Commissioner of Taxation v MBI Properties Pty Ltd

The High Court has unanimously allowed an appeal from a decision of the Full Federal Court on ‘increasing adjustments’ and the meaning of ‘supply’ under s 135-5 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth). MBI Properties Pty Ltd bought three apartments from South Steyne Hotel Pty Ltd that were part of a serviced apartment scheme run by a third company, Mirvac (MML), under a lease agreement with South Steyne. In an earlier proceeding, MBI unsuccessfully applied to the Federal Court for a declaration that MBI’s supply to Mirvac was not input taxed. On appeal the Full Court held that the apartments were ‘residential premises’ for GST purposes and the sale to MBI was GST-free as the supply of a going concern. The Commissioner then assessed MBI for tax on an increasing adjustment under s 135-5. The FCAFC found in favour of MBI, holding that the only supply was the grant of the lease, and that following the sale of the apartments by South Steyne to MBI there was no continuing supply, but ‘merely a continuing of the lease’ (at [29]).

On appeal the to the High Court, the issues were whether MBI, in purchasing the reversionary estate in the apartments, made a ‘supply’ to MML as tenant for the period of each lease after the completion of the purchase; and, if so, whether there was a ‘price’ for that supply for the purpose of calculating the increasing adjustment (at [32]). The Court unanimously held that MBI had made a supply for a price. Taking a broad reading of the idea of supply in s 9-10, the Court held that there was no reason, either in the wording or policy of the Act, for focusing solely on a supply that occurs at the time of entering into a lease but not also extending that meaning to a later supply that occurs where a lessor observes and continues to observe an express or implied covenant of quiet enjoyment under the lease: [38]. The price requirement was fulfilled by the rent MML would pay to MBI: [45].

High Court Judgment [2014] HCA 49 3 December 2014
Result Appeal allowed
High Court Documents MBI Properties
Full Court Hearings [2014] HCATrans 241 4 November 2014
[2014] HCATrans 200  10 September 2014
Special Leave Hearing [2014] HCATrans 76 11 April 2014
Appeal from FCAFC [2013] FCAFC 112 18 October 2013
Trial Judgment, FCA
[2013] FCA 56  6 February 2013