Decision impact statement

MSAUS Pty Ltd v Commissioner of Taxation

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Court Citation(s):
[2017] AATA 1408
2017 ATC 10-463

Venue: Administrative Appeals Tribunal
Venue Reference No: 2012/1228; 2012/1265
Judge Name: BJ McCabe DP
Judgment date: 31 August 2017
Appeals on foot: No
Decision Outcome: Unfavourable to the Commissioner

Impacted Advice

Relevant Rulings/Determinations:

• None

Précis

Outlines the ATOs response to this case which decides that certain purchasers of residential premises in a property development did not have increasing adjustments for GST purposes, despite the Full Federal Court holding otherwise in an earlier case.

Brief summary of facts

MSAUS bought residential premises subject to an existing lease, agreeing the supply was GST-free as a going concern. If the lease was input taxed however, special conditions in the contract sought to apply the margin scheme. The Full Federal Court and the High Court had previously considered the GST consequences surrounding the sale of other leased residential premises in the same development. In South Steyne,^[1] the Full Federal Court held that identical conditions were ineffective to apply the margin scheme. The AAT had also reached a similar conclusion in the Hotel Apartment Purchaser case.^[2] In MBI Properties, the High Court found that a different purchaser in the same circumstances made an input taxed supply and was subject to an increasing adjustment.^[3] Unlike the other decided cases, MSAUS and the vendor later entered into 'deeds of rectification' to remove retrospectively the going concern clause from their sale contract.

Issues decided by the tribunal

The AAT decided it wasn't bound by South Steyne. It held that the special conditions were effective to apply the margin scheme, and that there was no increasing adjustment. Incidental comments were made about the 'deeds of rectification'.

Rectification by order - McCabe DP commented on a 2016 deed seeking to rectify the sale contract made 10 years earlier. He said it 'would have been preferable' had MSAUS sought orders from the Supreme Court. Orders of this kind would rectify the sale contract retrospectively, 'bind third parties', and avoid the 'current uncertainty'.^[4] However, McCabe DP accepted there was no certainty a court would have ordered rectification in the circumstances of the MSAUS case, 'especially if the Commissioner opposed that outcome'.^[5]

Rectification by deed - McCabe DP said that, even if the contract could be rectified by deed, it was an 'interesting question' as to how margin scheme requirements could be met in any case.^[6]

ATO View of Decision

Despite the tension between this case on the one hand and South Steyne and Hotel Apartment Purchaser on the other,^[7] the broader public interest is not served by an appeal seeking clarification of how the special conditions in the sale contract at issue in MSAUS operated.

Further, as the Commissioner understands it, 'rectification by deed' for the purpose of changing how the tax law has applied to an earlier transaction is not established as a general principle.^[8] Accordingly, the Commissioner is not bound to accept at face value a deed of this kind executed by private parties. In the absence of court orders, the public interest does not compel the Commissioner unilaterally agreeing to change how the tax law has already applied to an earlier transaction.

Comments

We invite you to advise us if you feel this decision has consequences we have not identified. Please forward your comments to the contact officer.

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Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
Section 38-325
Section 75-5
Section 135-5

Case References:
Federal Commissioner of Taxation v MBI Properties Pty Ltd
(2014) 254 CLR 376
[2014] HCA 49
92 ATR 241
2014 ATC 20-474

South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation
(2009) 180 FCR 409
[2009] FCA 13
2009 ATC 20-145
74 ATR 41

Baxter v Federal Commissioner of Taxation
[2002] FCA 1256
2002 ATC 4917
(2002) 51 ATR 209

Davis v Federal Commissioner of Taxation
[2000] FCA 44
2000 ATC 4201
(2000) 44 ATR 140

Re Hotel Apartment Purchaser and Federal Commissioner of Taxation
2013 ATC 1-055
[2013] AATA 567

Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd
[2017] NSWCA 184

Baird v BCE Holdings Pty Ltd
(1996) 40 NSWLR 374

CSD v Carlenka Pty Ltd
(1995) 41 NSWLR 329