Partial victory for taxpayers in serviced apartments GST test case - South Steyne
23 Nov 2009
The Full Federal Court (Finn and Emmett JJ, Edmonds J dissenting) has upheld, in part, the taxapyers' appeal in the test case brought in relation to 4 different types of supply of 83 strata titled, serviced apartments in a hotel complex.
The trial judge (Gordon J) held that:
1. The supply by way of separate lease of each apartment to a management company was a supply of residential premises to be used predominantly for residential accommodation within the meaning of s 40-35 of the GST Act and therefore that each such supply was input taxed. Gordon J rejected the taxpayer's arguments that the premises were not "residential premises" or, alternatively, were "commercial residential premises".
2. The sale of the apartments to investors, subject to the leases to the management company, did not attract the "going concern" provisions of the GST Act because of the terms of the contract between vendor and purchaser.
3. The supply by the purchaser of apartments as a consequence of it taking title subject to the ongoing lease to the management company was a supply by way of lease that was also input taxed. Accordingly, Gordon J declined to make a declaration requested by the taxpayers that the supply was not input taxed.
4. The supply of accommodation services to a guest of the hotel was not input taxed but a taxable supply.
Finn, Emmett and Edmonds JJ dismissed the taxpayers' appeal in relation to the first, third and fourth supplies, finding no error in the trial judge's reasoning in relation to the first and fourth supplies. In relation to the third "supply", their Honours held that there was in fact no supply by the purchaser when they acquired the reversion to the leases. However, their Honours held that the trial judge was correct in refusing the declaration sought by the taxpayers.
However, in relation to the second supply, Finn and Emmett JJ (Edmonds J dissenting) held that the terms of the contract between the vendor and the purchaser were effective to attract the "going concern" provisions contained in s38-325 of the GST Act, such that the sale was GST-free. The taxpayers' appeal in this respect was upheld.
South Steyne Hotel Pty Ltd v FCT  FCAFC 155 (Full Federal Court; Finn, Emmett and Edmonds JJ; 20 November 2009).
For a copy of the decision, go here