MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd and Commissioner of Taxation [2011] AATA 769 (31 October 2011)

Last Updated: 31 October 2011

[2011] AATA 769

Division	TAXATION APPEALS DIVISION
File Number	2010/3083
Re	MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd
	APPLICANT
And	Commissioner of Taxation
	RESPONDENT

DECISION

Tribunal	Justice Downes, President Senior Member Frank O'Loughlin
Date	31 October 2011
Place	Melbourne

Objection decisions affirmed

...................[sgd].....................................................
Garry Downes
President

CATCHWORDS

GOODS AND SERVICES TAX REFUND CLAIM – supplies under a lease – amendments to the lease post-royal assent date of the GST Act –supplies not GST-free pursuant to s 13 of the Transition Act –– whether agreement specifically identified the supply and identified consideration for that supply in the pre royal-assent date agreement – whether a review opportunity arose - whether the Commissioner was given sufficient notification of refund entitlements claimed – whether discretion to decline refunds claimed should be exercised

RELEVANT ACTS

A New Tax System (Goods and Services Tax Transition) Act 1999 (Cth) s 13

A New Tax System (Goods and Services Tax) Act 1999 (Cth)

Income Tax Assessment Act 1936 (Cth) s 222AOE

Tax Laws Amendment (2008 Measures No 3) Act 2008 (Cth) sch 2 item 16(2)

Taxation Administration Act 1953 (Cth) s 14ZU(c), sch 1 ss 105-55 and 105-65

CITATIONS

ACP Publishing Pty Ltd v Commissioner of Taxation [2005] FCAFC 57, (2005) 142 FCR 533

Central Equity Ltd v Commissioner of Taxation [2011] FCA 908

Commissioner of Taxation v DB Rreef Funds Management Ltd [2006] FCAFC 89, (2006) 152 FCR 437

DB Rreef Funds Management Limited v Commissioner of Taxation [2005] FCA 509, (2005) 218 ALR 144

Deputy Commissioner of Taxation v Woodhams [2000] HCA 10, (2000) 199 CLR 370

Drake v Minister for Immigration and Ethnic Affairs [1979] AATA 179; (1979) 2 ALD 60

Federal Commissioner of Taxation v Prestige Motors Pty Ltd [1994] HCA 39, (1994) 181 CLR 1

International All Sports v Commissioner of Taxation [2011] FCA 824

Multiflex Pty Ltd v Commissioner of Taxation [2011] FCA 1112

Reliance Carpet Co Pty Ltd v Federal Commissioner of Taxation [2007] FCAFC 99, (2007) 160 FCR 433

Revlon Manufacturing Ltd v Commissioner of Taxation (1995) 63 FCR 535

Russell v Federal Commissioner of Taxation [2008] FCA 343, (2008) 168 FCR 330

Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 191, (2006) 156 FCR 256,

Saga Holidays Ltd v Federal Commissioner of Taxation [2005] FCA 1892 (2005), 149 FCR 41

Secretary to the Department of Transport (Victoria) v Commissioner of Taxation [2009] FCA 1209, (2009) 261 ALR 39

Spencer v The Commonwealth of Australia [1907] HCA 82, (1907) 5 CLR 418

Sterling Guardian Pty Ltd v Commissioner of Taxation [2005] FCA 1166, (2005) 220 ALR 580

Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115, (2006) 152 FCR 461,

SECONDARY MATERIALS

Explanatory Memorandum to the Tax Laws Amendment (2008 Measures No 3) Bill 2008

REASONS FOR DECISION

Tribunal	Justice Downes, President Senior Member Frank O'Loughlin
Date	31 October 2011

