If The Fuel Evaporates, The Fuel Tax Does Not!

Coles Supermarkets Australia Pty Ltd v Commissioner of Taxation [2019] FCA 1582 sought to clarify whether the Taxpayer (Coles Supermarkets Pty Ltd) was entitled to a fuel tax credit for fuel acquired for resale to customers where a small proportion (approximately 0.3%) of the fuel was lost through evaporation or leakage.

Moshinsky J provided a summary in his judgement:-

“1. There are five proceedings before the Court. The applicant in each proceeding, Coles Supermarkets Australia Pty Ltd (Coles), is the representative member of the Coles GST Group. The group includes Eureka Operations Pty Ltd (Eureka), which carries on the business of retailing fuel and operating convenience stores trading as “Coles Express”. The proceedings are appeals under Pt IVC of the Taxation Administration Act 1953 (Cth) (the Tax Administration Act) from objection decisions made by the respondent (the Commissioner).

2. The proceedings concern claims for “fuel tax credits” and “decreasing fuel tax adjustments” under the Fuel Tax Act 2006 (Cth) in respect of fuel that evaporated or leaked at Coles Express stores. The proceedings arise in the context of an overall legislative scheme whereby fuel tax arises under a series of statutes including the Excise Act 1901 (Cth), the Excise Tariff Act 1921 (Cth), the Customs Act 1901 (Cth) and the Customs Tariff Act 1995 (Cth). Within that framework, the Fuel Tax Act provides a single system of credits and adjustments that reduce the incidence of tax on fuels.

3. The proceedings concern the following monthly tax periods:

(a)     July 2012 to June 2015; and

(b)     August 2017. 

4. Coles contends that a certain proportion (approximately 0.3%) of the fuel it acquired during those tax periods was lost through evaporation or leakage. It claims fuel tax credits or decreasing fuel tax adjustments in respect of the fuel that evaporated or leaked (and thus was not sold to customers).

5. The Commissioner contends that Coles is not entitled to any fuel tax credits or decreasing fuel tax adjustments. Further, in respect of the tax periods from July 2012 to January 2014, the Commissioner contends that any entitlement to fuel tax credits has ceased pursuant to s 47-5 of the Fuel Tax Act.

6. The following issues arise for determination (although, as explained below, not all issues arise in respect of each tax period):

(a)     whether, for the purposes of s 41-5 of the Fuel Tax Act, the relevant fuel was acquired “for use in carrying on [the relevant] enterprise”, such that Coles was entitled to a fuel tax credit in respect of the fuel lost by evaporation or leakage (the Fuel Tax Credit Issue);

(b)     (in the alternative to issue (a)) whether, under s 44-5 of the Fuel Tax Act, Coles is entitled to a decreasing fuel tax adjustment on the basis that fuel acquired for retail sale, but subsequently lost by evaporation or leakage, was used in a way that was different from that intended at the time of its acquisition (the Decreasing Fuel Tax Adjustment Issue); and

(c)     if Coles was entitled to fuel tax credits pursuant to s 41-5 for any of the tax periods from July 2012 to January 2014, whether Coles has ceased to be entitled to those fuel tax credits by reason of the operation of s 47-5 of the Fuel Tax Act (the Section 47-5 Issue).

7. For the reasons that follow, I have concluded that the three issues should be determined as follows:

(a)     Coles is not entitled to a fuel tax credit under s 41-5 in respect of fuel that evaporated or leaked during the relevant tax periods.

(b)     Coles is not entitled to a decreasing fuel tax adjustment under s 44-5 in respect of fuel that evaporated or leaked during the relevant tax periods.

(c)     In light of my conclusion in respect of the Fuel Tax Credit Issue, it is unnecessary to determine the Section 47-5 Issue. Nevertheless, I make some observations about this issue.”

