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The ATO has issued a Decision Impact Statement in relation to the decision of the High Court in FCT v MBI Properties Pty Ltd [2014] HCA 49; 2014 ATC 20-474.

The case involved the application of Division 135 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) following the sale by South Steyne Hotel Pty Ltd (South Steyne) of three leased apartments (being residential premises) as a going concern to MBI Properties Pty Ltd (MBI). The lessee was Mirvac Management Pty Ltd (MML).

In the earlier decision of South Steyne Hotel Pty Ltd v FCT [2009] FCAFC 155 (South Steyne), the Full Court of the Federal Court had held that on purchase of the three leased apartments, MBI did not make any supply to MML. Instead, the Full Federal Court concluded that after the sale, there was a continuation of the existing leases South Steyne had granted MML.

The Commissioner later assessed MBI's net amount to include an increasing adjustment under s 135-5 of the GST Act. Subsection 135-5(1) of the GST Act provides for an increasing adjustment if an entity is supplied a going concern, and intends that some or all of the supplies made through the enterprise to which the supply of the going concern relates, will be input taxed supplies.

MBI appealed to the Federal Court after its objection to the assessment was disallowed. Griffiths J dismissed MBI's appeal at first instance, accepting the Commissioner's argument that continuation of the leases resulted in input taxed supplies of residential premises being made by South Steyne to MML through the enterprise MBI acquired as a GST-free going concern.

In MBI Properties Pty Limited v FCT [2013] FCAFC 112, the Full Federal Court allowed MBI's further appeal, holding that the only supply by way of lease occurred on grant of the leases by South Steyne to MML, and that that supply did not continue. Therefore, there was no input taxed supply which MBI could have intended would be made through the enterprise it acquired from South Steyne as a going concern.

The High Court unanimously held in a joint judgment that MBI was liable for an increasing adjustment under s 135-5. By assuming the lessor's rights and obligations under the leases, MBI intended to and did in fact make input taxed supplies of residential premises by way of lease to MML through the enterprise it acquired from South Steyne.

The Decision Impact Statement sets out the Administrative Treatment that the Commissioner intends to apply following the High Court's decision, including a review of GSTD 2012/1, GSTD 2012/2 and GSTR 2006/9.

In particular, the Decision Impact Statement notes that GSTR 2006/9 includes 16 propositions for characterising and analysing supplies. Proposition 5 is that an entity must do something to make a supply. The ATO intends to review proposition 5 in GSTR 2006/9, given the High Court's statement about it being incorrect to consider that the making of a supply must always involve the taking of some action on the part of the supplier.

The ATO also states that it welcomes comment on whether rulings other than GSTD 2012/1, GSTD 2012/2 and GSTR 2006/9 require review following the High Court's decision.


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