1. With its partner in the R G Casey Building Partnership from 1998 to 2009, the applicant, MTAA Superannuation Fund (R G Casey Building) Property Pty Ltd, owned the property at the corner of Sydney Avenue and John McEwen Crescent, Barton, ACT on which a building known as the R G Casey Building had been constructed. The partnership leased part of the R G Casey Building to the Commonwealth of Australia pursuant to a long term lease dated 25 April 1998 and under the lease the building was occupied by the Department of Foreign Affairs and Trade. The term of the lease spanned the whole of the period between the date of royal assent to the A New Tax System (Goods and Services Tax) Act 1999 (Cth), namely 8 July 1999 and 30 June 2005.
2. The consideration payable under the lease had four components: the rent component, amounts reflecting amortisation of some of the cost of construction, a share of statutory outgoings and an annual fee for car park spaces.
3. The lease provided for rent reviews, the first of which was to occur on 1 March 2001. The lease did not provide for adjustment or review of the amortisation or outgoings components of the consideration.
4. Both the partnership and the Department were registered for Goods and Services Tax and the partnership paid GST on a quarterly basis.
5. From 1 March 2001 to 30 June 2005, the partnership and the Department accepted that the rent component of the lease consideration was subject to GST and GST was included in the calculation of the rent and car park components of the lease consideration that was paid by the Department.
6. The rent and car park components of the consideration were also reviewed from 1 March 2001 under the terms of the lease, on a GST inclusive basis, but the amortisation and outgoings components were not.
7. Following the agreement to increase the rent and car park components of the lease consideration and the rent review, the partnership paid GST totalling $7,457,531.10 to the Commissioner for the periods from 1 March 2001 to 30 June 2005.
8. Following the decisions in DB Rreef Funds Management Limited v Commissioner of Taxation [2005] FCA 509, (2005) 218 ALR 144, Commissioner of Taxation v DB Rreef Funds Management Ltd [2006] FCAFC 89, (2006) 152 FCR 437 and Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd [2006] FCAFC 115[2006] FCAFC 115; , (2006) 152 FCR 461 the partnership claimed that s 13 of the A New Tax System (Goods and Services Tax Transition) Act 1999 (Cth) applied and that GST was not payable at all. The partnership sought refunds totalling $7,457,531.10 which the Commissioner has refused.

9. Section 13 of the Transition Act is, relevantly, as follows:

13 Existing agreements: no opportunity to review
(1) This section applies if:
(a) a written agreement specifically identifies a supply and identifies the consideration in money, or a way of working out the consideration in money, for the supply; and
(b) the agreement was made before the day on which this Act received the Royal Assent.
(2) The supply is GST-free to the extent that it is made before the earlier of the following:
(a) 1 July 2005;
(b) if a review opportunity arises on or after the day of Royal Assent – when that opportunity arises.
...
(5) In this section:
review opportunity, for an agreement to which this section applies, means an opportunity that arises under the agreement:

(a) for the supplier under the agreement (acting either alone or with the agreement of one or more of the other parties to the agreement) to change the consideration directly or indirectly because of the imposition of GST; or
(b) for the supplier under the agreement (acting either alone or with the agreement of one or more of the other parties to the agreement) to conduct, on or after 1 July 2000, a general review, renegotiation or alteration of the consideration; or
(c) for the supplier under the agreement (acting either alone or with the agreement of one or more of the other parties to the agreement) to conduct, before 1 July 2000, a general review, renegotiation or alteration of the consideration that takes account of the imposition of the GST.

10. In 2009 the applicant purchased the interests of its partner in the partnership and continues the claim for the refunds sought in this matter.

THE APPLICANT'S STANDING

11. Being an original partner and the purchaser of the remaining partnership interests in 2009, the applicant has made the present application. Referring to the decision of Logan J in Russell v Federal Commissioner of Taxation [2008] FCA 343 at [44] and [45][2008] FCA 343; , (2008) 168 FCR 330 at 338, the Commissioner does not resist the applicant's standing to do so and submits that the applicant is able to maintain the proceeding on the basis that it was one of the two members of the partnership and is jointly and severally liable for GST of the partnership. We will not depart from that view or the underlying reasoning for it.

ISSUES FOR DETERMINATION

12. The issues to be determined are:
    • (a) whether s 13 of the Transition Act applied to render supplies made under the lease during the period from 1 March 2001 to 30 June 2005 GST-free;
    • (b) if the answer to (a) is yes, whether, in the requisite manner and time, the partnership, and therefore the applicant, notified the Commissioner of its refund entitlements as required by s 105-55 of Schedule 1 to the Taxation Administration Act 1953 (Cth) and item 16(2) of Schedule 2 to Tax Laws Amendment (2008 Measures No 3) Act 2008 (Cth);
    • (c) if the answers to both (a) and (b) above are yes, whether the discretion in s 105-65 of Sch 1, to decline to pay a refund that would otherwise arise:
      • (i) is capable of being exercised if supplies are GST-free by operation of s 13 of the Transition Act; and
      • (ii) if the answer to (i) is yes, whether the discretion ought to be exercised.

SUMMARY OF CONCLUSIONS

13. We have decided that MTAA had given the Commissioner a valid notice for the purposes of s 105-55 of Sch 1 to the Administration Act and item 16(2) of Sch 2 to the Amendment Act, but that s 13 does not render the applicable supplies GST-free, and that, if they were, the Commissioner had available and correctly exercised a discretion to refuse refunds.

