The High Court has rejected a challenge that could have thrown the tax treatment of hundreds of Australian local councils into doubt.
Hornsby Council, whose mayor is former Howard government minister Philip Ruddock, in May 2022 paid just over $3100 "notional GST" on the sale of a Holden Colorado vehicle.
In July 2022, the council lodged with the tax office an amended business activity statement which included the sum of the notional GST in the field "GST on sales".
The BAS resulted in a liability to pay GST for that month in the same sum that reflected the inclusion of the notional GST.
The council paid this sum under protest, arguing the GST liability arising from the inclusion in its BAS of notional GST was a "tax on property" belonging to the state of NSW for the purposes of section 114 of the constitution and that laws relating to its payment were invalid.
It then launched a special case in the High Court challenging the legality of the GST it paid.
The Commonwealth argued the voluntary payments are not a tax because there is "no compulsory exaction of property" involved, including in withholding grant payments.
The court heard the council - under a long-standing agreement - had the ability to choose to pay notional GST immediately, or receive a reduced amount of grant money in the future with the amount of the notional GST deducted.
The court unanimously found in a judgment released on Wednesday the inclusion by the council of notional GST in its BAS was "a voluntary act made in accordance with an intergovernmental agreement entered into by the Commonwealth and each state and territory, initially in 1999 and again in 2009".
"No federal law legally or practically compelled the council to include that notional GST in its BAS," the judgment summary read.
"Accordingly ... (the relevant sections of the Local Government Financial Assistance Act) did not impose a tax for the purposes of section 114 of the constitution."
