The Federal Court has held that an increasing adjustment arose under s 135-5 of the GST Act in relation to the acquisition of 3 apartments by the taxpayer as a GST-free supply of a going concern.
The taxpayer acquired 3 apartments, which were subject to certain leases and used [by the lessee] as a part of a serviced apartment business. The GST treatment of the supplies relating to the apartments [of this type] were subject to earlier proceedings in South Steyne Hotel Pty Ltd v FCT (2009) 74 ATR 41, in which the Full Federal Court held that the sales of individual apartments were GST-free supplies because the sale was a supply of a going concern.
In February 2012, the ATO concluded an audit of the taxpayer’s GST affairs for the period 1 October 2007 to 31 December 2007 and issued a notice of assessment for an increasing adjustment of $215,000 (representing 10% of the total purchase price for the 3 apartments). The taxpayer broadly argued that it did not have an increasing adjustment because it did not intend that some or all of the supplies made through the enterprise to which the GST-free supply of the going concern related would be supplies that were neither taxable nor GST-free supplies.
The Court said in circumstances where there is a supply that is treated as a continuing supply (ie the supply of the residential premises by lease) which continues to be made through the enterprise constituted by the serviced apartment business after its supply as a going concern, the requirements of s 135-5(1)(b) are satisfied. Therefore, it held that the taxpayer “as recipient of the going concern intended that that be the case” and that it was liable to the increasing adjustment.
(MBI Properties Pty Ltd v FCT [2013] FCA 56, Federal Court, Griffiths J, 6 February 2013.)
[FJM Note: The South Steyne case also decided that the supplies by the ‘hotel operator’ were taxable as the supply of Commercial Residential Premises, whereas the supply of the same apartment(s) by the purchaser(s) to the hotel operator was input taxed. Worse, this case decided that a clause designed to put the GST liability on the vendor (under the Margin Scheme, if the input taxed/increasing adjustment approach were to apply) had no operation. This was in essence because the operation/importance of this clause was not well explained/argued in South Steyne, and as a result, this case followed suit. An appeal is to the Full Federal Court is likely, by this taxpayer [now has been lodged] or others whose cases, I understand, are coming through. If any reader wants a more detailed article on this, please make contact with me, and I can email it to you.]
[LTN 27, 11/2/13]
The Taxpayer has lodged a notice of appeal to the Full Federal Court
The taxpayer has lodged a notice of appeal to the Full Federal Court against the Federal Court’s decision in MBI Properties Pty Ltd v FCT [2013] FCA 56. The Federal Court had held that an increasing adjustment arose under s 135-5 of the GST Act in relation to the acquisition of 3 apartments by the taxpayer as a GST-free supply of a going concern.
[LTN 40, 28/2/13]