WERE THE SUPPLIES MADE UNDER THE LEASE DURING THE PERIOD FROM 1 MARCH 2001 TO 30 JUNE 2005 GST-FREE UNDER S 13 OF THE TRANSITION ACT?

14. To understand the context in which this issue arises some preliminary facts are required.
15. Before it was purchased by the partnership, the property (including the R G Casey Building when its construction was completed in 1996) was owned by the Commonwealth of Australia. During the construction of the building, the Department commissioned various building works to be performed and, following completion of construction, the Commonwealth of Australia leased the premises to the Department for an initial term of 15 years. In addition to rent, the Department agreed to pay the Commonwealth of Australia $519,996 per annum for the duration of the initial lease agreement to reflect the amortisation of costs of the works it commissioned.
16. By an agreement dated 27 February 1998 the partnership agreed to buy the property from the Commonwealth of Australia.
17. By the lease the partnership leased the premises to the Commonwealth of Australia and the Department occupied the premises. The term of the lease expires on 28 February 2012. There is an option to renew for one term of 5 years.
18. Under the lease, the partnership, and now the applicant, was required to lease the premises to the Department and to perform repair and maintenance obligations and the Department was required to pay the lease consideration set out above. Clause 4 of the lease obliged the lessee to pay “the rent specified in Item 5, as reviewed under clause 5...”. Item 5 specified “Annual rent of $16,395,048.00 due from 25 April 1998”. The rent was payable monthly.
19. Clause 5 provided for rent reviews on specified dates. On rent review dates, the first four of which were 1 March 1999, 1 March 2001, 1 March 2003 and 1 March 2005, the rent component of the lease consideration was to be reviewed to the current open annual market rental value in accordance with prescribed procedures for this value to be determined.
20. Schedule 4 provided that the parties should first seek to agree on a new rent. Failing agreement, two valuers were to be appointed. In the event of their failure to agree an umpire was to be appointed. The valuers or umpire were to determine “the current annual open market rental value of the premises”. In determining or agreeing on a new rental the schedule contained a requirement “to take into account all relevant matters on the date when that rent is to apply for the premises assuming” a number of factors. The first factor was that “the lessor is a willing but not anxious lessor and the lessee is a willing but not anxious lessee”. A number of other factors were specified. No reference to taxes is contained in the factors.
21. The Department’s obligation for statutory outgoings was to pay 91.34 per cent of statutory outgoings in excess of statutory outgoings incurred in each base year. Base years were the year ended 30 June 1997 and in each rent review period the financial year completed immediately prior to rent review dates. “Statutory outgoing” was defined to mean “council rates, water rates and land tax”.
22. In June 2000 the partnership advised the Department that from 1 July 2000 it would begin charging GST on the rent component of the lease consideration payable by the Department. The Department responded that GST was not payable until the following rent review date, 1 March 2001, and that the net effects of GST would be accommodated in the rent calculations at that time.
23. In February 2001, representatives of the partnership and the Department met to discuss the implementation of the GST and the rent review generally. At that meeting the Department’s representatives indicated that an initial increase of 10% to cover GST would be acceptable to the Department. This increase was not an agreement made pursuant to the rent review process under the lease. By 7 May 2001, following exchanges of correspondence in March 2001 and April 2001, the Department and the partnership agreed that GST would be paid on the rental component but not on the amortisation component and subsequent tax invoices included GST amounts in the rental and car park components of the lease consideration.
24. The rent review process was protracted and entailed implementing the dispute resolution umpire provisions provided for in the lease and concluded with a GST inclusive market value rent being paid, backdated to 1 March 2001.
25. The rent, amortisation, car park and outgoings components of the lease consideration paid by the Department over the period from 1 July 2000 to 30 June 2005 are set out in the following table:

Lease consideration component	GST exclusive total paid	GST inclusive total paid	% of GST inclusive Aggregate
Rent	$83,246,843.75	$90,478,524.85	94.20%
Car Park	$2,610,750.01	$2,836,600.01	2.96%
Amortisation	$2,599,980.00	$2,599,980.00	2.71%
Statutory Outgoings	$140,169.87	$140,169.87	0.15%
Aggregate		$96,055,274.73

26. The partnership paid GST to the Commissioner on the rental and car park components quarterly from the 1 March 2001 rent review date. It did not pay GST on the amortisation or outgoings components.

