Once again the Federal Court has found a new way to look at the most fundamental definition in the GST Act – a “supply”.
In the MBI Case the Federal Court found that Division 135 did not apply. Division 135 stops this idea…
I am buying your warehouse (commercial real property so GST applies) but i am going to turn it into loft apartments I am going to rent out (input taxed supply of residential premises). As such, I will not be able to claim back the GST you charge me… But what if we argue the supply you make to me is a GST free going concern. Now you don’t have to charge me GST.
Division 135 states that if I buy something as a going concern and use it making input taxed supplies, exactly like the above, an increasing adjustment arises.
In MBI the taxpayer purchased a unit in a serviced apartment as a going concern and, just like the vendor, leased it to a management company to lease it out to the public. Sounds like Division 135 will apply.
But not according to the Full Federal Court. They accepted (aka “fell for”) the taxpayer’s argument that the supply made by the vendor under the going concern was a “granting” of a lease, not the lease itself. This supply of “granting” a lease was never used by the purchaser in an input taxed way, so Division 135 did not apply.
So the supply was defined form a literal rather than a practical perspective and led to a ridiculous outcome.
But remember the Federal Court also found that there was no supply by Qantas when people did not turn up for their flight… A decision laughed off by the High Court who took a practical rather than a literal view of what is a supply.
And remember the Federal Court also found that there was no supply on a forfeited deposit in Reliance Carpets… A decision laughed off by the High Court who took a practical rather than a literal view of what is a supply.
No points for guessing what the High Court will do.
Maybe the Federal Court might one day accept it is the Federal Court and not the High Court, read the Constitution (i can’t talk as I failed Constitutional Law) and start making GST decisions that the High Court does not need to overturn. I can only hope…