AAT’s legal errors force rehearing of luxury car tax dispute
The Full Federal Court found that the tribunal misapplied the luxury car tax in a case between a Victorian motor dealer and the ATO.
The ATO has won a court appeal involving tax adjustments claimed on 17 high-end cars including Rolls-Royces, Ferraris and Lamborghinis bought and sold in a series of dealer-to-dealer transactions.
In a recent decision, the Full Federal Court ruled the AAT adopted an “erroneous understanding” of the Luxury Car Tax Act (LCT Act) that tainted its findings in favour of car dealer Patrix Prestige.
Justices Thawley, Wheelahan and Kennett said no confidence could be placed in the tribunal’s determination of the ATO’s claims that Patrix acted as an agent for an undisclosed principal and that Patrix’s on-sale of the cars involved sham transactions.
“The Tribunal’s erroneous construction of the LCT Act pervades its reasoning,” they said.
“No confidence can be placed in the tribunal’s findings of fact given its approach and the importance it attached to its erroneous construction of the LCT Act.”
The luxury car tax regime operates as a single-stage tax, designed to be paid by end-users upon retail purchase.
To prevent multiple taxation along the supply chain, dealers can quote their Australian Business Number (ABN) to suppliers, effectively passing the tax liability down the chain until the final retail sale.
Patrix Prestige, based in Victoria, held a wholesale and retail car licence. Between July and September 2017, it purchased and on-sold 17 luxury cars (13 new and 4 used) between upstream and downstream dealers.
The cars included Rolls-Royces, Ferraris, Lamborghinis, McLarens and Porsches.
The ATO took issue with Patrix paying LCT when purchasing vehicles from upstream dealers, but accepting tax-free quotes when reselling them to downstream ones as Patrix subsequently sought tax adjustments to recover the LCT it had paid through decreasing adjustments, while downstream dealers charged but failed to remit the tax.
The ATO argued that paying tax upfront only to claim it back late made little commercial sense unless the dealer was acting as an agent or trustee in a tax avoidance scheme. It issued assessments to which Patrix objected.
While the AAT ruled in Patrix’s favour on most vehicles, the Full Federal Court found it had made significant legal errors in its interpretation of sections s 9-5 and 15-30 of the LCT Act, which govern quoting entitlements and LCT adjustments respectively.
Errors included a failure to construe section 9-5 “with regard to the whole of Div 9 of the LCT Act, as well as failing to engage “in analysis of the text of section 15-30 part from the heading”.
The Full Federal Court also said the tribunal declined to follow established precedent in a previous case that considered the same issues.
“A central theme of the Commissioner’s position that Patrix was not entitled to a decreasing adjustment was that Patrix acted as agent for an undisclosed principal or as a trustee when purchasing the cars and that its purported on-sales of the cars involved sham transactions,” it said.
“The tribunal did not properly engage with these issues because it approached its assessment of the facts from the starting point that Patrix was ‘obliged’ to accept the quotes from the downstream dealers.”
It concluded that “the matter must be reheard in relation to agency, trust and sham in relation to all of the cars”, sending the case to the Administrative Review Tribunal for a rehearing.
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