THE CONTENTIONS

27. The applicant claims that s 13 applied and all supplies under the lease were GST-free until 30 June 2005. It claims that the date the lease was entered into, 25 April 1998, governs the outcome of this question, that the relevant supplies were made and the consideration paid pursuant to that agreement and no other agreement, that the rent review provisions of the lease did not constitute a review opportunity within the meaning of s 13(5) of the Transition Act and that the parties accepting that GST was payable on the rent component of the lease consideration does not mean that the agreement was varied or that supplies were made pursuant to a different agreement.
28. The Commissioner disagrees. He contends that supplies made under the lease are not GST-free on three bases:
    • (a) after 1 March 2001 the lease consideration was not consideration identified in a pre-royal assent date written agreement (the Consideration Identity basis). The Commissioner contends that after the partnership and the Department agreed that the Department would pay an additional amount of 10% on account of GST, supplies made were not for the consideration identified in a written pre-royal assent date agreement, with the result that ss 13(1) and 13(2) no longer applied; or
    • (b) after 1 March 2001 there was a new agreement for the purposes of s 13(1) which was made after the royal assent date with the result that ss 13(1) and 13(2) no longer apply (the New Agreement basis).
    • (c) there was a review opportunity (the Review Opportunity basis). The Commissioner contends that the 1 March 2001 rent review was a review opportunity within the meaning of s 13(5) of the Transition Act; or

DOES S 13 APPLY

29. The consistent theme of the authorities is that the GST system is a tax on business, although ultimately borne by consumers, assessed and paid by businesses, and is to be administered and interpreted in accordance with the understanding of business people (see Saga Holidays Ltd v Federal Commissioner of Taxation [2005] FCA 1892 at [29], [2005] FCA 1892; (2005) 149 FCR 41 at 56 per Conti J and on appeal Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 191 at [29] and [30][2006] FCAFC 191; , (2006) 156 FCR 256 at 264 per Stone J with whom Gyles J agreed and at [70] per Young J; Reliance Carpet Co Pty Ltd v Federal Commissioner of Taxation [2007] FCAFC 99 at [31] to [33][2007] FCAFC 99; , (2007) 160 FCR 433 at 448 per Heerey, Stone and Edmonds JJ; Sterling Guardian Pty Ltd v Commissioner of Taxation [2005] FCA 1166 at [39] per Stone J; Secretary to the Department of Transport (Victoria) v Commissioner of Taxation [2009] FCA 1209 at [42(7)] per Gordon J; International All Sports v Commissioner of Taxation [2011] FCA 824 at [29] per Jessup J; Multiflex Pty Ltd v Commissioner of Taxation [2011] FCA 1112 at [22] per Jessup J). Where the essence of a transaction, or critical parts of it such as the consideration for supplies, changes, the change can have a role to play in determining whether the transitional rules apply to the post change transaction.
30. Section 13(1) refers to “a written agreement” that:

1. “specifically identifies a supply”; and

2. “identifies the consideration in money, or a way of working out the consideration in money, for the supply”.

The “agreement” that does both of these things must have been made before the royal assent date.