The fuel tax credit issue

The Court determined that on the construction of s 41-5(1) of the Fuel Tax Act, evaporation and leakage did not constitute a “use”. The Court held:-

“Thus, although in some contexts the evaporation or leakage of fuel may constitute “use” of the fuel in carrying on an enterprise, in the present context, where the evaporation and leakage were wholly incidental to an application of the bulk of the fuel that did not constitute a “use” of the fuel for the purposes of the Act, I do not consider the relevant fuel to have been acquired for use in carrying on Coles Express’s enterprise for the purposes of s 41-5(1).”

In short, the Court considered that the evaporation or leakage of fuel was not “used” for resale. The Court concluded that Coles Express did not acquire the relevant fuel (that is, the fuel that subsequently evaporated or leaked) “for use in carrying on [its] enterprise” for the purposes of s 41-5(1) and therefore was not entitled to a fuel tax credit for the fuel that had evaporated or leaked during any of the relevant tax periods.

The decrease in fuel tax adjustment issue

Coles argued that if it failed on the fuel tax credits issue then in the alternative it was entitled to a decrease in fuel tax adjustment pursuant to section 44-5 of the Fuel Tax Act in respect of the fuel that was lost through evaporation or leakage. Coles argued that it was entitled to a decrease in fuel tax adjustment on “the basis that fuel acquired for retail sale, but subsequently lost by evaporation or leakage was used in a way that was different from that intended at the time of acquisition”.

In holding that Coles failed on this ground also, the Court considered that the word “use” had the same meaning as in section 44-5(1) as it has in section 41-5(1). The Court noted:-

“The evaporation or leakage of fuel was wholly incidental to Coles Express making a taxable supply of fuel, in the sense that it was an unwelcome, and unavoidable, part of that activity. Accordingly, it is appropriate to characterise the portion of the fuel that evaporated or leaked in the same way as the fuel that was re-sold to Coles Express’s customers. In other words, the portion that evaporated or leaked was not “used” in carrying on the enterprise for the purposes of the Act. It follows that the “would have amount” is zero and that Coles is not entitled to a decreasing fuel tax adjustment under s 44-5 with respect to the fuel that evaporated or leaked.”

The section 47-5 issue

This issue only arises if Coles is otherwise entitled to a fuel tax credit that has been lost through evaporation or leakage. As the Court had already determined that Coles was not entitled to a fuel tax credit, it considered that the section 47-5 issue did not arise although it did provide detailed reasoning in the case if readers are interested.

This was a highly technical decision based on strict statutory interpretation and whilst some may be concerned that it was overly strict in denying Coles a potential $9m fuel tax credit, many cases, particularly tax cases, are decided on a strict construction or statutory interpretation of the relevant provisions.


Date Published: 30 January 2020


Hyperlink not effective Notice to Members!

In the case of Clarke v Australian Computer Society Incorporated [2019] FCA 2175, the judgement delivered on 23 December 2019 has proved to be a very interesting one for meeting and special resolution procedures.

The Australian Computer Society Incorporated (“the Society”) is a not-for-profit organisation having objects which include “the promotion and further development of study and application of information and communications technology in Australia”.

The Society is registered as an incorporated association under the Associations Incorporation Act 1991 (ACT) with approximately 41,000 members of which just over 10,000 were voting members.

The Society commenced a process to transfer its registration to a company limited by guarantee under the Corporations Act 2001 (Cth). That process culminated in a general meeting of members at which a special resolution to apply for such registration was put to members. That resolution, which was required to be passed by 75% of the voting members present or by proxy was passed effectively by one vote i.e 75.1%. Mr Roger Clarke is a member of the Society and a vocal opponent of the resolution that was put to the members at the general meeting. Mr Clarke challenged the special resolution passed at the general meeting on 25 October 2019 based on 5 grounds.

The first ground was that the Society did not “send” a notice to each member as required by the Constitution detailing the proposed alterations to the rules and objects of the Society’s Constitution. The Society had not sent the required notice to those members who did not have an email address nor those who had an email address but requested that there be no “marketing material” sent to them. The Constitution clearly contemplated email as one of the means of communication to members.

Mr Clarke’s second ground of challenge was a similar argument in that the Society failed to send the notice of general meeting complying with its Constitution to “each member” for the same reasons.

