What does the MBI decision mean for the retirement village sector?

By Rhys Guild and Rebecca Healy

The Full Federal Court handed down its appeal decision in MBI Properties Pty Ltd v Commissioner of Taxation [2013] FCAFC 112 on 18 October 2013, regarding the goods and services (GST) consequences arising from the sale of leased residential property as a going concern.

The key issue considered in this case was whether a purchaser was liable to pay GST under Division 135 of the GST Act when they bought a leased residential building as a GST-free going concern. Until this case, it had been widely accepted (and vigorously asserted by the ATO) that such a liability was triggered by the purchaser making input-taxed supplies of leasing residential premises under the existing leases.

However, somewhat surprisingly, the Full Federal Court held that the purchaser could not be liable for the Division 135 GST liability because it did not make a supply of those leases. In other words, the leases were a supply made by the vendor when they were originally granted, so because the purchaser did not make any new supply it could not be subject to the Division 135 GST liability…

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