Taxpayer wins High Court appeal in luxury car tax case

A taxpayer has won an appeal against the Commissioner of Taxation in the recent High Court decision Automotive Invest Pty Limited v Commissioner of Taxation [2024] HCA 36.

The decision was handed down on Wednesday and concerned the Gosford Classic Car Museum, operated by Anthony Denny, which held a collection of vintage and luxury cars that were also for sale.

The court examined whether the taxpayer was liable for luxury car tax and GST for the tax periods from June 2016 to November 2017 for 40 cars it had acquired and displayed in the museum.

The luxury car tax issue turned on whether each of the 40 cars had been used for a purpose other than being used as trading stock for the purposes of s 9-5(1) LCT Act, due to the fact they had been displayed in the museum.

In the previous decision the Full Federal Court dismissed the taxpayer’s appeal, determining that the cars for display in the car museum that were for sale were held as exhibits as well as trading stock. The taxpayer was therefore found to be liable for luxury car tax and GST.

The appellant’s case emphasised that all of the cars were held as trading stock and that the museum concept was simply a means of marketing the trading stock.

The Commissioner of Taxation contended that for 40 cars, there was an increasing luxury car tax adjustment within s 15-30(3) and that the appellant was not entitled to quote in relation to the 40 cars because, whilst they were held as trading stock, they were always going to be used, or came to be used, to be displayed in a museum.

The ATO submitted that the purpose of using the cars in a museum was not an additional purpose that was a "quotable purpose".

The appellant argued that the museum was no more than a unique and inventive means of selling stock and that the cars were held solely as trading stock.

In its decision, the High Court noted that in section s 9-5(1) ‘purpose’ is used in its central sense of the purpose of the taxpayer, not some purpose that a reasonable person in the taxpayer's position might hold, in all the circumstances.

“Unlike the legislation considered in Godolphin Australia, the focus is not upon the intention and purpose that it might be thought that a reasonable person would have based upon a particular use of a car. Section 9-5(1) is dealing with the acquisition of a car, here by a car dealer, before that dealer commences to use it,” the Court said.

“The focus of the section is upon the intention of the taxpayer. The intention here must therefore be that of the actual appellant.”

The High Court said it would be a “remarkable and surprising” interpretation of s 15-30(3) if, as an allied provision to section 9-5, section 15-30(3) were, without any express language to suggest a change, somehow to have switched from a focus on the purpose of the taxpayer to a focus upon the "objective" purpose of a reasonable person in the position of the taxpayer.

“Thus, in a simple case, where the car has actually been used for a purpose other than the purpose for which one "may quote", there may be a need for either a decreasing or increasing luxury car tax adjustment. In that respect, evidence of the circumstances in which the actual use occurred is not necessarily more probative than the sworn or affirmed testimony of a witness in inferring actual purpose.”

The High Court looked to apply a “common sense and commercial approach” and determined that the appellant’s business was to sell cars.

“Mr Denny's uncontradicted evidence, accepted by the primary judge, was that there was never any change to Mr Denny's initial purpose of selling cars or the use of the museum concept as the means of doing so,” the Court said.

“That purpose and those means continued right up until the point at which the appellant ceased selling cars from the Gosford showroom, so that the museum was closed.”

The High Court said that the majority of the Full Court correctly identified Denny's purpose when their Honours said: “Mr Denny realised his subjective intention of making the cars appear more desirable to potential purchasers of the cars by exhibiting each of the cars as part of a curated 'museum' collection to be seen by as many people as possible”.

However, the High Court noted that the Full Court rejected Denny's purpose as the relevant purpose in favour of a conception "ascertained by an objective consideration of the totality of the facts and circumstances".

“The majority thus reached their conclusion independently of controlling mind of the appellant thought he was doing,” he said.

“It seems, therefore, that the objective purpose conception of the majority of the Full Court was akin to the purpose that would be held by a reasonable person in the appellant's position.

“That approach was an error because although the majority of the Full Court properly recognised the appellant's purpose in holding the 40 cars, they failed to apply that purpose.”

On that basis, the High Court allowed the appeal concerning the LCT and GST issues.

The court ordered that the orders of the Full Court of the Federal Court of Australia be set aside and that the appeal be allowed.

It also allowed the appeal against the Commissioner of Taxation’s objection decision and said the commissioner would pay the appellant’s costs.