MSAUS Pty Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2012/1228; 2012/1265)
Judgment date: 31 August 2017
Date published: 17 December 2018

Summary of decision:
Outlines the ATO's 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.

Overview 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]

Issues decided:
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 decision upholding the effectiveness of the margin scheme conditions unmodified by the rectification deeds, and the decisions finding identical conditions ineffective in South Steyne and Hotel Apartment Purchaser [7] , the broader public interest is not served by an appeal. Clarification of how the special conditions in the MSAUS contract operated is unlikely to assist the community, given the consideration already given to them in other decided cases. Additionally, the High Court's decision in MBI Properties, that purchasers of leased residential premises make supplies by way of lease and can be subject to increasing adjustments, remains binding authority of general application notwithstanding this decision. | 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. | © AUSTRALIAN TAXATION OFFICE FOR THE COMMONWEALTH OF AUSTRALIA You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | You are free to copy, adapt, modify, transmit and distribute this material as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products). | [1] South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation [2009] FCAFC 155 (at [3, 50]). | [2] Hotel Apartment Purchaser v Commissioner of Taxation [2013] AATA 567. | [3] Federal Commissioner of Taxation v MBI Properties Pty Ltd [2014] HCA 49 (at [46]). | [4] MSAUS Pty Ltd v Commissioner of Taxation [2017] AATA 1408 (at [41]). | [5] Baird v BCE Holdings Pty Ltd (1996) 40 NSWLR 374 (at 384), CSD v Carlenka Pty Ltd (1995) 41 NSWLR 329 (at 345), cited. | [6] MSAUS Pty Ltd v Commissioner of Taxation [2017] AATA 1408 (at [44]), Davis v Federal Commissioner of Taxation [2000] FCA 44 (at [57]), quoted. | [7] Hotel Apartment Purchaser v Commissioner of Taxation [2013] AATA 567. | [8] cf Baxter v Federal Commissioner of Taxation [2002] FCA 1256 (at [25-26]), Chief Commissioner of State Revenue v Smeaton Grange Holdings Pty Ltd [2017] NSWCA 184 (at [10, 148-149]).

Administrative treatment:

Legislative references: ANTS(GST)A 1999 38-325 75-5 135-5
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