The third ground was that the information required in the notice with an explanatory memorandum were not contained in the notice but were hyperlinked to the explanatory memorandum. Further, Mr Clarke contended that the explanatory memorandum was misleading because it referred to “only minor changes” were to be made when in fact a new constitution was to be adopted with different provisions related to corporate governance.

The fourth ground relied upon by Mr Clarke was that there had been deficiencies in the exercise of the official dealing with proxy votes which denied a vote by proxy to some members.

The fifth ground was that the conduct of the President of the Society in determining the procedures to be followed at the general meeting was incorrect and in breach of his duties as Chair of the meeting. Mr Clarke claimed that the President failed to take steps to ensure a reasonable opportunity for argument was allowed, the President curtailed debate by members by imposing strict time limits and the President refused to permit questions from members present at the meeting.

The Court found in Mr Clarke’s favour on all 5 grounds. The decision is comprehensive and well worth careful consideration by those responsible for preparing relevant notices for general meetings, exercising power on determining the validity of proxies, and finally in the conduct of the meeting itself.

Marketing material

We do not consider it surprising that the Court decided that notices dealing with constitutional requirements did not constitute “marketing material”. Therefore, the Society had failed to comply with the notice requirements of its Constitution by failing to provide the requisite notices to those eligible members even though those members had ticked the “no marketing material” box.


One of the more interesting aspects of the case was that the Court determined that on a proper construction of the Society’s Constitution, the requirement to send documents with the Notice of the Annual General Meeting (such as an Explanatory Memorandum to the Special Resolution) meant that those documents be sent directly. That could have been achieved by either incorporating that mandatory information in the Notice or by way of attachment. A hyperlink to the information did not constitute the mandatory information being “sent” to the Members. Rather, the Court indicated that the hyperlink was merely a “direction” or “pointer” of where to obtain the mandatory information.

Conduct of meeting

The Court made it clear that the President of the Society, in his capacity as Chair of the Annual General Meeting, had a duty to conduct the meeting fairly by allowing opponents of the Special Resolution (which had been endorsed by the Committee) to have a reasonable opportunity to express their views. This did not mean that the Chair could not impose limits on the speakers, but those limitations had to be reasonable in the circumstances.

The matter can be put simply. That is, ensure that you comply with the requirements of your constitution fully and in the conduct of the general meeting the Chair should ensure fairness to opposing view-points, particularly where the matter may be contentious or, as was the case in this situation, that the Special Resolution was passed by effectively 1 vote.


Date Published: 16 January 2020


Victorian Gaming Machine Entitlements Not Deductible on Revenue Account

In Commissioner of Taxation of the Commonwealth of Australia v Sharpcan Pty Ltd [2019] HCA 36, the High Court of Australia unanimously decided in a short (25 pages) and direct decision that the purchase of Victorian Gaming Machine Entitlements (“GMEs”) was on capital account and therefore, not deductible on revenue account. Nor was the purchase price deductible under section 40-880 of the Income Tax Assessment Act 1997 (“the Act”) as the expenditure was not incurred to preserve, but not enhance, the value of goodwill and the value of GMEs was not solely attributable to the effect which they had on goodwill.

The deductibility of expenditure on GMEs has been debated by Tax Advisors for many years. Sharpcan Pty Ltd (“the Taxpayer”) was the sole beneficiary of the Daylesford Royal Hotel Trust (“the Trust”). The Taxpayer was successful at the Administrative Appeals Tribunal (“AAT”) in arguing that the expenditure of $600,300 on GMEs was deductible on revenue account. The Commissioner appealed to the full Federal Court but the Taxpayer was again successful. The Commissioner then appealed to the Hight Court of Australia and was ultimately successful in its argument that the expenditure on GMEs was not on revenue account nor deductible under the specific provisions of section 40-880 of the Act.

