MBI PROPERTIES PTY LTD v FC of T

Judges:
Griffiths J

Court:
Federal Court, Sydney

MEDIA NEUTRAL CITATION: [2013] FCA 56

Judgment date: 6 February 2013.

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Griffiths J

1. The proceedings raise for determination the effect of certain provisions of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) ( the GST Act ) relating to "increasing adjustments". Ordinarily, the vendor of a GST-free supply of a going concern incurs no GST liability in respect of such a sale by operation of Subdivision 38-J of the GST Act. However, Division 135 may operate to impose on the recipient of such a going concern a GST liability by way of an increasing adjustment in respect of such a purchase, to the extent that the recipient intends that some or all the supplies made through the enterprise to which the going concern relates will be supplies that are not taxable supplies nor GST-free supplies.

2. A primary issue in the proceedings is whether, for an increasing adjustment to arise in respect of a going concern, s 135-5(1)(b) of the GST Act requires that the recipient intends that it (and not some other person) makes some or all of the supplies through the relevant enterprise.

3. The proceedings arise against the background of the acquisition by the applicant of 3 apartments which were subject to certain leases and used as part of a serviced apartment business. The GST treatment of some supplies which occurred as part of the overall events were the subject of earlier proceedings in the Court, initially before Stone J (
South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation (2009) 71 ATR 228) and, on appeal, before Finn, Emmett and Edmonds JJ (
South Steyne Hotel Pty Ltd v Federal Commissioner of Taxation (2009) 180 FCR 409). It is convenient to defer further discussion of those earlier proceedings until after summarising the facts underpinning the current proceedings.

Summary of background facts

4. There is no dispute about the essential facts bearing upon the issue whether MBI has an increasing adjustment under s 135-5(1) of the GST Act. They can be stated briefly as follows:

• • on 8 December 2000, South Steyne Hotel Pty Limited ( South Steyne ) purchased the Radisson Kestrel Hotel (which later became the Sebel Manly Beach) ( the hotel );
• • on 10 August 2006, a strata plan was finalised, under which each of the 83 individual apartments in the hotel and the management lot (comprising the reception area, offices and car parking spaces) became separate lots;
• • on 29 September 2006, South Steyne:
  • (a) transferred the management lot to Mirvac Hotels Pty Limited ( Mirvac Hotels ); and
  • (b) granted to Mirvac Management Pty Limited ( Mirvac Management ) a separate 10 year lease in identical terms in respect of each of the 83 apartment lots of that strata plan. Under each lease, Mirvac Management was obliged to operate a scheme whereby each apartment was, together with all other apartments, to be operated as part of a serviced apartment business ( the Scheme ). Details of the Scheme were set out in an annexure to each lease, including the payments to be made to the owners of apartments who leased their apartments to Mirvac Management for use as part of the serviced apartment business;
• • pursuant to a separate agreement dated 11 January 2006 (called the Serviced Apartment Management Agreement) involving Mirvac Hotels and Mirvac Management, Mirvac Hotels assumed exclusive control of the operation of the serviced apartment business. Under this agreement, Mirvac Management also conferred upon Mirvac Hotels the benefit of its rights under the leases entered into on 29 September 2006;
• • by three separate contracts each titled "Contract for the Sale of Land" dated 31 October 2007, South Steyne sold 3 of the 83 apartments (numbers 111, 304 and 604) to MBI (which was a related company to South Steyne). Each apartment was sold subject to the applicable lease that had been granted to Mirvac Management and each contract of sale permitted MBI to participate in the Scheme; and
• • MBI elected to participate in the Scheme.

The earlier proceedings in the Court

5. On 16 June 2009, Stone J dismissed an application brought by several applicants (including South Steyne and MBI) seeking various declaratory orders in relation to the GST treatment of what were described as four "categories of supply" arising from the events summarised above.

