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17 Jun 09 Assignment of newly constructed residential premises input taxed - Gloxinia

The Federal Court (Emmett J) has held that the assignment of a leasehold of residential premises in a newly constructed apartment building is an input taxed supply within the meaning of the GST Act. Although the residential premises were newly constructed, they were not "new residential premises" within the meaning of s 40-75(1) of the GST Act because they had previously been the subject of a long term lease, albeit briefly, granted by the owner of the freehold (Woollahra Municipal Council) to the taxpayer as developer. His Honour said, at para 23:

"The Commissioner contends that the construction contended for by Gloxinia does not preserve the essential characteristics of GST as a value added tax. He says that a construction that preserves the character of GST as a value added tax ought to be preferred over a construction that seeks to avoid the object and purpose of GST. The Commissioner’s approach may be appropriate where there is some ambiguity in the language of a provision of the GST Act. However, there is no ambiguity in the language of s 40-75(1)(a). It may be that the consequence contended for by Gloxinia was not foreseen by the drafter of s 40-75(1)(a). Such an inference may possibly be drawn from the subsequent provisions of s 40-75(1). Be that as it may, however, that is not a basis for reading the words of s 40-75(1)(a) in a way that is different from the way in which they would clearly be understood as a matter of ordinary English. At the time of an assignment the relevant residential premises will have been the subject of a long term lease, namely, the relevant Strata Lot Lease granted by the Council to Gloxinia in respect of the relevant unit or apartment. It is not to the point, as the Commissioner contends, to say that the construction contended for by Gloxinia is divorced from the economical reality of the transaction between it and the Council. Either the transaction falls within the provisions or it does not."

Gloxinia Investments Limited as Trustee for Gloxinia Unit Trust v FCT [2009] FCA 641 (Federal Court, Emmett J, 12 June 2009).
 
For a copy of the decision, go here

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