The Trust acquired, on 8 August 2005, the business of the Royal Hotel in Daylesford with the hotel premises being a venue approved for gaming under the Gaming Regulation Act. Tattersalls was the authorised gaming operator of 18 gaming machines at that time. Subsequently, the electronic gaming machine regime in Victoria was amended with new GMEs able to be acquired through a bidding process by the venue operator for a license period of 10 years. The Trust was successful in acquiring 18 new GMEs at a total price of $600,300 for a 10 year period. The purchase price was to be paid by instalments between May 2010 and August 2016.

The High Court, in its unanimous judgement, stated “There can be no question that the purchase price was incurred on capital account”. The High Court agreed with the dissenting judgement of Thawley J in the Full Federal Court, that the acquisition of the GMEs “….was not an expenditure which would need to be repeated over and over again as a necessity of trade…”.

The High Court reviewed many cases which have considered the question of whether expenditure is on capital account or revenue account. Again, the analysis shows that what may on the surface appear to be a simple distinction, is often blurred and difficult to draw.

The High Court noted:-

“Authority is clear that the test of whether an outgoing is incurred on revenue account or capital account primarily depends on what the outgoing is calculated to effect from a practical and business point of view. Identification of the advantage sought to be obtained ordinarily involves consideration of the manner in which it is to be used and whether the means of acquisition is a once-and-for-all outgoing for the acquisition of something of enduring advantage or a periodical outlay to cover the use and enjoyment of something for periods commensurate with the payments. Once identified, the advantage is to be characterised by reference to the distinction between the acquisition of the means of production and the use of them; between establishing or extending a business organisation and carrying on the business; between the implements employed in work and the regular performance of the work in which they are employed; and between an enterprise itself and the sustained effort of those engaged in it. Thus, an indicator that an outgoing is incurred on capital account is that what is secures is necessary for the structure of the business.”

Sharpcan in the alternative argued that the purchase price was incurred on revenue account because “the acquisition of the GMEs did not amount to the acquisition of “permanent rights””.

The High Court rejected the submissions on behalf of Sharpcan, but did not discuss whether a lesser term or repeating term would qualify as expenditure on revenue account.

The case was an interesting discussion of the longstanding difficulty in determining whether an item is on capital account or revenue account.


Date Published: 13 November 2019


The Promotion of Business is not Charitable in South Australia

The South Australian Supreme Court (Full Court) has handed down an interesting unanimous decision in South Australian Employers’ Chamber of Commerce and Industry Incorporated v Commissioner of State Taxation [2019] SASCFC 125  (16 October 2019).

The South Australian Employers’ Chamber of Commerce and Industry Incorporated (“the Chamber”) appealed a decision against a judge of the Supreme Court to the Full Court of the South Australian Supreme Court seeking recognition that the Chamber was exempt from payroll tax under the charitable exemption contained in section 48 of the Payroll Tax Act 2009 (SA). There are similar provisions in other State jurisdictions.

The Commissioner of State Taxation (“the Commissioner”) had originally disallowed the claim and was successful in the Supreme Court when the Chamber appealed against the objection. The Commissioner was again successful in the full Court in this decision that the Chamber was not charitable and was therefore not exempt from payroll tax.

In essence, the Chamber argued that its activities were undertaken “for the purpose of promoting trade and commerce in Australia which is a recognised charitable purpose”. Whereas, the Commissioner argued that the “activities were conducted for the purpose of benefitting members or alternatively business and employers in South Australia” which are “not recognised as charitable purposes”.

The Full Court affirmed the decision of the Supreme Court that the “interests of business” is much narrower and not synonymous with the term “trade and commerce”. Further, where an organisation carries on many diverse activities, they need to be considered in groupings and then holistically as to whether they constitute charitable purposes. “Business is only one of several groups that participate in trade and commerce”, and an “activity that promotes the interests of business may not necessarily advance trade and commerce”.

Accordingly, the Chamber did not qualify for exemption from payroll tax because it did not evidence charitable purposes.

The case considers a wide range of decisions across Australian Federal and State jurisdictions on the question of charitable purpose. In particular Chamber of Commerce and Industry of Western Australia (Inc) v Commissioner of State Revenue [2012] WASAT 146 (18 July 2012) was distinguished.

