GST Tax Agent licensed by Ministry of Finance


GST Audit

With the recent updates, we know that the Royal Malaysian Customs Department (RMCD) is targeting to collect RM 3 billion in GST through its Customs Blue Ocean Strategy 3.0. The Department aims to inspect about 200,000 of the 433,000 GST-registered companies in the CBOS 3.0 operation in the Year 2017.

Managing GST audit risk is essential to ensure smooth business operation and reduce the unnecessarily penalties to businesses. Hence, we strongly advise businesses to identify the common errors that you might not aware of by downloading the "GST Audit & Common Error Guide" and do a self check now.

GST case laws always use as a reference to manage the audit risk well. We have included a few case laws that can use as a reference to businesses in their day to day operation. Professional post implementation review is always encouraged to rectify the possible improvement to the whole compliance of GST system. Do check with us for this arrangement.

GST Case Study



Commissioner of Inland Revenue v New Zealand Refining Co Ltd (1997) 18 NZTC 13, 187 (Court of Appeal, New Zealand)

Issue :- Whether compensation paid by a government to a taxpayer was regarded as a link between consideration and supply.

The government had earlier encouraged expansion of business and gave assurances as to profit levels to the company. A decade later, government policy shifted, resulting in increased competition to the company. The government and the company came to an agreement whereby the government would pay the company a certain sum of money (compensation) over three years. The law required that there must be a linkage between the supply and the consideration before GST could be imposed.

The High Court and the Court of Appeal both ruled that the compensations were not payments for any supply. Thus, the compensation was not GST-chargeable.



Trustees of the Nell Gwynn House Maintenance Fund v Customs and Excise Commissioners (1999) BVC83

Issue :- Whether salaries paid to maintenance staff of a maintenance fund is regarded as disbursement or reimbursement?

Maintenance trustees (trustees) were appointed to administer a maintenance trust which was applied for certain purposes including for salaries of maintenance staff.

The UK House of Lords held that the trustees supplied the services of staff (i.e. reimbursements) as the salaries were not paid out in the name/account of the tenants (i.e. not disbursements). The key factor was that the trustees entered into contracts of employment directly with the individual maintenance staff, and thus, the trustees were seen as supplying services. The staff were not independent contractors, nor employees of the landlords or the tenants.



National Transport Authority v Mauritius Secondary Industry Limited (2010) UKPC31

Issue :- Does supplier or customer bear VAT in case of uncertainty where contract was silent?

The National Transport Authority leased office space from a company. The negotiations were carried out at a time when VAT was just being introduced in the country. The contract did not make express provisions as to responsibility for VAT and whether or not the consideration was inclusive of GST. Evidence suggested there was no discussion of the issue of VAT throughout the negotiation.

The Privy Council held that "it is the person making the supply who is liable for VAT on the value of the supply that he makes."



Sunchen Pty Ltd v Commissioner of Taxation (2010) FCAFC 138 (Federal Court, Australia)

The taxpayer purchased residential property which had development approval, and subsequently claimed input tax on the purchase. The commissioner disallowed the input tax claim on the basis that the property was for residential premises (exempt supply). The taxpayer argued that the property was purchased with the intention of developing it in the future.

The case tested whether input tax claim was dependent on (a) the subjective use to which the purchaser intends to apply on the property; or (b) the objective characteristics of the property.

The Court held that the test should be determined objectively by reference to the physical characteristics of the property at the time of acquisition. Therefore, input tax was not allowed.

One peculiarity of the case was that the taxpayer allowed an existing tenant to complete his tenancy as a residential premise, then rented the property to another tenant again as a residential premise; this action was at odds with the purported intention of the taxpayer claiming to be a developer.



Westley Nominees Pty Ltd & Anor v Coles Supermarkets Australia Pty Ltd (2006) FCAFC 115 (Federal Court, Australia)

Issue :- Does an opportunity to review "part" of the contract give rise to a "review opportunity"?

Coles (supermarket operator) was a tenant in a shopping centre owned by Westly. Under the lease agreement, Coles is required to pay :

  • The base annual rent;
  • The annual percentage rent; and
  • Operating expenses, after hours charges and promotional fund contributions

Only the base amount of rent was subject to review to the market rate, while the other elements were not.

The issue is whether or not this gave rise to a "review opportunity" which could cause the supply to become GST-free.

The Court held that there was no "review opportunity" because the contract only provided for review of "part" of the consideration and not a "general review" of the consideration (which requires a complete or almost universal review). Therefore, there was no review opportunity.