Monthly Archives: December 2014

Commissioner issues Decision Impact Statement for MBI Properties

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Today the Commissioner issued his Decision Impact Statement for the recent decision of the High Court in Commissioner of Taxation v MBI Properties Pty Ltd [2014] HCA 49 where the Court unanimously allowed the appeal brought by the Commissioner.

As discussed in my earlier post, the fundamental issue put by the Commissioner in the appeal is that the decision of the Full Federal Court in South Steyne that there is no supply by the purchaser of a reversion made to the tenant sitting at the time of purchase was wrong and that the Court below was wrong to follow it. The High Court agreed.

The Commissioner considers that the decision gives rise to the following GST outcomes:

  • 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.
  • A purchaser of leased residential premises makes an input taxed supply by way of lease, and paragraph 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.
  • Where leased premises acquired by a purchaser are not residential premises, the purchaser makes a supply of the premises to the tenant and that supply will be a taxable supply when the other requirements of section 9-5 are met. Therefore, after the sale:
    • the purchaser is required to pay GST on the rent paid by the tenant;
    • where the other requirements of section 11-5 are met, the tenant is entitled to input tax credits with respect to rent paid to the purchaser after the sale
    • the vendor is not liable for GST on rent paid to the purchaser after the sale
    • where the purchaser or tenant account for GST on a basis other than cash, their respective supply or acquisition of the premises by way of lease will be treated as being made on a progressive or periodic basis for the purposes of Division 156 of the GST Act.
  •  an entity granting a lease or acquiring a reversion makes a supply of the use and occupation of the leases premises in the course of carrying on an enterprise: see paragraph 9-20(1)(c). It remains a question of fact and degree whether the entity may also be engaged in some other or broader enterprise.

The Commissioner also states that entities that self-assessed on the basis of the decision of the Full Federal Court may need to review their prior lodgements to determine whether they have incorrectly reported a net amount – and may have a tax shortfall. Further, the Commissioner states that he will, where appropriate, address non-compliance and seek to recover excess refunds or underpaid net amounts from entities.

 

Commissioner publishes two GST rulings

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Yesterday the Commissioner published two GST rulings, GSTR 2014/2 ‘Goods and services tax: treatment of ATM service fees, credit card surcharges and debit card surcharges’ and GSTR 2014/3 ‘Goods and services tax: the GST implications of transactions involving bitcoin’

GSTR 2014/2

The ruling explains the Commissioner’s view on the GST treatment of the following fees and surcharges:

  • a fee payable for ATM services listed in subregulation 40-5.09(4A) of the GST Regulations
  • a surcharge imposed on a customer in respect of a credit card transaction concerning supplies of goods or services by the merchant to the customer
  • a surcharge imposed on a customer in respect of a credit card transaction concerning the payment of an Australian tax or an Australian fee or charge subject to Division 81
  • a surcharge imposed by a merchant in respect of a debt card transaction concerning the supply of goods or services, a cash withdrawal or both a supply of goods or services and a cash withdrawal

GSTR 2014/3

The ruling explains the Commissioner’s view on the GST consequences of transactions involving the use of bitcoin, in particular whether bitcoin may involve “money” and whether it is a financial supply.

The Commissioner’s view is as follows:

  • a transfer of bitcoin from one entity to another is a “supply” and the exclusion of the supply of money from the definition of supply does not apply because bitcoin is not ‘money’ for the purposes of the GST Act.
  • a supply of bitcoin is not a financial supply under s 40-5 and it is not a financial supply under paragraph 9-30(2)(b) – it is a taxable supply if the other requirements in s 9-5 are met.
  • A supply of bitcoin may be GST-free, e.g. as a supply to a non-resident for use outside Australia.
  • A supply of bitcoin in exchange for goods and services will be treated as a barter transaction.
  • A supply of bitcoin is not a voucher under Division 100.

Commissioner issues ATO ID 2014/36 on operation of time limit in s 105-50 of Schedule 1 to the TAA

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The Commissioner has published ATO ID 2014/36 ‘GST and changes in net amount where an entity has notified the Commissioner of an entitlement to a refund’ where he takes the view that the four year time limit in s 105-50 of Schedule 1 to the TAA does not apply to prevent unpaid GST from being taken into account in determining an entity’s entitlement to a refund under s 105-55. The ATO ID replaces ATO ID 2008/94 which took a similar view.

The issue arises in the following factual scenario:

  • an entity lodges and pays a net amount on its activity statement for a tax period
  • within 4 years of the end of that tax period, the entity realises that it omitted to claim an input tax credit and lodges a notification under s 105-55 of Schedule 1 to the TAA, thus preserving its entitlement to “a refund in relation to a net amount” for that tax period
  • at the time of revising its activity statement to record the unclaimed credit, the entity realises that it omitted to include an amount of GST for that tax period – the Commissioner did not given the entity a notification under s 105-50(3)(a) requiring payment of an “unpaid net amount” within 4 years

The Commissioner’s view is that the 4 year time limit in s 105-50 does not apply in the above circumstances, to the extent that the unpaid GST is less than the input tax credit, and that the unpaid GST is to be set off against the input tax credit.

The basis for the Commissioner’s view is that s 105-50 applies to an “unpaid net amount” and not to individual amounts of GST. While not expressly stated in the ATO ID, it also appears that the Commissioner considers that in determining an entity’s entitlement to a refund “in relation to a net amount” for a particular tax period under s 105-55, any amount of unpaid GST is to be taken into account in determining the extent of that refund.

Interestingly, the approach does not appear to work the other way, so that where an entity receives a notification under 105-50 in respect of unpaid GST, it is not entitled to offset any unclaimed input tax credits against that unpaid GST. This is because the 4 year time limit in s 105-55 expressly refers to an input tax credit that is attributable to particular tax period.

High Court allows appeal in MBI Properties

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Today the High Court handed down its decision in Commissioner of Taxation v MBI Properties Pty Ltd [2014] HCA 49 where the Court unanimously allowed the appeal brought by the Commissioner.

The fundamental issue put by the Commissioner in the appeal is that the decision of the Full Federal Court in South Steyne that there is no supply by the purchaser of a reversion made to the tenant sitting at the time of purchase was wrong and that the Court below was wrong to follow it.

The High Court found that the Full Court in MBI Properties was wrong to reason that the only “relevant supply” was on the grant of the lease by the lessor to the lessee, and that the Full Court in South Steyne was wrong to conclude that MBI (as the purchaser of the reversionary interest) made no supply to the lessee.

The High Court observed that a transaction which involves a supplier entering into and performing an executory contract will in general involve the supplier making at least two supplies: a supply which occurs at the time of entering into the contract, in the form of both the creation of a contractual right to performance and the corresponding entering into of a contractual obligation to perform; and a supply which occurs at the time of contractual performance, even if contractual performance involves nothing more than the supplier observing a contractual obligation to refrain from taking some action or to tolerate some situation during a contractually defined period.

That observation applies to leases and there will in general be a supply which occurs at the time of entering into the lease. That supply will involve a grant within the scope of s 9-10(2)(d) combined (as contemplated by s 9-10(2)(h)) with the creation of contractual rights within the scope of s 9-10(2)(e) and with the entry into contractual obligations within the scope of s 9-10(2)(g). There will then be at least one further supply which occurs progressively throughout the term of the lease. That supply will occur by means of the lessor observing and continuing to observe the express or implied covenant of quiet enjoyment under the lease. The thing of value which the lessee thereby receives is continuing use and occupation of the leased premises.