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The Federal Court (Griffiths J) has held that the taxpayer purchaser of a "going concern", which was a GST-free supply for the vendor, was liable to GST by way of an increasing adjustment under s 135-5 of the GST Act 1999, because the taxpayer purchaser intended that supplies would be made that were neither taxable supplies nor GST-free supplies.

The taxpayer purchased 3 apartments that were subject to leases previously granted by the vendor to Mirvac Management Pty Limited (Mirvac). Under the terms of the leases, Mirvac was obliged to operate a scheme whereby each apartment was, together with all other apartments, to be operated as part of a serviced apartment business. In South Steyne Hotel Pty Ltd v FCT [2009] FCAFC 155, the Full Federal Court had held that the supplies of the leases by the vendor were supplies of residential premises for residential accomodation and were thus input taxed. In contrast, the Full Federal Court held that no further or separate supplies were made by the taxpayer purchaser to Mirvac following its acquisition of the reversionary interests in the each of the 3 apartments.

The taxpayer argued, amongst other things, that the supplies to which s 135-5(1) is referring in para (b) are supplies by it, not supplies by third parties such as the vendor. Further, the taxpayer argued that the use of the words "will be" necessarily refers to supplies made following the taxpayer purchaser's acquisition, not before.

Griffiths J rejected all of the taxpayer's arguments and held that the increasing adjustment was correctly imposed. For example, his Honour said at para 32:

"Thirdly, I should add that, in any event, I consider that the terms 'will be' are sufficiently broad to cover the situation where supplies continue to be made through an enterprise, as is the case here. I accept the Commissioner’s contention that all s 135-5(1)(b) requires in the circumstances here is that MBI intend that the leases granted by South Steyne [the vendor] to Mirvac Management in relation to the 3 apartments (constituting the input taxed supplies of residential premises) would continue to be made through the enterprise of the serviced apartment business which MBI acquired from South Steyne as a going concern."

MBI Properties Pty Ltd v FCT [2013] FCA 56 (Federal Court, Griffiths J, 6 February 2013).


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