Serviced apartment attracted GST-free going concern treatment
In a test case on the GST implications of supplies in relation to strata titled serviced apartments in a hotel complex, the Full Federal Court has partly upheld the taxpayers’ appeal. Justices Finn and Emmett (Edmonds J dissenting) held that the sale of apartments to investors, subject to leases to a management company, was GST-free as a “going concern” under section 38-325 of the GST Act. Briefly, South Steyne (the first appellant) purchased the Sebel Hotel and strata titled apartments together with a management lot in the building (consisting of reception, offices and car parking). South Steyne then transferred the management lot to Mirvac Hotels, and granted a lease to Mirvac Management in respect of each of the apartments for operation as part of a serviced apartment business. South Steyne later sold the apartments subject to the management lease to MBI Properties (the second appellant). An employee of Morgan & Banks Investments (the third appellant) stayed in a serviced apartment as a guest at the Sebel Hotel.
At first instance, the trial judge, Justice Stone, considered the GST treatment of four different categories of supply in the arrangement:
The granting of leases to the management company (finding it was an input taxed supply of residential premises to be used predominantly for residential accommodation within s 40-35 of the GST Act). The sale of the apartments to investors, subject to the leases (finding it was not a GST-free going concern, and was therefore subject to GST). The continuation of the leases to the management company by investors who purchased the apartments (finding it was input taxed). The supply of accommodation services to a guest of the hotel (finding it was a taxable supply of commercial residential premises).
Their Honours dismissed the taxpayers’ appeal in relation to the first, third and fourth supplies, finding that there was no error of law in the trial judge’s reasoning in respect of the first and fourth supplies. In relation to the third category, the court found there was no supply by the purchaser, only subsequent attribution of the consideration under s156-5 of the GST Act.