6. The relevant issues in dispute in the proceedings before Stone J and subsequently on appeal were as follows:

• (a) The first category of supply: Did South Steyne make supplies of "residential premises" within the meaning of Division 40 of the GST Act when it entered into the 83 apartment leases with Mirvac Management and, if so, what was the character of those supplies? The Full Court agreed with Stone J that these supplies were of residential premises to be used predominantly for residential accommodation and thus were an input taxed supply of residential premises under s 40-35(1) of the GST Act (Finn J at [1], Emmett J at [30] and Edmonds J at [86]);
• (b) The second category of supply: Were the sales of the 3 apartments to MBI GST-free supplies of a going concern for the purposes of s 38-325 of the GST Act? Contrary to Stone J's view, the Full Court held by majority (Finn J at [3] and Emmett J at [50]) that they were and granted declaratory relief accordingly;
• (c) The third category of supply: Were the leases granted to Mirvac Management by MBI in consequence of its acquisition of the 3 apartments input taxed (as argued by the Commissioner) or taxable supplies by way of the continuation or toleration of the existing leases (as argued by MBI and South Steyne)? The Full Court rejected both those arguments and found that MBI did not make any supply to Mirvac Management (whether under s 40-35 of the GST Act or otherwise) following its acquisition of the reversionary interests in each of the 3 apartments it acquired from South Steyne (Finn J at [1], Emmett J at [34] and Edmonds J at [76]). Their Honours held that there was no third category of supply; rather the first category of supply (relating to South Steyne's grant of leases to Mirvac Management) merely continued after MBI purchased its reversionary interest in the 3 apartments; and
• (d) The fourth category of supply: Was the supply of a hotel room to a guest an input taxed supply of residential premises or a taxable supply of accommodation in commercial residential premises? Which was the entity that made the supply? By majority (Finn J at [4] and Emmett J at [42]), the Full Court agreed with Stone J and held that the supply was a taxable supply of accommodation in commercial residential premises by Mirvac Hotels acting as principal and not as agent of Mirvac Management.

7. It is convenient at this point to mention Division 156 of the GST Act and the way in which it was dealt with by the Full Court in South Steyne. As will emerge below, the significance of Division 156 was also raised in argument before me.

8. Division 156 appears in Chapter 4 of the GST Act, which sets out special rules which apply only in particular circumstances and, according to s 45-1, "are generally quite limited in their scope". The special rules modify the application of the basic rules for the GST set out in Chapter 2. Division 156 deals with supplies and acquisitions made on a progressive or periodic basis. Under Division 156, supplies and acquisitions made for a period or on a progressive basis are treated as separate supplies or acquisitions for particular purposes, including "the attribution rules" (see s 29-5).

9. It is important to note that Division 156 applies only in respect to taxable supplies. In other words, it has no application to input taxed supplies. Under s 156-5, the GST payable on a taxable supply that is made for a period or on a progressive basis and for consideration that is provided on a progressive or periodic basis is attributable, in accordance with s 29-5, as if each progressive or periodic component of the supply were a separate supply. Section 156-22 makes it clear that a supply or acquisition by way of lease is to be treated as a supply or acquisition that is made on a progressive or periodic basis for the period of the lease. Under s 29-5, the GST payable on a taxable supply is attributable to the tax period in which any of the consideration for the supply was received or, if before any of the consideration is received, an invoice is issued relating to the supply, the tax period in which the invoice is issued.

10. It is evident that in South Steyne the Full Court considered that Division 156 applied to the facts there, and, in particular, to the situation where there was a continuation of the first category of supply when MBI purchased the reversionary interest in the 3 apartments. In finding that there was no further supply merely by reason of the continuation of the leases after the sale of the reversion to MBI, both Emmett J (with whom Finn J agreed) and Edmonds J stated that the situation was covered by Division 156 (see Emmett J at [32] and [34] and Edmonds J at [76]). Their Honours made those findings notwithstanding that they also determined that the granting of the leases by South Steyne to Mirvac Management did not constitute taxable supplies, but were input taxed supplies pursuant to Division 40-35 of the GST Act. This seems curious in circumstances where Division 156 only applies to taxable supplies. But I am of course bound to follow the Full Court's finding that the first category of supply was not a taxable supply and also that it continued on MBI's purchase of the reversion.

11. In oral argument before me, the Commissioner acknowledged that the Full Court's observations on Division 156 created some difficulties, but he emphasised that he placed no reliance on Division 156 and contended that it had no application here.

12. I shall return below to say a little more about Division 156.

The Commissioner's GST assessment and MBI's objection

13. On 29 February 2012, the Commissioner notified MBI that he had completed an audit in relation to the tax affairs of MBI for the quarterly period 1 October 2007 to 31 December 2007. The Commissioner had determined that, pursuant to Division 135 of the GST Act, MBI had an increasing adjustment in the amount of $215,000 (representing 10% of the total purchase price for the 3 apartments). A notice of assessment was issued on the same day. On 6 March 2012, MBI objected to the assessment. On 23 April 2012, the Commissioner disallowed MBI's objection.

