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19 Aug 13 GST: Purchaser of apartment liable to increasing adjustment - The Hotel Apartment Purchaser

The AAT has held that a partnership of husband and wife who purchased 2 apartments in the Sebel Manly Beach Hotel were liable to an increasing adjustment because of continuing input taxed supplies made in relation to the apartments.

The supply of each apartment by the vendor of the apartments (South Steyne Hotel Pty Ltd) was treated as GST-free under the going provisions in Subdiv 38-J of the GST Act. The apartments were made available to guests under a Serviced Apartment Management Agreement operated by Mirvac Hotels.

In relation to the question of whether the going concern exemption applied and, in particular, whether South Steyne had supplied all of the things necessary for the continued operation of an enterprise, the AAT said, at paras 44-45, as follows:

"Owning an apartment (as South Steyne did) and leasing it to a company (as South Steyne did) that was obliged to include the apartment in the operation of a serviced apartment business, in the expectation of a regular income flow, in respect of that apartment, from the lessee, are, in South Steyne’s circumstances, not only activities done in the form of a business, but also activities done on a regular or continuous basis in the form of a lease.

When South Steyne sold the First Apartment, and then again when it sold the Second Apartment, it supplied all the things necessary for the continued operation of each relevant enterprise. This is because, upon sale of each apartment, it was no longer possible for South Steyne to undertake the 'continued operation' of the identified enterprise since all of the things necessary for that to happen had been disposed of. That is precisely the state of affairs contemplated by s 38-325(2)(a) and it is precisely the state of affairs achieved."

The AAT also held that the 4 year period in which the Commissioner was permitted to issue an assessment commenced from the GST became "payable" in the sense of "capable of being recovered". This was the date specified in s 33-3 of the GST Act. It was not the last day of the quarter to which the liability related. In the circumstances of the case, the assessment had been issued within time.

The Hotel Apartment Purchaser and FCT [2013] AATA 567 (AAT, Frost DP, 13 August 2013).


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