Wolters Kluwer do not report every case. Not every practitioner reads every case report. Case reports cover matters in respect of which a court or tribunal has been asked to make a ruling. That is not to say, unlike more significant cases1 where tens of millions of tax revenue are in dispute, cases before the Administrative Review Tribunal (ART) cannot offer a window into administration of the tax law, as well as the transparency of ATO processes that can be valuable to practitioners in their day-to-day practice.
The ability of the ART to review a matter on merits may be considered demonstrative of best practice in tax administration. Affordable fees2 combined with the ease of online research, allows more taxpayers, in dispute with the Commissioner, the opportunity of their day in court.
There is now an entire generation of tax practitioners for whom pre-GST Australia exists only as history. Over the last 25 years, a body of standalone GST case law has developed reducing reliance on the interpretation of equivalent provisions of sales tax or income tax legislation.
This article highlights some of the lesser issues that have arisen in recent GST litigation – particularly before the ART – that, while not necessarily significant points of law in their own right, may be significant for tax practitioners advising clients.
Table of contents
Is there an enterprise?
“Enterprise” is a broader concept than a business, but just how much activity is sufficient to amount to an enterprise?3 At what point does a hobby become an enterprise?
Rise of the Gen Z side hustle4 suggests that the issue of when a side hustle moves from hobby to enterprise, where with voluntary registration the hustling Gen Z can claim input tax credits (ITCs) while in start-up phase, but arguably not pay income tax until it graduates from enterprise to business5, will increasingly need to be addressed.
In RQA,6 7 transactions in a 4-year period, together with significant advocacy on behalf of the principals was insufficient to amount to an enterprise.
In Smith,7 16 contracts for the sale of dogs over a 3 ¼ -year period, together with the quality of the taxpayer’s dog breeding activities were sufficient to amount an enterprise in the form of a business (as distinct from a business).
In VZFS,8 the taxpayer’s facilitative activities in supporting the subdivision and sale of residential lots, together with engaging an accountant to review each and every sale transaction amounted to carrying on a business.
Whether a taxpayer’s activities amount to an enterprise or a business turns on its own particular facts, the determination of which question is generally the result of a process of weighing all the relevant indicators.
Other indicia
The quality or “business-like” nature of the activities appears to be becoming a particularly difficult indicator to apply consistently. While lack of organisation (eg record keeping, a business plan) may indicate unbusinesslike practices, the lack of organisation of activities where a business or enterprise is carried on (based on other factors) presents evidentiary difficulties and expose the taxpayer to penalties. The weight attributed to the quality of records for a side hustle may well be more nuanced than the examples in Taxation Ruling TR 97/11 and Miscellaneous Ruling MT 2006/1.
Some hobbyists may keep detailed and meticulous records, while some entrepreneurs have “no time” for record keeping. Perhaps the facts and circumstances weighing into this factor is whether the nature of the records being kept is an appropriate reflection of the nature of the activities. Of course, there will always be a grey area on the continuum from hobby to enterprise to business.
One would hope, all other things being equal, the existence of a business plan or comprehensive record keeping is not determinative of whether a business is carried on.
Similarly, the facts and circumstances attributing appropriate weighting to a profit-making intent of a side hustle may merit additional context. While mere intention or wish to engage in profitable activities at a future time, unsupported by plans to bring such profit to fruition9 may be insufficient, arguably it is self-evident that the purpose of selling something is at least cost recovery (which may include one’s time) but more likely profit or gain.10
Scale is also problematic with the rise of the side hustle. While a lack of scale is not prohibitive of a business or enterprise being carried on, it would be undesirable for upscaling and downscaling to be determinative.
Ultimately, whether an enterprise or business is being carried on remains a matter of fact and degree and requires considering and weighing of the facts and circumstances in each case. While this approach may be criticised as not providing sufficient certainty, it importantly allows the test to reflect evolving contemporary entrepreneurship. One would hope that, where the distinction is so finely contested, the taxpayer’s position is, by definition, considered reasonably arguable, and that the Commissioner does not seek to apply the 20% uplift on every occasion a penalty arises.11
Substantiation is not nexus
In both Fraser12 and Smith13 the taxpayers, self-represented for their day before the ART, seemed to understand the importance of substantiation, both producing a spreadsheet and thousands of documents to support their expenses and claims for ITCs.
In Fraser the taxpayer sought to claim ITCs in connection with his social media channels, including for a motor vehicle, and building materials for a building constructed on his parents’ property, as well as furniture and electrical equipment, construction materials, tools, fuel, travel and insurance. Other than the original receipts for the purchases, there was no documentary evidence indicating where or how these items were used (emphasis added).14 While there was some evidence of the social media channels, and the ART referred to the taxpayer’s activities as a business throughout, he was unsuccessful in convincing the ART that these expenses bore the necessary connection with 3 of the 4 of his social media channels of which he was able to evidence. The persuasiveness of the evidence also appears to have been adversely affected by the informal nature of agreements between the taxpayer and his parents.
The record keeping in Smith was less meticulous15 than in Fraser and sought to introduce line items on bank and credit card statements in lieu of invoices. Although the Tribunal can take on the role of the decision maker, it applies the law and accordingly taxpayers must produce the required documentation before the ART. Guidance issued by the Commissioner with respect to record keeping relief is for the ATO officials. Credit card statements provide evidence of date and amount but not qualitative detail of what was purchased nor quantitative GST information. Reconstructed records, before a court or tribunal, may be expected in order to meet the statutory requirements, such as supporting identification of the vendor, what was purchased and referencing GST. It remains necessary to demonstrate how the acquisitions relate to the enterprise.