It is worth noting that whilst in recent years many organisations have sought to extend the reach of the meaning of charitable purpose, only a few have been successful. In our view, the presentation of the evidence and proper preparation is critical to establish charitable purpose. In Victoria, the case of Law Institute of Victoria v Commissioner of State Revenue [2015] VSC 604 also failed to establish that the Law Institute of Victoria was of a charitable purpose.


Date Published: 12 November 2019


Owners Corporation: Overreaction Equals Defamation

A request for advice, made us reflect on recent decisions for defamation such as Raynor v Murray [2019] NSWDC 189 (17 May 2019) (Raynor’s case) and Bolton v Stoltenberg [2018] NSWSC 1518 (15 October 2018) (Bolton’s case).

For a refresher, see our previous article on Bolton’s case titled “Like with caution: social media defamation”.

Raynor’s case also involved a successful action for defamation involving a residential apartment’s Body Corporate in the case.

Mr Raynor was the chair of the Body Corporate and lived in the apartment complex. Ms Murray was a tenant in the apartment complex who had circulated an unfavourable email about Mr Raynor to a number of owners of the apartment complex. Mr Raynor successfully sued for defamation and was awarded $120,000 ($90,000 in damages plus an additional $30,000 in aggravated damages).

As an aside, the decision considered many earlier cases including those successfully argued by actors Rebel Wilson and Geoffrey Rush.

From mole hills to mountains

The apartment complex had a bank of letter boxes outside the complex which were accessible from the street. Ms Murray left her mailbox unlocked “most if not all of the time after she moved in”. Mr Raynor, in his capacity as chair of the Body Corporate, sent an email to Ms Murray noting Ms Murray’s letterbox was unlocked. About 8 months later there were media reports of mail being stolen from letterboxes in the area. Mr Raynor again emailed Ms Murray about her letterbox being unlocked. Subsequently, the letterboxes at the apartment were broken into.

Mr Raynor emailed all residents requesting that they secure the letterboxes and attached a local newspaper article containing warnings and advice for local residents. Ms Murray replied to this email in derisive terms. Several weeks later, the mailboxes were broken into again, prompting Mr Raynor to forward a second email warning to all residents and asking them to keep their mailboxes locked. Subsequently, Mr Raynor sent an email to Ms Murray (after noting that her letterbox was open) asking whether it had been left unlocked or had been broken into?

This resulted in Ms Murray responding as noted in the judgement where she:-

“complained of being harassed by “many emails” from the plaintiff, of which “the latest topic” was the open letterbox, asked the plaintiff [Mr Raynor] directly if he had opened the box himself as part of his “months of campaigning to have all residents comply with your demands”, derided the “Mission Impossible” scenario that her unlocked mailbox played any contributing role to the break-ins and complained the plaintiff had “never asked why we keep the letterbox open”. The email concluded with the complaint that the plaintiff’s “consistent attempt to shame me publicly is cowardly” and that it was “offensive, harassing and menacing through the use of technology to menace me”. “

Mr Raynor took action in defamation with Ms Murray pleading the defences of justification (pursuant to section 25 Defamation Act 2005 NSW), the defence of honest opinion (pursuant to section 31 Defamation Act 2005 NSW), triviality (pursuant to section 33 Defamation Act 2005 NSW), and at common law qualified privilege. In a lengthy judgement the Court rejected all of these defences.


It is observed that many environments such as Body Corporates / Owners Corporations, neighbours generally, clubs and charitable institutions are resulting in an increasing trend to seek resolution of matters through the courts.

Given the number of cases that have appeared in courts across Australia including the many unreported cases, it is trite to say that more measured responses are required in our digital age. In the past perhaps the effort and time taken to write a letter acted as a “circuit breaker”. Whereas, the immediate gratification without proper reflection of the consequences of an email, tweet, or Instagram creates considerable potential difficulties.


Date Published: 14 October 2019