On 22 December 2014, the ATO released Decision Impact Statements MBI Properties Pty Ltd v FCT [2014] HCA 49.
The High Court had unanimously allowed the Commissioner’s appeal, holding that the conditions for the operation of s 135-5 of the GST Act were met, and the Commissioner was correct to assess MBI to an increasing adjustment under that section. The Court said MBI’s appeal from the disallowance of its objection to that assessment should have been dismissed.
The Full Federal Court had previously held that the taxpayer that had purchased 3 residential apartments, which were subject to leases, did not have an increasing adjustment within the meaning of Div 135 of the GST Act, as there was no continuing supply in terms of s 135-5(1).
The Commissioner considers that the High Court’s decision gives rise to a number of GST outcomes, for instance:
(i) A purchaser of leased residential premises as a GST-free going concern, with the intention of continuing to observe and act in accordance with the covenants of the existing lease, is liable for an increasing adjustment under section 135-5;
(ii) A purchaser of leased residential premises makes an input taxed supply by way of lease, and para 11-15(2)(a) operates so that there is no entitlement to an input tax credit for anything acquired that relates to making that supply.
The ATO said it will review GSTD 2012/1 [sale of property with a residential lease] and 2012/2 [sale of a property with a commercial lease].
Entities can rely upon GSTR 2002/5 [GST-free supplies of ‘going concerns’] to treat a sale of leased premises as being a GST-free supply of a going concern. Entities that have self-assessed on the basis of the Full Federal Court’s decision in MBI may need to review prior lodgments.
[LTN 1, 5/1/15]