Case: Sterling Guardian Pty Limited v Federal Commissioner of Taxation [2005] FCA 1166
Outcome: distinguished
The first instance decision in Sterling Guardian Pty Limited v Federal Commissioner of Taxation [2005] FCA 1166 per Stone J, and the Full Court decision in Sterling Guardian Pty Ltd v Commissioner of Taxation [2006] FCAFC 12 ; (2006) 149 FCR 255, did not directly consider the operation of the provisions before me, and the purchase of the land there was completed before 1 July 2000, although the relevant stratum units were not registered under the relevant legislation until 2 March 2002. The focus of the Court's attention in that case was upon the operation of s 75-5(2) of the GST Act. 38 The applicant also relied upon some observations of Stone J in Sterling [2005] FCA 1166. In the course of her judgment, her Honour made the following comments: Although it is common to speak of the "stratum units" or "home units" being sold, technically it is the fee simple estate in the relevant stratum unit, being the lot(s) and common property, that is the subject matter of the sale. The fee simple is a proprietary interest in land and, as with all interests (as opposed to the subject of those interests), it is intangible. The point is made in the following extract from an essay by K Gray and SF Gray, "The Idea of Property in Law" in Land Law: Themes and Perspectives , Bright and Dewar eds, 1998 at p 15: '[T]he beginning of truth about property is the realization that property is not a thing but rather a relationship which one has with a thing. It is infinitely more accurate, therefore, to say that one has property in a thing than to declare that the thing is one's property. To claim property in a resource is, in effect, to assert a strategically important degree of control over that resource; and to conflate or confuse this relationship of control with the actual thing controlled may often prove to be an analytical error of some substance.' The attraction of the identity submission diminishes somewhat when its implications are considered. If that approach is correct, s 75-5(2) does not apply in this case because the taxable supplies acquired for the purpose of building the home units were of property that is not identical to the stratum units that were sold. It follows that the margin scheme could apply to any such development, even if the land subject to the development was acquired pursuant to a taxable supply. In other words, on the applicant's approach, a developer could buy the land, the construction materials and everything else required for the building of home units pursuant to a taxable supply and still pay GST only on the margin which, in general terms, is the difference between the costs and the sale price. It would be irrelevant whether the land was acquired before or after the commencement of the GST Act. That would not be the case, however, for a developer who bought individual lots for development as individual residences rather than for strata development. ... The respondent submitted that the GST Act is not concerned with whether property in land is a matter of physical fact or abstract right but rather with supplies as business transactions "made in the course or furtherance of an enterprise that you carry on"; s 9-5. According to the respondent, the GST Act proceeds "on the basis that a supply of real property is a supply of tangible asset" not the disposal of an intangible interest or bundle of rights. Putting the matter another way, one can say that the applicant acquired the Camperdown land (technically the fee simple estate in the land) prior to the GST Act commencing and disposed of it after subdivision by registration of the Strata Plan and construction of the home units. The disposition was piecemeal as each stratum unit was sold but ultimately the whole of the land (or the entire interest) that was acquired was sold. The reference in s 75-15 (see [12] above) to the stratum unit supplied being a supply of "part of the land" acquired supports this practical analysis rather than a technical legal analysis. Had the latter approach been intended one might expect the section to refer to the part as being less than the whole of the interest in the land rather than to the land itself. This practical approach is consistent with the approach taken by Mason J in Moruben Gardens Pty Limited v Federal Commissioner of Taxation (1972) 46 ALJR 559 at 562. The respondent's approach is also supported by the role of the margin scheme and the context in which it operates as described above ... . The explanation given in the EM ... makes it abundantly clear not only that GST is only payable on value added after the GST Act commenced on 1 July 2000 but also that the cost of improvements to the property made since that date could not be taken into account when calculating the original purchase price. The EM ignores the fact that improvements may not only have added to the value of the real property but become, in law, part of the real property. It is not the juridical nature of the improvements that is critical but the fact that they have been brought about pursuant to a taxable supply. The clear thrust of the GST Act, both in its wording and as explained in the EM, is that of a practical business tax imposed with respect to elements of commerce. As Senior Counsel for the respondent pointed out, although in economic terms the burden of the GST is borne by the ultimate consumer, in terms of "imposition, collection and administration" it is a tax on business. It is for the taxpayer to prepare business activity statements and pay the appropriate GST and in this context abstract propositions about interests in land and the acquisition of a brand new set of rights arising from registration of a strata plan are irrelevant. ... [T]he applicant's submissions are not consistent with this purpose. For these reasons I do not accept the applicant's identity submission. In my view, it therefore follows that unless the margin on which the GST is payable is to be calculated without reference to the non-land costs the application of the margin scheme would be precluded by s 75-5(2) of the GST Act. 39 The reference to the 'identity submission' was a similar submission to the one addressed above, but her Honour was not specifically dealing with the operation of s 75-10(3) or s 75-10(2), but s 75-5(2) of the GST Act. Her Honour did not consider the specific wording of s 75-10(3) or s 75-10(2), or the factual scenario before me. In my view, the comments of Stone J do not lead in this proceeding to the applicant's construction of s 75-10(3) being accepted. 40 Whilst my above conclusion as to the proper interpretation to be given to s 75-10(3) disposes of this proceeding in favour of the respondent, it is appropriate to make some further observations on submissions made by the parties in respect of this first issue.