Meridien Marinas Horizon Shores Pty Ltd v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (QUD 68/2009)
Judgment date: 24 December 2009
Date published: 12 February 2013
Decision outcome: Favourable. | Taxpayer filed a notice of discontinuance of its appeal to the Full Federal Court on 14 July 2010.

Summary of decision:
The case concerns whether s 87-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) applies to the supply of a leasehold interest over marina berths for a period of 20 years. Division 87 provides concessional GST treatment for a supply of commercial accommodation that is provided to an individual as long-term accommodation in commercial residential premises.

Overview of facts:
1. The appellant owns and operates a marina facility. In carrying on its enterprise, it entered into 118 leases, each for a term of 20 years, over berths in the marina. | 2. There were five versions of the lease instrument. While the initial version of the lease prohibited the lessee using the berth as a residence, the lessee was also required to comply with rules made from time to time. Under those rules, the lessee had to ensure that a vessel moored at the berth was not used as a permanent place for human habitation without first obtaining the written consent of the appellant. Subsequent versions of the lease provided that the lessee must not use the berth as a residence without obtaining the written consent of the appellant which would not be unreasonably withheld. | 3. It was a condition of the leases that the total amount of rent was payable upfront. Lessees also pay ongoing maintenance fees. | 4. Lessees are able to enter into a letting agreement with the appellant to have their berths included in the appellant's "rental pool", which are available for short term rentals. Under the letting agreement, the lessee exclusively appointed the appellant for the relevant period to manage the berth and exercise "absolute control" over the berth as the lessee's duly authorised agent for the purposes of negotiating and entering into rental arrangements in respect of the berth and to allocate the use of the berth to visitors to the marina on a temporary or intermittent basis. | 5. The lessees included corporations, corporate trustees, individuals, and individuals as trustees. Two leases were made with a company and individual jointly. | 6. The Commissioner determined that section 87-5 of the GST Act did not apply to the supply of the leasehold interest over the berths and issued a notice of assessment. The appellant objected against the assessment, the Commissioner disallowed the objection and the taxpayer appealed against the objection decision to the Federal Court. | 7. On 24 December 2009, Greenwood J gave judgment for the Commissioner. | 8. On 4 February 2010, the appellant filed an appeal to the Full Federal Court. | 9. On 14 July 2010, the appellant filed a notice of discontinuance of the appeal. | Issues decided by the court | Subsection 87-5(1) of the GST Act provides that the value of a taxable supply of commercial accommodation that: (a) is provided in commercial residential premises that are predominantly for long-term accommodation; and (b) is provided to an individual as long-term accommodation; is 50% of what would be the price of the supply would otherwise have been under the basic rules of the GST Act. | (a) is provided in commercial residential premises that are predominantly for long-term accommodation; and (b) is provided to an individual as long-term accommodation; is 50% of what would be the price of the supply would otherwise have been under the basic rules of the GST Act. | Section 87-15 provides that 'commercial accommodation' means the right to occupy the whole or any part of commercial presidential premises. | Subsection 87-20(1) of the GST Act provides that 'Long-term accommodation' is provided to an individual if commercial accommodation is provided, for a continuous period of 28 days or more, in the same premises: (a) to that individual alone; or (b) to that individual, together with one or more other individuals who: (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). | (a) to that individual alone; or (b) to that individual, together with one or more other individuals who: (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). | (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). | The Court found at [85] that the appellant failed to establish that it supplied commercial accommodation in commercial residential premises for the purposes of the GST Act. | In that regard, the Court concluded at [75] that the "right to occupy" contemplated by the definition of commercial accommodation is properly understood as a right to occupy the marina or a berth in the marina as a residence, in the sense of a right to stay rather than in any sense of permanent or long-term residence. This is consistent with the notion that a marina satisfying the description of commercial residential premises is a marina at which one or more of the berths are occupied, or to be occupied, by ships used as residences. The Court further held at [83] that the right to occupy must be conferred at the time of the taxable supply and cover the period of the lease (see [85] and [89]). | The Court also concluded at [38] that those lessees who had taken up the rental pool opportunity involving the potential for 'liveaboard' use enjoyed a consent or permission, either actually or constructively, from the appellant for the use of their berths for the mooring of a vessel for use as a residence. However, the Court found at [84] that there was no evidence to establish which of the long-term lessees acquired, at the date of the grant of each lease, a right to occupy a berth with a vessel for use throughout the period of the lease as a residence. | In addressing the Commissioner's argument concerning the requirement that the commercial accommodation be provided to an individual, the Court noted at [88] that paragraphs 87-5(1)(a) and (b) of the GST Act are concerned with the provision of commercial accommodation to an individual in the sense that ultimately a natural person will occupy the whole or a part of the commercial residential premises. However, the Court concluded that section 87-5 does not require the lease to be struck between the supplier and an individual. There may be a taxable supply of commercial accommodation to a range of entities, provided in commercial residential premises that are predominantly for long-term accommodation, in circumstances where a natural person exercises the right.

