ATO targets banks, receivers over ‘missing billions’

Richard Gluyas | The Australian | August 21, 2012
http://www.theaustralian.com.au/business/ato-targets-banks-receivers-over-missing-billions/story-e6frg8zx-1226454461928
A $9.9 MILLION property sale has triggered an Australian Tax Office probe targeting the banking and insolvency industries over what some claim is billions of dollars in lost GST payments.
The ATO investigation follows evidence presented to a Senate committee hearing earlier this month by Stewart Levitt, principal of Sydney law firm Levitt Robinson. Mr Levitt was acting for property development company Lauderdale, which was in default to its lender, Bankwest, and sold an incomplete property for $9.9m, including $900,000 in GST.
A dispute arose as to whether the GST amount should have been payable to Bankwest as the secured lender, or to the ATO via Lauderdale.
Both parties agreed to have the dispute privately determined by former Federal Court judge Ron Merkel QC, who ruled in 2010 that it would be “unlawful” for Bankwest to claim the funds.
Mr Levitt, who presented the six-page ruling to the Senate committee before it started public hearings earlier this month, told The Australian he had since been contacted by ATO assistant commissioner for indirect tax Stephen Howlin.
“Mr Howlin informed me that the ATO is conducting an investigation as to whether borrowers, mortgagees in possession and receivers have complied with their obligations under the GST Act to properly account for GST liabilities,” Mr Levitt said.
“I run a firm of only 10 solicitors, but based on my experience alone over the last two years, I can think of $100m of GST payments that were misdirected by company administrators to banks.
“So, I’d imagine there’s billions of dollars of revenue at stake here.”
Mr Howlin declined to comment yesterday.
A Bankwest spokesman said the bank had had discussions with the tax office and was close to finalising its response.
“The bank has met all of its taxation obligations and is confident that, once all the facts are tabled, the bank will be deemed to have acted appropriately,” the spokesman said.
Under the GST system, purchasers pay a GST-inclusive purchase price to suppliers, who are then required to pay the GST to the tax office.
An ATO spokesperson said that in the case of failed companies, there were specific provisions in the GST Act where a receiver – or a mortgagee in possession of property – had to pay the GST to the ATO.
While the Lauderdale matter was privately resolved before the appointment of an administrator, Mr Levitt said this was rare.
With the onset of the GFC and a wave of property industry collapses due to a freeze on construction finance, he said it was more common for administrators to sell incomplete unit and commercial developments that carried a GST liability.
Mr Levitt said intended GST payments had been passed on to the secured lender, leaving the GST liability with the borrower who would then be bankrupted.
Creditors, including the ATO, often ended up accepting a fraction of what they were owed in full settlement.
Mr Levitt, who is also leading a class action against CBA over the Storm Financial collapse, denied he had “a set” against the banks.
“If they want to act nicely, I’d be their biggest fan,” he said.
Nationals senator John Williams, who accepted Mr Merkel’s Lauderdale ruling from Mr Levitt and led the questioning of Bankwest boss Robert de Luca in the committee hearing, said there were important issues to be determined. “There are serious accusations being floated here about whether GST payments are going to the banks or the ATO,” Senator Williams said. “No doubt it will all come out in the wash.”
In the committee hearings, Senator Williams asked Mr de Luca why the Lauderdale dispute had continued for several years.
“Why did you have to get Ron Merkel to hear this case?” he asked.
“When you got that $9.9m, you clearly knew that $900,000 was the GST component. Why would Bankwest not hand that over to the ATO?”
Mr de Luca responded: “I am not aware of that matter. I am happy to look into that one for you.”
Senator Williams put it to Mr de Luca that Bankwest had taken this approach to GST payments “right through your network”, selling up properties and “hanging on to a lot of GST components of those sales”.
He said the loophole had to be “patched right over”.
“That is something we will obviously look into,” Mr de Luca said. “It is not widespread.”
Institute of Chartered Accountants tax counsel Paul Stacey said the issue of whether the ATO was a priority GST creditor was a longstanding one.
“The answer is that it is (a priority creditor), because the GST is not a separate component of the sale price,” Mr Stacey said.
“But the confusion here relates to who should actually account for the GST and who has access to the money — it’s a practical issue and not a legal issue.
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