Taxpayer win in Full Federal Court Appeal against Commissioner on GST Margin Scheme

On 22 December 2022, the Full Federal Court of Australia unanimously decided for the taxpayer in Commissioner of Taxation v Landcom [2022] FCAFC 204. The decision is a useful reminder of key principles in statutory interpretation:

• It is important to have particular regard to the statutory language of the provisions in construing the Act; and
• The interpretation must be consistent with other provisions and give rise to harmonious operation of the Act.

Landcom, a state owned corporation in NSW that purchased, sold and developed real property, had applied to the Commissioner of Taxation (Commissioner) for a private ruling regarding the application of the margin scheme provisions in Div 75 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act).

In a private ruling application, Landcom asked the Commissioner to rule on whether the sale of the freehold interests in four lots would be a single supply or multiple supplies. The Commissioner was of the view that the amalgamated contract for the sale of land would be a single supply (rather than separate supplies of each of the lots). Landcom objected to the Commissioner’s private ruling, and then subsequently appealed the objection decision to the Federal Court.

There were two issues before the primary judge, Thawley J. The first concerned whether the Court had jurisdiction to entertain the appeal, as the Commissioner had contended that as the impost of GST on property belonging to a State was notional (due to s 114 of the Commonwealth Constitution), he was not authorised to either issue the private ruling or make an objection decision, and that these had been done as a courtesy in order to provide guidance to the taxpayer. Thawley J held that the Court did have jurisdiction, and there was no appeal against that conclusion before the Full Federal Court.

The second issue concerned the correctness of the opinion of the Commissioner expressed in the private ruling. Thawley J had held that, under Div 75, the margin is to be calculated by reference to the particular freehold interest sold, irrespective of whether or not that particular freehold interest was sold under contract for the sale of other freehold interests. The Commissioner appealed that conclusion arguing that Thawley J’s construction of Div 75 was incorrect because, in applying the GST Act, it is first necessary to identify the “supply” before ascertaining how to calculate the GST payable on that supply.

The Full Federal Court (Wigney, Moshinsky and Hespe JJ) agreed with the conclusions of Thawley J at first instance, and rejected the Commissioner’s construction, saying that it would be inconsistent with the structure of the GST Act and the statutory language. In dismissing the Commissioner’s approach the Court noted:

• The Commissioner’s contention focused on the word “supply” whereas the concept employed in s75-5(1) is a “taxable supply of real property”;
• The gateway to Div 75 is a taxable supply of real property. Once a taxable supply of real property has been identified, there is no further need to embark on an inquiry as to whether the supply is a component of another supply;
• The terms of s 75-10 direct attention to the individual freehold interest, noting in particular the language in s 75-10(2) “the interest, unit or lease in question”;
• This interpretation is consistent with other provisions in Div 75, such as s 75-16 and s 75-22, which are drafted by reference to the supply of the particular freehold interest. It would be a distortion of the language of the provisions as a whole to read the singular as encompassing the plural;
• This interpretation also gives harmonious operation to the GST Act.

Taxpayers with similar margin scheme matters where an adverse decision or ruling has been given may wish to consider the implications of this decision and whether they have a basis to revisit that decision. More broadly, the case is a useful reminder of the approach a Court will take to matters of statutory construction.