Issues decided:
Subsection 87-5(1) of the GST Act provides that the value of a taxable supply of commercial accommodation that: (a) is provided in commercial residential premises that are predominantly for long-term accommodation; and (b) is provided to an individual as long-term accommodation; is 50% of what would be the price of the supply would otherwise have been under the basic rules of the GST Act. (a) is provided in commercial residential premises that are predominantly for long-term accommodation; and (b) is provided to an individual as long-term accommodation; is 50% of what would be the price of the supply would otherwise have been under the basic rules of the GST Act. Section 87-15 provides that 'commercial accommodation' means the right to occupy the whole or any part of commercial presidential premises. Subsection 87-20(1) of the GST Act provides that 'Long-term accommodation' is provided to an individual if commercial accommodation is provided, for a continuous period of 28 days or more, in the same premises: (a) to that individual alone; or (b) to that individual, together with one or more other individuals who: (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). (a) to that individual alone; or (b) to that individual, together with one or more other individuals who: (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). (i) are also provided with that commercial accommodation; and (ii) are not provided with it at their own expense (whether incurred directly or indirectly). The Court found at [85] that the appellant failed to establish that it supplied commercial accommodation in commercial residential premises for the purposes of the GST Act. In that regard, the Court concluded at [75] that the "right to occupy" contemplated by the definition of commercial accommodation is properly understood as a right to occupy the marina or a berth in the marina as a residence, in the sense of a right to stay rather than in any sense of permanent or long-term residence. This is consistent with the notion that a marina satisfying the description of commercial residential premises is a marina at which one or more of the berths are occupied, or to be occupied, by ships used as residences. The Court further held at [83] that the right to occupy must be conferred at the time of the taxable supply and cover the period of the lease (see [85] and [89]). The Court also concluded at [38] that those lessees who had taken up the rental pool opportunity involving the potential for 'liveaboard' use enjoyed a consent or permission, either actually or constructively, from the appellant for the use of their berths for the mooring of a vessel for use as a residence. However, the Court found at [84] that there was no evidence to establish which of the long-term lessees acquired, at the date of the grant of each lease, a right to occupy a berth with a vessel for use throughout the period of the lease as a residence. In addressing the Commissioner's argument concerning the requirement that the commercial accommodation be provided to an individual, the Court noted at [88] that paragraphs 87-5(1)(a) and (b) of the GST Act are concerned with the provision of commercial accommodation to an individual in the sense that ultimately a natural person will occupy the whole or a part of the commercial residential premises. However, the Court concluded that section 87-5 does not require the lease to be struck between the supplier and an individual. There may be a taxable supply of commercial accommodation to a range of entities, provided in commercial residential premises that are predominantly for long-term accommodation, in circumstances where a natural person exercises the right.

ATO view of decision:
The Court's conclusion that the term 'commercial accommodation' as defined in s87-15 of the GST Act requires that the right to occupy the commercial residential premises must be for residential purposes confirms the ATO view. The right to occupy in this context must be conferred at the time the supply is made and extend for the full term of the supply (i.e. in this case the full term of the 20 year leasehold interest). | The Court also confirmed at [88] the ATO's view that commercial accommodation may be supplied to one entity (e.g. a company) but provided to a second entity (e.g. an individual). | Although not explicitly stated, it may be inferred from the Court's comments at [88] to [89] that the Court would have found that the requirements of subsection 87-20(1) would be satisfied where a supply of commercial accommodation is for 28 days or more and is able, under the terms of the agreement, to be taken up by an individual. It would not be necessary for the commercial accommodation to be actually taken up by an individual.

Administrative treatment:
Implications on current Public Rulings & Determinations | The Commissioner issued GSTR 2012/7 on 19 December 2012 which sets out the Commissioner's views on how Division 87 and section 40-35 of the GST Act apply to supplies of long-term accommodation in commercial residential premises. The views set out in GSTR 2012/7 apply the Court's decision. | Goods and Services Tax Bulletin GSTB 2003/2 Goods and Services Tax: Long-term accommodation at marinas was withdrawn on 19 December 2012.

Legislative references: New Tax System (Goods and Services Tax) Act 1999 (GST Act) 7-1 9-5 9-10 9-15 9-20 9-30 40-35(1) 87-1 87-5 87-15 87-20 87-25 184-1 195-1
Case references: HP Mercantile Pty Ltd v Commissioner of Taxation (2005) 143 FCR 553 2005 ATC 4571 (2005) 60 ATR 106 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Saga Holidays Ltd v Commissioner of Taxation (2005) 149 FCR 41 2006 ATC 4001 (2005) 61 ATR 384 Saga Holidays Ltd v Commissioner of Taxation [2006] FCAFC 191 (2006) 156 FCR 256 2006 ATC 4841 (2006) 64 ATR 602 Newcastle City Council v GIO General Ltd ( 1997) 191 CLR 85 CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 [1998] HCA 28 Network Ten Pty Limited v TCN Channel Nine Pty Limited (2004) 218 CLR 273 [2004] HCA 14 South Steyne Hotel Pty Ltd v Commissioner of Taxation (2009) 71 ATR 228 2009 ATC 20-090 [2009] FCA 13 71 ATR 228 South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation [2009] FCAFC 155 2009 ATC 20-145 (2009) 74 ATR 41 Marana Holdings Pty Ltd v Commissioner of Taxation [2004] FCAFC 307 (2004) 141 FCR 299 2004 ATC 5068 57 ATR 521
Subject references: Goods & Services Tax (GST) Supply of commercial accommodation to an individual Long term accommodation Commercial residential premises Right to occupy