For a long time now a story has bubbled along about whether Local Councils should have to charge GST on ‘property’ transactions (asset sales) and a possible class action to test the issue.
On 14 June 2023 the Full High Court handed down its decision in the Hornsby Shire Council v Commonwealth of Australia case.
In short, GST is payable.
Relevant Facts
The Hornsby Shire Council (‘the Council’), a New South Wales local government body, sold a car at an auction on 24 May 2022 for proceeds of $34,601.80. The auctioneers prepared a tax invoice with two amounts stated: an amount of $31,818.18 (being ‘Excl GST’), and another amount described as “GST” of $3,181.82 (the latter referred to in the judgment as the ‘notional GST’ on the sale of the vehicle).
In July 2022, Council lodged an amended Business Activity Statement (‘BAS’) for May 2022, which included the sum of the notional GST in the field ‘GST on sales’. That BAS, as a deemed assessment, resulted in a liability to pay GST for that month in the sum of $3,146, which reflected the inclusion of the notional GST. The Council paid this sum under protest. In essence, that protest was that the GST liability arising from the inclusion in its BAS of notional GST was a ‘tax on property … belonging to’ the State of New South Wales for the purposes of s.114 of the Constitution and that, accordingly, certain laws relating to its payment (referred to as the ‘the impugned laws’), were invalid.
Also relevant was that in 1999 the Commonwealth and all States and Territories entered into an Intergovernmental Agreement where the Commonwealth agreed to provide all revenue from GST to the States and Territories, and the Commonwealth, States, Territories, local government authorities, and their statutory corporations and authorities would make voluntary or notional payments ‘as if they were subjected to the GST legislation’.
The Issue
Essentially, the Council sued the Commonwealth and New South Wales, and sought clarification of whether the imposition of the Notional GST was contrary to section 114 of the Constitution, and what relief if any should be granted to Council in respect to the payment made under protest of the notional GST.
There was no dispute about what is a ‘tax’ for the purposes of s.114 of the Constitution – it is a ‘compulsory exaction of money by a public authority for public purposes, enforceable by law, and is not a payment for services rendered’. The dispute was whether the payment of the notional GST was a compulsory exaction enforceable by law.
Council contended that there was a legal compulsion to pay the notional GST or, in the alternative, it was practically compelled to pay the notional GST.
The Decision
In short, the High Court unanimously decided that the inclusion of notional GST in its BAS is a voluntary payment made in accordance with the Intergovernmental Agreement, and not a tax. As a result, Council was not entitled to any restitutionary relief or any other relief.
Comments
Tax practitioners who were around when the GST regime was introduced may recall that, when the various pieces of legislation and the Intergovernmental Agreement were being introduced, there was more than an acute awareness of the operation of s. 114 of the Constitution.
It is somewhat surprising that the arguments posed in this case would come some 23 years after the GST regime (and the agreement regarding notional GST) came into play. In this regard, it would have been a surprise had Council won. We assume this is the end of the matter?
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