of Transport as the transport of the passenger.
  • Cf Commissioners of Customs and Excise v Plantiflor Limited [2002] 1 WLR 2287; [2002] UKHL 33, [50], where Lord Millet reiterated the principle established in Redrow (n 44) that ‘a single course of conduct by one party may constitute two or more supplies to different persons'. See also Lord Slynn of Hadley at [32]: ‘It is clear from [Redrow]… that one set of acts can constitute two different supplies of services.’ The New Zealand Court of Appeal made a similar point in the context of a series of interrelated contracts relating to the repair of cars under warranty, saying: ‘This is simply an instance of the common enough situation in which performance of obligations under two separate contracts with different counter-parties overlap, so that performance of an obligation under one contract also happens to perform an obligation under another. In such cases a supply can simultaneously occur for GST purposes under both contracts.’ See Suzuki New Zealand Limited v Commissioner of Inland Revenue [2001] NZCA 144, [23].
  • CJEU Case 53/09 Loyalty Management UK Ltd v Commissioners for Her Majesty's Revenue and Customs (7 October 2010).
  • Aimia Coalition Loyalty (n 45).
  • CJEU Case 55/09 Baxi Group Ltd v Commissioners for Her Majesty's Revenue and Customs (7 October 2010).
  • Loyalty Management (n 90) [66].
  • ibid.
  • This was the understanding expressed by Lord Carnwath, in dissent: Aimia Coalition Loyalty (n 45) [145]–[146].
  • ibid, [73]–[75] (Lord Reed), [113] (Lord Walker).
  • ibid, [110].
  • ibid, [67].
  • ibid.
  • In his analysis of Department of Transport he says: ‘The Court observed that the suggestion that there will be a supply made in every case that consideration is provided is an erroneous proposition.’ Commissioner of Taxation, Decision Impact Statement: Commissioner of Taxation v Department of Transport (Vic) LIT/ICD/VID845 of 2009 (ATO, 20 June 2012). However, the Court was not actually discussing the one supply/two supplies notion when it made this statement but was responding to the Commissioner's criticism of the decision on appeal. What the Full Court actually said was: ‘Her Honour did not advance the erroneous proposition that, in every case in which there is consideration, there is a supply, as the Commissioner at one stage suggested.’ Department of Transport (FFC) (n 82). This could just as easily be read as a more general statement that the fact of a payment does not imply the existence of a supply, rather than a comment on the likelihood that a third-party consideration situation might also involve a supply to both payers.
  • The High Court considers that the question is essentially one of fact—the Commissioner's application for special leave to appeal in Department of Transport was refused on that basis. The transcript of the application hearing concluded that: ‘The application involves [a challenge to] concurrent findings about the application of the GST Act to particular facts. We are not satisfied that the application, bearing as it does upon matters of characterisation, raises for consideration any general principle of public importance such as would warrant the grant of special leave.’ Federal Commissioner of Taxation v Secretary of the Department of Transport (Victoria) [2010] HCATrans 330 (French CJ). However, this says nothing about whether TT-Line should be viewed as involving only one supply and one acquisition.
  • Commissioner of Taxation, Goods and Services Tax Ruling: Goods and Services Tax: Supplies, GSTR 2006/9 (ATO 25 October 2006), consolidated 6 September 2019, [221A]–[221S]. Rulings express the Commissioner's interpretation of the law and are not in themselves law. Taxpayers may take a different view but if they do so they are likely to be challenged on audit and ignoring the ruling may have an impact on the amount of any penalties payable.
  • ibid, [221B]. The Commissioner lists five factors but his third factor is no more than a reiteration of this first requirement that the framework/agreement must be pre-existing.
  • See the quote from Aimia Coalition Loyalty (n 45) to which n 99 refers.
  • Professional Admin Service Centres (n 45), [43]. On the particular facts at hand, which involved the taxpayer paying for legal services provided to a third party who was charged with various criminal offences, Edmonds J considered the following factors to be relevant: the absence of an agreement between the lawyers and the taxpayer (the third-party payer claiming the input tax credit) in relation to the services or the fees, the absence of any pre-existing framework under which the taxpayer was liable for the payments, the absence of any objective purpose for the taxpayer to make the payments, the non-commercial nature of the arrangements, and the absence of any evidence of a relationship between the lawyers and taxpayer: see [44]–[57].
