GST bill following hotel apartment purchases
The AAT has affirmed the Commissioner's decision that a taxpayer had an increasing adjustment under Div 135 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) in relation to two apartments purchased in a hotel complex.
Background
The taxpayer, a husband and wife partnership (registered for goods and services tax (GST)), purchased two apartments in the complex. The first purchase took place on 1 September 2006 and the second on 18 January 2008. The taxpayer paid $508,000 in each instance. The original owner of the apartments had previously granted leases in respect of each apartment to a hotel management company that was obliged to essentially operate a serviced apartment business. The purchases of the apartments were subject to the leases granted to the hotel management company. The taxpayer also elected to participate in a management rights scheme, which allowed the hotel management company to use the apartments for "letting purposes" in the serviced apartment business in exchange for specified returns and income generated by the serviced apartment business.
The supply of each apartment was treated as GST-free under the "going concern" provisions in the GST Act. Since their purchase, the apartments had been operated as part of the serviced apartment business. The Commissioner claimed that the taxpayer had an "increasing adjustment" because of continuing input taxed supplies made in relation to the apartments.
The AAT noted that the hotel complex itself had become well known in GST circles through previous litigation, including MBI Properties Pty Ltd v FCT [2013] FCA 56 and South Steyne Hotel Pty Ltd v FCT (2009) 74 ATR 41.
Decision
The AAT affirmed the Commissioner's decision. It held that the original owner had supplied all the things necessary for the continued operation of each relevant enterprise and that the original owner had carried on an enterprise until the day of the supply – therefore, there was a supply of a going concern under s 38-325(2).
The AAT identified the "activities" – and therefore the "enterprise" that was disposed of by the original owner – as, broadly, the owning of an apartment and the leasing of it to a company that was obliged to operate a serviced apartment business in return for regular income from the lessee. It held that those "activities", in the original owner's circumstances, were not only activities done in a form of a business, but were also activities done on a regular or continuous basis in the form of a lease (per s 9-20(1)(a) and (c) of the GST Act).
The AAT also held that the original owner and the taxpayer had agreed in writing, for each apartment, that the supply was a going concern (per s 38-325(1)(c) of the GST Act) – therefore, the supply of the going concern was GST-free. In this regard, the AAT was not of the view that a "contingency" in the relevant contracts (ie if GST was to apply, then the sale of the property was a taxable supply, and the parties agree that the margin scheme applied) actually made the supply a taxable supply.
The AAT noted that the taxpayer had conceded that if there were supplies of going concern and there were written agreements to that effect, then it had increasing adjustments under s 135-5 of the GST Act since, on the basis of the MBI case, the taxpayer must be taken to have intended that supplies made through the enterprise would be supplies that are neither taxable supplies nor supplies that are GST-free.
The AAT also held that the Commissioner's "Notice to Repay" issued on or around 15 February 2011 was not issued out of time, to the extent that it related to the increasing adjustment for the December 2006 quarter. It held that the Commissioner had until the end of 28 February 2011 to issue the Notice to Repay. The AAT also held that the "proportion of non-creditable use" in this case was 100% (for the purposes of the increasing adjustment calculation contained in s 135-5(2)). It said the "only supplies made through the 'enterprise to which the supply relates' are the input taxed supplies that continue under the leases granted by [the original owner] to the [hotel management company]".
Re The Hotel Apartment Purchaser and FCT [2013] AATA 567, www.austlii.edu.au/au/cases/cth/AATA/
2013/567.html.