Similarly, in RQA, the taxpayer who sought to claim ITCs in respect of the costs of enforcement of a security (and other miscellaneous expenses) by a bank that the taxpayer had borne, went to great inconvenience to obtain tax invoices from the bank in respect of the debited amounts to have the ART refuse the claim due to lack of nexus. No legal or other services or things were acquired by the taxpayer through the bank enforcing its security in respect of which the court order for costs in favour of the bank was made.16
In each case substantiation alone did not establish a nexus between the expense and the enterprise.17
Whether the taxpayers in Fraser and Smith would have fared better by engaging a tax agent is not clear. Failure to seek the services of a tax agent does not of itself suggest lack of reasonable care, nor does it follow that reasonable care is taken by using a tax agent18; penalty safe harbours enshrined in the legislation protect taxpayers relying on tax professionals.
The tribunals and courts are bound by law written in a different time with reference to a tax regime in which GST did not exist and without the benefit of a futurist, a tax landscape unknown to a significant portion of both taxpayers and tax professionals – including those charged with taxation administration. While legislative and administrative discretions are more necessary than ever in the current environment in which technological change is outstripping administrators, regulators and legislators, they often lack transparency and contribute to taxpayer uncertainty.19 Business, it is suggested, must also take responsibility not just accepting the lowest cost sales solution technology offers, but ensure that compliance is supported as a default.
Making a case
Filings at the ART should be accurate and the parties are required to assist the ART meet its objectives.
The scarce resources of the ART20 are arguably not put to good use having to refute cases cited incorrectly, or that are irrelevant or non-existent.21 If artificial intelligence is used as a research tool by litigants [or their representatives], each case identified by AI needs to be located on public websites and read to ensure it stands for the proposition for which it is cited by the litigant.
Similarly, it is extremely unhelpful for the Tribunal Book filed by the Commissioner, as the Model Litigant, to contain a vast array of problems; inconsistency in the filings of the ATO, including multiple differences between the Commissioner’s Written Outline of Submissions and the Commissioner’s SFIC (Statement of Facts, Issues and Contention), as well as incorrect calculations.22 The quality of the Commissioner’s submissions may be considered a factor in favour of a taxpayer’s request for remission of penalties.23
The ART also expressed dismay at the Commissioner’s administration in RRKC24 in which it was difficult to ascertain the tax periods in which the Commissioner sought to assess the sales of properties; the Commissioners calculations in SFQV25 also required revision before the ART.
The ART also chastened that the Commissioner should not be looking to apply s 284-220 Sch 1 TAA26 in every case a penalty arises.
One hopes that the circumstances surrounding the litigation by the Commissioner in Smith are an aberration.27 With a taxpayer objecting to an amended assessment bearing the burden of not only demonstrating on the balance of probabilities that the Commissioner’s assessments are incorrect but also what they should have been,28 the Commissioner is clearly advantaged where, for whatever reason, the assessment process falls short of best practice.
Fortunately, the separation of powers that ensures an independent judiciary provides the opportunity for every citizen to have their day in court.
Footnotes
- 1 Such as FCAFC decisions in FC of T v CPG Group Pty Ltd 2025 ATC ¶20-976 and FC of T v ACN 154 520 199 Pty Ltd (in liq) 2025 ATC ¶20-977 where even whether there was a question of law to be addressed needed to be determined with respect to the application of Div 165
- 2 ART fees for 2026, range from a flat $100 concession, to $114 where there is less than $5,000 in dispute, $616 for small business tax, to $1,148 for “other”.
- 3 The existence of an “enterprise” is at the core of whether an activity creates exposure to GST liability and/or if registration within the tax system is required.
- 4 Alex Christian, Rise of the Gen Z side hustle, BBC 4 March 2023
- 5 In its media release Joined the bustle of a side hustle? the ATO reminds taxpayers to consider whether their side hustle amounts to a business. The media release does not reference the non-commercial loss provisions that that may be of assistance in the transition from hobby to business.
- 6 RQA Accountants Pty Ltd v FC of T 2026 ATC ¶10-799
- 7 Smith v FC of T 2026 ATC ¶10-790
- 8 VZFS v FC of T 2025 ATC ¶10-777
- 9 Absent in RQA [82]
- 10 The FCAFC considered it self-evident that no commercially rational business would engage in loss making transactions or those that failed to recover costs ACN 154 520 199 [162], [163]
- 11 Smith [110] in which case the 50% recklessness penalty was more than sufficient deterrent and the 20% uplift was remitted.
- 12 Fraser v FC of T 2025 ATC ¶10-779
- 13 Smith v FC of T 2026 ATC ¶10-790
- 14 Fraser [56]
- 15 Smith [96]
- 16 RQA [97]
- 17 Fraser [109]
- 18 Smith [99]
- 19 Chris Sievers, “GST and food – ATO issues GST determination on “prepared meals”, a Decision Impact Statement for Simplot and amends the Detailed Food List”, CCH iKnowConnect, 4 August 2025
- 20 Smith [83]
- 21 Smith [113] “They are wrong at law, they rely on non-existent cases or cases that do not stand for the principle asserted”
- 22 Smith [7], [10], [12]
- 23 Smith [115]
- 24 RRKC v FC of T 2026 ATC ¶10-793
- 25 SFQV v FC of T 2024 ATC ¶10-737
- 26 20% uplift
- 27 Perhaps due to personnel changes as alluded at [7]
- 28 Smith [82]