Buyer beware – GST can be imposed on the sale of a going concern – The MBI Properties case
What happened?
In MBI Properties Pty Ltd v Commissioner of Taxation1, an increasing adjustment of 10% of GST was made to the GST-free purchase price that MBI Properties had paid for buying three serviced apartments as a going concern.
In brief, the Court held that such an increase was warranted because the serviced apartment business was making input taxed supplies (because the purchase included an assigned lease in favour of a hotel operator to manage the apartments). The crucial point is that this meant MBI Properties could not claim a credit for that GST adjustment.
What does this mean for you?
It has become very common for property developers to buy old hotels, refurbish the rooms, and then to lease out these new “apartments” to hotel operators to manage the apartments.
Investors who buy such apartments as going concerns should be aware of the various GST pitfalls if these apartments are subject to such reversionary interests (e.g. the input taxed supply of a lease to the hotel operators).
How can Nexia help you?
If you are thinking of investing in the property industry or of buying a property as a going concern, it is important that you are aware of all the GST and income tax issues that may affect your proposed transaction.
To avoid an increasing adjustment of GST when buying a property as a going concern, it is therefore very important to scrutinise the contract of sale to determine whether any input taxed supplies are included in the purchase.
We can assist with this process and help you comply with all your GST and income tax obligations relating to any property investment you may have.
Furthermore, if you have any questions about any property issues in general, please contact your Nexia Adviser.
1 [2013] FCT 56, Wednesday 6 February 2013.
