Just hours after I posted that the Commissioner was seeking leave to appeal to the High Court against the decision of the Full Federal Court in MBI Properties Pty Ltd v Commissioner of Taxation  FCAFC 112, the Commissioner has published an Interim Decision Impact Statement for the decision.
The Commissioner acknowledges that subject to his application for special leave, the decision of the Full Court means that purchasers of leased premises as a going concern may not be liable for an increasing adjustment under Division 135 of the GST Act. The Commissioner is also carefully considering the other potential implications of the decision, noting that concerns have been expressed that the decision might mean that:
- following the sale of a reversion, the incoming landlord of commercial premises is not liable for GST on the rent payable by the tenant granted by the vendor of the reversion;
- the tenant of commercial premises would not be entitled to input tax credits in relation to rental payments after the sale of a reversion
- an entity that grants a lease in, but later sells commercial residential premises, may remain liable for GST on rental payments received by the purchaser following the sale of the premises
- a purchaser of leased residential premises can claim input tax credits for costs associated with the rental of the premises, so far as the lease originally granted by the vendor remains on foot and no new or further lease is granted by the purchaser
- property owners are not able to sell leased premiss as a GST-free going concern.
The Commissioner outlines his proposed administrative treatment pending the outcome of the special leave application – essentially it appears to be status quo in that the ATO does not intend to revise its current published views about the sale of leased residential premises and leased commercial residential premises.
The Commissioner also notes that taxpayers who self-assess under the Commissioner’s current views may wish to protect their entitlement to refunds of overpaid GST (if the Commissioner is unsuccessful) by lodging a notification under s 105-55 of Schedule 1 to the TAA.
In the context of refunds, it should be noted that the Commissioner states that refunds will be subject to the restrictions under s 105-65 of Schedule 1 to the TAA and also that if refunds are paid to taxpayers prior to finalisation of the High Court proceedings, those refunds may need to be repaid – for example if the Commissioner is successful, or even if not successful, if the refund was paid on a basis that is not consistent with the Commissioner’s final views on the broad implications of the Full Court’s decision.
One matter not mentioned in the Interim Decision Impact Statement is the recent confirmation by the Government that it would re-introduce legislation to introduce Division 142 of the GST Act, which is to replace s 105-65 of the GST Act. The original legislation was to apply to tax periods from 14 August 2012. It is unclear whether the new legislation will have the same start date, but taxpayers should keep this new legislation in mind if they are looking to claim refunds.