  • AP Group Limited v Commissioner of Taxation [2013] FCAFC 105.
  • AP Group Limited and Commissioner of Taxation [2012] AATA 409.
  • O'Rourke notes that it is common for dealers to discount the price more deeply, thus covering part of the discount out of their own profits: Kevin O'Rourke, ‘Incentives, Rebates and Third-Party Adjustments after the AP Group Decision' (2013) 13 Australian GST Journal 64, 69.
  • AP Group (AAT) (n 107) [3].
  • GST Act 1999, s 19–10(1)(b). This is similar to Article 90 of the EU VAT Directive. The other ‘adjustment events’ are events that have the effect of cancelling a supply and events that result in a change in the GST treatment of a supply that cause it to become, or cease being, a taxable supply: GST Act 1999, s 19–10(1)(a) and (c). The GST effects of an adjustment event are accounted for by making an increasing or decreasing adjustment to the net amount of tax payable for the tax period in which the registered person becomes aware of the adjustment event: GST Act, div 29.
  • Case C-317/94 Elida Gibbs Ltd v Commissioners of Customs and Excise [1996] ECR I-5339.
  • The Electrical Goods Importer and the Commissioner of Taxation [2009] AATA 854.
  • GST Act, div 134.
  • Whether the Commissioner could refuse to pay the refund is not discussed in this note.
  • AP Group was the representative member of a GST group that included a large number of dealers.
  • AP Group (AAT) (n 107) [80].
  • Parallels can be drawn between this argument and the conclusion of the CJEU in Loyalty Management that the payments by Loyalty Management were third-party consideration for the rewards supplied to customers redeeming their points. See Loyalty Management (CJEU) (n 90) [15].
  • AP Group (AAT) (n 107) [81].
  • ibid, [84].
  • ibid, [85].
  • ibid, [86]. An analogy could be drawn here with Tolsma (n 35), since the organ grinder in that case played whether or not passers-by contributed a donation. Perhaps more apposite are the words of Lord Millet in Plantiflor (n 89). Describing the contract ‘between Plantiflor and Parcelforce by which Plantiflor had made the necessary arrangements to have its customers' goods delivered' he said: ‘By this contract, which was to remain in force for a term of five years, Plantiflor undertook to despatch a minimum of 400,000 parcels in each year of the term of a specified average weight and was charged a preferential bulk rate of postage… [T]his was a contract for delivery and not a contract of delivery. It was not itself a taxable transaction' (emphasis in original). Plantiflor (n 89) [53].
  • AP Group (AAT) (n 107) [88]. These conclusions can be contrasted with the decision in Case 230/87 Naturally Yours Cosmetics Ltd v Commissioners of Customs and Excise [1988] ECR 6365, in which the CJEU treated a retailer as making a supply to the manufacturer when she supplied products to a party host at a discount in accordance with the requirements of the terms of her agreement with the wholesaler. That decision is criticised in Geoffrey Morse, ‘Identifying the Taxable Amount for Value Added Tax of a Supply of Goods at a Reduced Cash Price: A Question of Analysis or Principle?’ [2002] British Tax Review 179 and Rebecca Millar, ‘Illusory Supplies and Unacknowledged Discounts: VAT and Valuation in Consumer Transactions' [2003] British Tax Review 153.
  • AP Group (AAT) (n 107) [104]–[105].
  • In reaching this conclusion, the Tribunal placed emphasis on the fact that the law is worded in the singular: ‘You make a taxable supply. if you make the supply for consideration.’ GST Act, s 9–5 (emphasis added).
  • AP Group (FFC) (n 106) [54].
  • GST Act, s 9–5(a) (emphasis added).
  • The ‘Dictionary’ (GST Act s 195–1) is what used to be called the ‘Interpretation’ section under the old drafting style. The latter terminology is generally still used by other common law jurisdictions.
  • GST Act, s 195–1, definition of ‘consideration’ (emphasis in original).
  • This has its origins in the definition of ‘consideration’ in the New Zealand GST Act, s 2, except that New Zealand uses the phrase ‘in respect of” rather than the ‘in connection with’ used in s 9–15(1)(a). Various clarifications, modifications, inclusions, and exclusions appear in the remainder of s 9–15, in s 9–17, and in the various modifying provisions that are also noted immediately after the definition of consideration in s 195–1. Other than the clarification that ‘third-party’ payments can amount to consideration (s 9–15(2)), none of these is relevant to the case.
