Decision impact statement
Meridien Marinas Horizon Shores Pty Ltd v Commissioner of Taxation
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Court Citation(s):
[2009] FCA 1594
2009 ATC 20-158
74 ATR 787
(2009) 221 FCR 534
Venue: Federal Court of Australia
Venue Reference No: QUD 68/2009
Judge Name: Greenwood J
Judgment date: 24 December 2009
Appeals on foot:
No.
Impacted Advice
Relevant Rulings/Determinations: Impacted Practice Statements:- N/a
Subject References:
Goods & Services Tax (GST)
Supply of commercial accommodation to an individual
Long term accommodation
Commercial residential premises
Right to occupy
Précis
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.
Decision Outcome
Favourable.
Taxpayer filed a notice of discontinuance of its appeal to the Full Federal Court on 14 July 2010.
Brief summary 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.
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).
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.
Tax Office 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, the Court's comments at [88] to [89] may be construed as suggesting that the requirement that the commercial accommodation be provided to an individual as referred to in sections 87-5, 87-10 and 87-20 does not require the identification, at the time of the supply, of a specific individual to whom the commercial accommodation will be provided.
Administrative Treatment
Implications on current Public Rulings & Determinations
We are updating GSTR 2000/20 to take account of this judgement as part of the current review of GSTR 2000/20 and concurrently reviewing Goods and Services Tax Bulletin GSTB 2003/2. The review is considering in particular the implications of paragraphs [88] to [89] of the judgement as noted above.
Implications on Law Administration Practice Statements
None
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