31. This language, consistent with the object of the section to avoid injustices or unfairness that would arise in some circumstances, focuses on terms and conditions of agreements, and the consideration to be paid for specifically identified supplies that was agreed or set in place before the royal assent date. The date of the agreement or the framework within which particular terms and conditions are agreed from time to time is not the focus of attention.
32. The supplies in question are supplies made after 1 July 2000. The phrase “the agreement was made” in s 13(1)(b) refers to the agreement identified in s 13(1)(a), the agreement under which the supply in question must be specifically identified together with the consideration for that supply. That agreement must identify the supply and the consideration for post 1 July 2000 supplies.
33. Approaching the question for determination on the basis that the legislative scheme requires an examination of what the consideration after 1 July 2000 was, as a matter of substance, really paid for, the necessary enquiry is whether the consideration paid after 1 July 2000 was for supplies made after that time that were specifically identified for a consideration that can be identified in the terms of a written agreement where the terms were operative before the royal assent date. It is those supplies that are the subject of the relief conferred by s 13. The section does not apply to situations where a pre-royal assent date agreement does not identify post-royal assent date supplies and consideration, whatever be the explanation of the lack of connection between agreement and supply. The supplier in such an agreement and in such a circumstance is taken by the legislative scheme to have been in a position to include the impact of GST in decisions concerning consideration to be charged. Such a person does not need the relief afforded by s 13 and is not intended to get it.
34. The consideration for supply after 1 March 2001 was the consideration arrived at by a two-step process: first an increase in the rent component by 10 per cent and subsequently the rent review process. It followed a process which was calculated to determine the rental which would be paid in an open market. The words of the clause are “current open annual market rental”. In prescribing how that rental was to be determined the lease adopts words very close to the conventional words for determining the value of property since they were used by the High Court in Spencer v The Commonwealth of Australia (1907) 5 CLR 418 at 422, 436 and 441. The point is that the rent review clause in the lease did not propose any rent review mechanism linking the new rental to the original rental, even though the prescribed factors did include some matters particular to the premises, such as increases associated with lessor’s maintenance or improvements. The reviewed rental was to be a product of the market at the time of the review.
35. There is, therefore, no mechanism at play which could provide “a way of working out the consideration in money, for the supply”. The supplies which took place after the 1 March 2001 rent review date, namely the conferring of the right to quiet enjoyment of the premises and the other rights conferred by the lease were not made for consideration identified as required by s 13. That section does not so much identify agreements that are GST-free, but supplies that are GST-free (s 13(2)). Supplies will only be GST-free when the consideration for them is identified in accordance with the section. The supplies which are relevant here were all made after the rent review and those supplies were not made for consideration satisfactorily identified in the pre-royal assent date lease.
36. Alternatively, the consideration for supply after 1 March 2001 was agreed separately from the terms that were in place at the royal assent date because the parties, after a process of negotiation, determined that GST would be paid on the rent component of the lease consideration. For this additional reason the consideration for supplies after 1 March 2001 was not identified or capable of being worked out by the pre-royal assent date agreement. No finding is necessary as to what, if any, change in contractual position occurred, because the fact is that, for whatever reason, the consideration was different.
37. The applicant falls squarely within the class of people who do not need the protection afforded by s 13. After it had agreed a change in the consideration payable under the lease the consideration was materially different to the consideration identified in the lease before the royal assent date. In these circumstances, dealing with the matter by reference to the words of the section, which has parallels with the Commissioner’s Consideration Identity basis, supplies made pursuant to the lease were not subject to s 13 of the Transition Act and after 1 March 2001 were subject to GST. This conclusion means that there is no refund entitlement.

THE COMMISSIONER’S BASES FOR CONTENDING S 13 DOES NOT APPLY

Given the conclusion reached above, it is not strictly necessary to address the precise bases upon which the Commissioner contends that s 13 of the Transition Act does not apply. However, as the propositions were argued fully it is appropriate that views be expressed.

THE CONSIDERATION IDENTITY BASIS

38. This is the basis which is closest to the ground on which we have found that s 13 does not apply. Ultimately we have dealt with the matter simply by reference to the words of the section. However, the argument that there was some change in the legal relations of the parties which takes the supplies outside s 13 has its similarities to the basis we have found persuasive.

THE NEW AGREEMENT BASIS

39. The Commissioner contends that by the Department and the partnership agreeing to increase the rent to accommodate GST there was a new, post-royal assent date agreement, for the purposes of s 13(1) and that ss 13(1) and 13(2) no longer apply.
40. The Commissioner accepts that variations to the lease consideration do not, as a matter of contract law, terminate the agreement. The concession is correctly made as the variations do not go to the root of the agreement. Nevertheless, he contends that s 13 is concerned with agreements and there is nevertheless a new agreement when a contract is varied in the way that the lease consideration was varied. Accordingly, when the lease consideration was altered, there was a new agreement, which post-dated the royal assent date and supplies made under that new agreement did not attract the protection of s 13.
41. This contention reflects the Consideration Identity basis expressed differently. The analysis set out above applies. Section 13 does not call for an enquiry as to whether there is a new agreement. It calls for an enquiry as to whether there is a pre-royal assent date agreement in writing that specifically identifies a supply in question and identifies the consideration for that supply.