  • Readers looking for light amusement should consult Commissioner of Taxation v Luxottica Retail Australia Pty Ltd [2011] FCAFC 20, [20]–[30] for an understanding of this comment: see www.austlii.edu.au/au/cases/cth/FCAFC/2011/20.html.
  • AP Group (FFC) (n 106) [31]–[33], citing the Macquarie Dictionary.
  • Justice Gordon in the initial TT-Line decision also referred to Tolsma, saying that it is ‘clearly inapplicable’ in the light of the fact that the GST Act specifically says that it does not matter whether consideration is voluntary: GST Act, s 9–15(2); TT-Line Company Pty Ltd v FCT [2009] FCA 658, [29]. Though the comment was essentially made in passing, her Honour did not seem to consider that the requirement for a supply to be ‘made for consideration’ would make Tolsma relevant.
  • AP Group (FFC) (n 106) [34].
  • The Tribunal did not, as AP Group submitted, merely apply a ‘but for’ causation test. It had clearly stated that there was a ‘direct and immediate link’ between the incentive payments and the relevant supplies: ibid, [35].
  • ibid, [41].
  • Since the Court's jurisdiction relates to errors of law, this means that it is for the Tribunal to determine, as a matter of fact, which level of focus is appropriate.
  • EU VAT Directive, Art 79.
  • See section 3.1 above.
  • AP Group (FFC) (n 106) [53].
  • ibid, [57].
  • ibid, [62].
  • ibid.
  • ibid.
  • ibid, [65]. It is not clear that the Tribunal intended this. More likely, it was merely stating what it considered—as a matter of fact—to be the role of the performance of the various obligations as between these particular parties.
  • ibid, [66].
  • Commissioner of Taxation (Australia), Goods and Services Tax Ruling GSTR 2001/6: Goods and Services Tax: Non-Monetary Consideration (ATO, 2001) [80]–[124].
  • ibid, [86].
  • AP Group (FFC) (n 106), [68]. His honour acknowledged that a ‘definitional’ limitation would clearly overlap with what he saw as the Tribunal's ‘foundational’ limitation on the notion of supply.
  • ibid, [69].
  • ibid, [80]. At first sight there might seem to be little difference between these expressions. There is an appearance of symmetry between a ‘supply’ and an ‘acquisition’, with the two terms being defined as mirror images of each other: GST Act, ss 9–10, 11–10. The law is also clearly based on a presumption that each ‘supply for consideration’ involves an ‘acquisition for consideration’, but it is abundantly clear that the purchaser need not itself provide all, or even any, of the consideration: GST Act, ss 9–15(2), 11–30(1)(b). When it comes to a purchaser, it is not necessary to establish that the purchaser made the acquisition for consideration: the focus, when it comes to input tax credit entitlements, is first on whether the supply to the purchaser was a taxable supply (which leads back to the focus on whether the supplier made the supply for consideration) and then on whether the purchaser paid or was liable to pay consideration (but not necessarily all of the consideration) for the supply: GST Act, s 11–5(c).
  • AP Group (FFC) (n 106), [50]. See also Commissioner of Taxation, Interim Decision Impact Statement AP Group Limited v Commissioner of Taxation (15 November 2013).
  • ibid.
  • If they apply, there is a risk that the dealer will be taxed twice, paying GST and making an increasing adjustment for the incentive payments received. Arguments can be made for an asymmetrical approach that would allow the manufacturer to make a decreasing adjustment without the dealer having to make an increasing adjustment, but the various possible interpretations depend on highly technical analyses of the Australian rules, which are likely to be of limited interest to international readers and so are not expanded here.
  • Acts Interpretation Act 1901 (Aus), s 15AA states that: ‘In interpreting a provision of an Act, the interpretation that would best achieve the purpose or object of the Act (whether or not that purpose or object is expressly stated in the Act) is to be preferred to each other interpretation.’
  • Federal Commissioner of Taxation v Reliance Carpet Pty Ltd [2008] HCATrans 150, line 2013.
  • ibid, line 3327.

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