Seek Advice Or Lose All Credit

Barcia Pty Ltd (as Trustee for Barcia Trust) and Commissioner of Taxation [2008]

The Administrative Appeals Tribunal (AAT) backed the Commissioner who had ruled that the applicant was not entitled to all of the input tax credits (ITC) he had claimed in the purchase of two properties. The Tribunal also confirmed that penalties had been correctly applied by the Commissioner.

The Commissioner had assessed the applicant, Barcia director Peter Bacich, for GST shortfalls in Business Activity Statement (BAS) periods between 2003 and 2005. Three errors were claimed:

  1. Mr Bacich had claimed an ITC for a property for $218,182.00 in accordance with an incorrect tax invoice, although the contract stated it was subject to the margin scheme and the correct GST figure was $10,000.00;
  2. that he had claimed too high an ITC for another property; and
  3. that he had claimed the ITC in this other property purchase too early, in the wrong BAS period.

Mr Bacich argued in point 1. that he had received a tax invoice showing the GST as 10 per cent of the full value, which meant that the margin scheme election by the vendor no longer applied. However, the AAT found that the vendor’s agent who had sent the incorrect invoice had no authority to vary the contract in this way. The agent had subsequently sent out a corrected invoice which Mr Bacich rejected, having already claimed the higher amount.

As Mr Bacich was aware the contract stipulated that the margin scheme was being applied, the AAT believed that a reasonable person would have asked the vendor or the agent whether the invoice was correct before claiming an ITC for more than $200,000. The AAT treated this as gross negligence and ruled that a 50 per cent penalty for recklessness was appropriate.

With the second property, Mr Bacich claimed that the purchase price was made up of the cash paid, plus a “guarantee fee” to pay out a debt to the purchaser. The AAT agreed with the Commissioner that the actual consideration was $474,500 (the cash paid), rather than $720,000 (which included a “guarantee fee” for a loan that could not be established). A 25 per cent penalty was appropriate for this shortfall.

On the BAS issue, a 50 per cent penalty for recklessly claiming the ITC in the wrong BAS period was held to be appropriate since the evidence indicated that although Mr Bacich was not sure whether he could claim before settlement, he did not ask for advice from his accountants when he should reasonably have done so.

Mr Bacich also claimed to have little or no understanding of the taxation issues involved but the AAT found this argument unacceptable.