THE REVIEW OPPORTUNITY BASIS

42. Section 13 of the Transition Act is a provision designed to avoid unfairness that would arise if GST is payable on supplies made in respect of contracts for which the supplier was not in a position to accommodate the impact of GST in setting prices (see ACP Publishing Pty Ltd v Commissioner of Taxation [2005] FCAFC 57 at [6] [2005] FCAFC 57; (2005) 142 FCR 533 at 536-7 per Hill J, Westley Nominees at [51] – [52], DB Rreef at [7] – [9].
43. The importance of an ability to review the whole of the consideration is consistent with the taxing feature of the GST system whereunder the whole of the consideration is taxed if it is taxed at all (See Westley Nominees at [57] and DB Rreef at [75]).
44. In DB Rreef at [82] and Westley Nominees at [66] the Full Court confirmed that a general review of 'nearly all' of the consideration could be regarded as a general review of the whole of the consideration for a supply for s 13 purposes. If a small part of the consideration cannot be reviewed, in that case 0.53 per cent of the total consideration for a 12 month period, then that can be ignored and the whole of the consideration can be regarded as having been reviewed. If a material part of the consideration cannot be reviewed then there is no review opportunity. Similar principles were expressed in DB Rreef. Neither Westley Nominees nor DB Rreef explained what was meant by 'nearly all'. It is not clear whether their Honours had in mind proportions or quantum amounts. The language they use is more suggestive of proportions. The setting in which they used the term 'nearly all' suggests that an enquiry as to unfairness might be used as a guide to what would constitute nearly all.
45. The applicant's contentions analysed the reviewable and non-reviewable consideration over the period from 1 July 2000 to 30 June 2005. Over that period 97.14% of the lease consideration that was paid was reviewable and 2.86% was not. The GST liability in respect of the non-reviewable lease consideration represented 0.26% of the total consideration paid. In these circumstances, in our view, nearly all of the consideration was reviewable. A review opportunity within the meaning of s 13(5) did arise and from 1 March 2001 the supplies made pursuant to the lease were not GST-free.

WAS THE 26 JUNE 2008 ADVICE TO THE COMMISSIONER AN EFFECTIVE NOTICE OF AN ENTITLEMENT TO A REFUND FOR THE PURPOSES OF S 105-55 OF SCH 1 AND ITEM 16(2) OF SCH 2 TO THE AMENDMENT ACT?

46. On 26 June 2008 the partnership initiated a sequence of steps to claim a refund of GST paid in respect of the supplies made under the lease. On that date it lodged a completed "Notification of entitlement to GST refund" form with the Commissioner. This form bears the Australian Taxation Office logo and has the appearance of having been produced by the Australian Taxation Office for use to claim GST refunds. In the form lodged the partnership identified the period for which its claim was made and described its claim as:

"The GST liability has been overstated due to the fact that supplies made under certain contracts were treated as being subject to GST when in fact they were GST free pursuant to Section 13 of the GST Transition Act."

47. On 28 November 2008 the partnership sought a private ruling from the Commissioner that the supplies made pursuant to the lease were GST-free.
48. On 16 December 2008 the Commissioner advised the partnership that the letter dated 26 June 2008 did not constitute a notification for the purposes of s 105-55 of Sch 1 and item 16(2) of Sch 2 to the Amendment Act because it did not provide specific facts about the circumstances under which the entitlement arose.
49. On 21 September 2009 the Commissioner advised the partnership that its private ruling application of 28 November 2008 was not a valid notification for the purposes of s 105-55 of Sch 1 and item 16(2) of Sch 2 to the Amendment Act for the tax period 1 July 2000 to 30 September 2004 but was for the tax period 1 October 2004 to 30 June 2005.
50. The Commissioner contends that the notification given by the applicant was deficient. He contends that it was too general, provided no details that were specific to the applicant's circumstances, failed to set out the nature of the supply, failed to identify the recipient of the supply or the nature of the contracts pursuant to which the supply was made and failed to explain how the relevant entitlement related to the specified tax periods. In aid, the Commissioner called in decisions concerning notices of assessment (Federal Commissioner of Taxation v Prestige Motors Pty Ltd [1994] HCA 39, (1994) 181 CLR 1), Sales Tax recoveries (Revlon Manufacturing Ltd v Commissioner of taxation (1995) 63 FCR 535), and director penalty notices which were required to set out details of the unpaid amount of the liability referred to in s 222AOE of the Income Tax Assessment Act 1936 (Cth) (Deputy Commissioner of Taxation v Woodhams [2000] HCA 10, (2000) 199 CLR 370). Each of these cases concerned different statutory regimes and are of little, if any, support for the contentions raised beyond noting that the content of a notice must be sufficient to allow the notice to serve the purpose it was intended to serve; a proposition confirmed in the context of the present provisions by Gordon J in Central Equity Ltd v Commissioner of Taxation [2011] FCA 908 at [77]. Her Honour considered whether an advice in the following terms at [72]:

The entity noted above has mistakenly paid GST in error in relation to the supply of real property transactions where the contract was entered into prior to 1 July 2000, and has overpaid GST on supplies made where the GST was calculated under the margin scheme as the acquisition price was used rather than a 1 July 2000 valuation.
The entity is currently in the process of quantifying the amount by which it has overstated its net amount and will notify the ATO of the precise amount of the GST refund it will be seeking in due course.

was a notification for the purposes of s 105-55 of Sch 1 and item 16(2) of Sch 2 to the Amendment Act. Her Honour observed that the notice given identified the period of the claim (and an eight year period was not too long a period), that the legislation did not require a specific form of notification, that the form of notification used stated that details of the refund claim including "the specific nature of the refund" and "the circumstances under which the refund arise" were to be provided. Further, her Honour noted that alleged deficiencies equivalent to those asserted by the Commissioner in the present matter are not needed for the notice to serve its purpose.

