High Court Splits 3-2 in "Museum" Car Tax Case
Pier Paolo Parisi
Lawyer - eppùr si muòve! My goal is to make powerful, corrupt enemies, as Galileo did.
As anticipated, the taxpayer, in Automotive Invest, prevailed, in a 3-2 High Court split, reversing a Full Federal Court (FFC), which split 2-1. No luxury car tax (LCT) adjustments, and reduced goods and services tax (GST) credits, arose, on 40 collector cars, displayed, for sale, in a showroom, promoted as a "museum".
FFC's Decision
The taxpayer had to show that, for each car, it had "the intention of using the car for … the … purpose[], and for no other purpose", of "holding the car as trading stock": LCT Act, s 9-5; s 15-30(3)(c), s 15-35(3)(c); cf GST Act, s 69-10(1). That is, solely for sale. The FFC held that its display, for sale, in the "museum", which charged an admission fee, defeated its claim.
High Court Majority
The High Court majority, Edelman, Steward and Gleeson JJ, said "it is always important to look 'at the substance and reality'", and "apply a 'commonsense and commercial approach'". They upheld Logan J, who dissented, in the FFC. They said as "the museum was to be deployed to assist [the taxpayer's] business of selling cars, ... the museum was only ever a means of achieving that end". The FFC majority's error was "to fail to discriminate between an overarching end and its incidental means".
The High Court majority also said "[t]he primary judge was ... incorrect to assume that it was possible to accept [the taxpayer's] subjective evidence but still reach a different conclusion of purpose". They said "we do not accept the 'objective' approach to purpose that was taken by the primary judge and the majority of the Full Court".
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Dissent
Gageler CJ and Jagot J dissented. They said "use of the car for a purpose (or purposes) ... is a question of objective fact to which evidence of your state of mind will be relevant, but not determinative". They said it "does not matter that every vehicle continued to be held as trading stock, because that continued use ... was not exclusive" (original italics).
Comment
As anticipated, in oral arguments, the taxpayer's subjective intention was decisive. This, as explained, is at odds with indirect tax law. In particular, with the GST, not separately argued. It remains a vexed question.
As does the "practical business view" notion, relied on, by the majority. In the High Court's Travelex GST decision, in 2010, the taxpayer attacked the "practical business view" idea, that the FFC, in that litigation, had relied on. It reawakens.
Automotive Invest also shows tax litigation's indeterminacy. The trial judge, affirmed in a 2-1 split, on appeal, was reversed, in a High Court splitting 3-2. Of 9 judges, 4 found for the taxpayer, led by Bloom KC. Travelex had exact split reversals, with (then) Gageler SC leading the Commissioner. Back in 2001, in Payne, about travel expense deductions, Bloom QC also led a 3-2 High Court split, but for the Commissioner, who, after a win, in the AAT, lost at trial, and in a 2-1 split FFC. Two concentric circles completed.
* Picture is of the Tondo Doni, of Michelangelo (1505-06), Uffizi Galleries, Florence
Registered Tax Agent
5 个月Thank you Pier Paola Parisi. The consideration of “objective purpose” and “motive” occupied income tax cases from 1936 and was somewhat resolved by 1981 (Magna Alloys and Ure). It was no doubt, having regard to the vast income tax litigation that the drafters of s11-15 chose section 8-1 (ITAA 97) as a way of equating the entitlement to income tax and input tax relief for outgoings and acquisitions, respectively. Why would one, being conscious of the very long history of income tax general dedcutibility, use new terminology that was less certain in its interpretation. Hill J noted the similarity of the two provisions in HP Mercantile. Some arguements before the courts has suggested that s8-1 has no equivalent of 11-15(2)(a) - but this ignores s8-1(2)(c). Hill J explained this paragraph’s role in Kidston Goldmines.
Tax Lawyer | Chartered Tax Advisor | Tax Disputes | Tax Debts
5 个月Interesting that the FFC had taken the position it did considering its earlier position in Swansea were they upheld the decision of the Tribunal. In that case the issue had been whether an art collector who was collecting art of museum quality had been carrying on an enterprise for the purposes of GST.