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  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.