51. In the present matter the Commissioner does not take issue with an absence of specification of an amount claimed and he was advised or put on notice that a refund entitlement was asserted concerning mistaken application of the transitional rules. In a regime under which neither s 105-55 of Sch 1 nor item 16(2) of Sch 2 to the Amendment Act calls for specificity (cf. Administration Act; s 14ZU(c)) the advice dated 26 June 2008 is enough to be a valid notice.
52. The Tribunal's conclusion is that the applicant's advice dated 26 June 2008 to the Commissioner was an effective notice of an entitlement to a refund for the purposes of s 105-55 of Sch 1 and item 16(2) of Sch 2 of the Amendment Act.

IS THE SCH 1, S 105-65 DISCRETION CAPABLE OF BEING EXERCISED?

53. The applicant contends that the s 105-65 discretion allowing the Commissioner to decline to refund over payments of GST does not apply to amounts affected by s 13 of the Transition Act. In support of this contention the applicant notes that a number of the Commissioner's officers at one stage, before the present applications were commenced, appeared to think that s 105-65 did not allow the Commissioner to decline to refund over payments of GST that arose through mistaken application of s 13. Section 105-65 is, relevantly, as follows:
    • 105-65 Restriction on GST refunds

(1) The Commissioner need not give you a refund of an amount to which this section applies, or apply (under Division 3 or 3A of Part IIB) an amount to which this section applies, if:

(a) you overpaid the amount, or the amount was not refunded to you, because a *supply was treated as a *taxable supply, or an *arrangement was treated as giving rise to a taxable supply, to any extent; and

(b) the supply is not a taxable supply, or the arrangement does not give rise to a taxable supply, to that extent (for example, because it is *GST-free); and

(c) one of the following applies:

(i) the Commissioner is not satisfied that you have reimbursed a corresponding amount to the recipient of the supply or (in the case of an arrangement treated as giving rise to a taxable supply) to an entity treated as the recipient;

(ii) the recipient of the supply, or (in the case of an arrangement treated as giving rise to a taxable supply) the entity treated as the recipient, is *registered or * required to be registered.

Note: Divisions 3 and 3A of Part IIB deal with payments, credits and RBA surpluses.
(2) This section applies to the following amounts:

(a) in the case of a *supply:

(i) so much of any *net amount or amount of *GST as you have overpaid (as mentioned in paragraph (1)(a)); or

(ii) so much of any net amount that is payable to you under section 35-5 of the *GST Act as the Commissioner has not refunded to you (as mentioned in paragraph (1)(a)), either by paying it to you or by applying it under Division 3 of Part IIB of this Act;

(b) in the case of an *arrangement:

(i) so much of any net amount or amount of GST to which subparagraph (a)(i) would apply if the arrangement were a supply; or

(ii) so much of any net amount to which subparagraph (a)(ii) would apply if the arrangement were a supply.

Note: Division 3 of Part IIB deals with payments, credits and RBA surpluses.

54. There are threshold conditions that must be met before the Commissioner can apply s 105-65 to decline to refund an over payment.
55. On the assumption that s 13 of the Transition Act did apply to the supplies made under the lease, the applicant would be able to say that it has overpaid several of its periodical GST liabilities and those overpayments were the result of the applicant treating the supplies it made under the lease as taxable supplies when they were GST-free. The first two conditions necessary to enliven s 105-65 are met.
56. The remaining question is whether s 105-65 is intended to embrace amounts that are not subject to GST because there is not a taxable supply by operation of s 13 of the Transition Act. Section 13 provides that where the section applies, supplies made are “GST-free”. It will immediately be observed that both s 105-65 and s 13 use the same term “GST-free”, a term defined to mean a supply that is GST-free under Division 38 of the GST Act or under a provision of another Act. It is beyond controversy that supplies can be GST-free within the meaning of s 105-65, and therefore affected by the s 105-65 discretion, by operation of the GST Act and other statutes. The Transition Act is another statute that, in unequivocal and unambiguous terms, renders certain supplies GST-free in the same sense as that term is used by s 105-65.
57. The applicant’s contrary contention cannot be accepted. The thinking of the Commissioner's officers does not affect this threshold question.

SHOULD THE SCH 1 S 105-65 DISCRETION BE EXERCISED?

58. There are two alternative conditions that are relevant to the exercise of the s 105-65 discretion. They are that the Commissioner is not satisfied that the refund claimant has reimbursed a corresponding amount to the recipient of the supply or the recipient of the supply is registered or required to be registered for GST.
59. Dealing with the second condition first, the recipient of the supplies under the lease, the Department, was registered for GST. The second condition is met.
60. The applicant has not paid any amount corresponding to the refund it seeks to the Department. The applicant has undertaken that it will pay the Department any amount that it recovers, less its costs of recovery or, if required, that it will pay the entire amount it recovers. Ordinarily, reimbursement requires payment not an agreement to pay. Accordingly the first threshold condition for exercising the s 105-65 discretion is also met, albeit only one of the two is necessary. The amounts of GST claimed to have been overpaid were passed on by the partnership to the Department through increases in rent charges. In this sense any refund to the applicant, before any payment to the Department, would be a windfall gain to a party who has not borne the real cost of the GST overpaid.
61. There is no evidence that the Department has not enjoyed the benefits of input tax credits and in the ordinary course it can be expected it would have done so. The applicant has not led any evidence that input tax credits were not claimed nor has it asserted that they were not. In these circumstances the Tribunal must proceed on the basis that these facts have not been established by the applicant and that any payment to the Department will be a windfall gain to it.
62. We leave aside the unusual circumstance that a refund from the Commissioner which was ultimately received by the Department would be a payment by one arm of the Commonwealth to another. It is surprising that expensive litigation has been thought appropriate when this will apparently be the result of success by the applicant. We do not think that the fact that GST is collected “on behalf of the States” is really any answer to this. The question is whether it is appropriate for two arms of the same government to be at arm’s length in a dispute. We raised this matter at the outset of the hearing, but that did not lead to any reconsideration by the parties or any request that the Department, which is not a party, should be consulted about the issue. Perhaps it was too late by that time.
63. The s 105-65 discretion does not have specifically defined criteria or considerations which are relevant to its exercise, albeit the threshold conditions to be met before it can be exercised may throw some light on matters to which regard must be had. In these circumstances the Tribunal is not at large, must have regard to relevant considerations, disregard irrelevant ones, and if it is to be exercised - exercise the discretion for a purpose for which it exists and, while not always bound by it, is entitled to take into account government policy (Drake v Minister for Immigration and Ethnic Affairs [1979] AATA 179; (1979) 2 ALD 60, at 69 per Bowen CJ and Deane J).
64. The intention of the legislature in enacting the s 105-65 discretion included preventing windfall gains (Explanatory Memorandum to the Tax Laws Amendment (2008 Measures No 3) Bill 2008 at [2.2] to [2.4]) and the Commissioner and the Tribunal standing in his shoes are permitted to have regard to this intention in deciding whether that discretion ought to be exercised in a particular circumstance. This intention manifests itself not just in the Explanatory Memorandum but also in the threshold conditions necessary before the discretion can be exercised. Having regard to the legislative intention, prevention of windfall gains is the principal criterion to be addressed before any exercise of the discretion.
65. In the present circumstances there would be a windfall gain if a refund were to be made. Either the applicant would receive a windfall or the Department would, in circumstances where neither of them are, or have been, out of pocket on account of any overpaid GST. In these circumstances, if there was an amount refundable without consideration of the s 105-65 discretion, that discretion ought to be exercised and no refund made. A practical business approach to administration of the GST laws is not consistent with allowing windfall gains. And to the extent that community standards and expectations have a role to play, those standards and expectations would require denial of windfall gains for two large organisations that do not bear the cost of the overpaid amount.

I certify that the preceding sixty-five (65) numbered paragraphs are a true copy of the reasons for decision herein of the Honourable Justice Downes, President and Senior Member Frank O’Loughlin.

S. Robson, Associate:

Dated: 31 October 2011

Dates of hearing	29 - 31 August 2011
Date final submissions received	1 September 2011
Counsel for the Applicant	Mrs J Batrouney with Mr P Nicholas
Solicitors for the Applicant	PricewaterhouseCoopers
Counsel for the Respondent	Mr M Moshinsky SC with Ms C Button
Solicitors for the Respondent	Australian Tax Office Legal Services