14. On 21 May 2012, MBI commenced proceedings in the Court pursuant to s 14ZZ of the Taxation Administration Act 1953 (Cth) ( the TA Act ). The objection decision was challenged on the following grounds:

• (a) MBI did not have an increasing adjustment under s 135-5 of the GST Act in respect of the relevant quarterly period as the recipient of a GST-free supply of a going concern from South Steyne;
• (b) MBI did not have a increasing adjustment under s 135-5 of the GST Act in respect of the relevant quarterly period because MBI did not intend that some or all of the supplies made through the enterprise to which the GST-free supply of the going concern related would be supplies that were neither taxable nor GST-free supplies; and
• (c) the assessment was excessive.

Summary of relevant provisions in the GST Act

15. Under s 7-1(1) of the GST Act, goods and services tax ( GST ) is payable on "taxable supplies". Relevantly, under s 9-5, a person makes a taxable supply if the person makes a supply for consideration and the supply is made in the course or furtherance of an enterprise that the person carries on. But the supply is not a taxable supply under that provision to the extent that the supply is "GST-free" or "input taxed".

16. Subsection 9-30(1) provides that a supply is "GST-free" if it is GST-free under Division 38 of the GST Act. Subsection 9-30(2) provides that a supply is "input taxed" if it is input taxed under Division 40 of the GST Act. Other provisions provide that some supplies which are neither GST-free nor input taxed are to be dealt with in ways which reduce the GST otherwise applicable. The Full Court observed in
Marana Holdings Pty Ltd v Commissioner of Taxation (2004) 141 FCR 299 at [4] that the use of the term "input taxed" may seem curious in circumstances where it is used in the GST Act to describe a status which is relevantly untaxed. But the Full Court explained there that the expression presumably reflects the fact that although the ultimate supply is free of GST, input into such supply has been taxed.

17. Division 135 of the GST Act deals with supplies of going concerns. Section 135-1 describes in general terms how the recipient of a supply of a going concern has an increasing adjustment to take into account the proportion of supplies, if any, that will be made in running the concern and that will not be taxable supplies or GST-free supplies. It further explains how later adjustments will be needed if this proportion changes over time.

18. Before dealing further with other provisions in Division 135, it is convenient to note the effect of Division 38.

19. As referred to above, Division 38 describes various activities which are GST-free. Subdivision 38-J of the GST Act deals inter alia with supplies of going concerns which are GST-free (see s 9-30(2)). Section 38-325, which is in Subdivision 38-J, provides as follows (noting that in the GST Act an asterisk indicates a defined term: see ss 3-1 and 3-5):

38-325 Supply of a going concern

• (1) The *supply of a going concern is GST-free if:
  • (a) the supply is for *consideration; and
  • (b) the *recipient is *registered or *required to be registered; and
  • (c) the supplier and the recipient have agreed in writing that the supply is of a going concern.
• (2) A supply of a going concern is a supply under an arrangement under which:
  • (a) the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and
  • (b) the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier).

20. "Enterprise" has the meaning given in s 9-20 of the GST Act (see s 195-1). Relevantly, it provides as follows:

9-20 Enterprises

• (1) An enterprise is an activity, or series of activities, done:
  • (a) in the form of a *business; or

    …

  • (c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

    …

21. Returning now to Division 135, ss 135-1, 135-5 and 135-10 are important provisions in the proceedings. They are in the following terms:

Division 135 - Supplies of going concerns

135-1 What this Division is about

The recipient of a supply of a going concern has an increasing adjustment to take into account the proportion (if any) of supplies that will be made in running the concern and that will not be taxable supplies or GST-free supplies. Later adjustments are needed if this proportion changes over time

135-5 Initial adjustments for supplies of going concerns

• (1) You have an increasing adjustment if:
  • (a) you are the *recipient of a *supply of a going concern, or a supply that is *GST-free under section 38-480; and
  • (b) you intend that some or all of the supplies made through the *enterprise to which the supply relates will be supplies that are neither *taxable supplies nor *GST-free supplies.
• (2) The amount of the increasing adjustment is as follows:
  
  
  

  where:

  proportion of non-creditable use is the proportion of all the supplies made through the *enterprise that you intend will be supplies that are neither *taxable supplies nor *GST-free supplies, expressed as a percentage worked out on the basis of the *prices of those supplies.

  supply price means the *price of the supply in relation to which the increasing adjustment arises.

135-10 Later adjustments for supplies of going concerns

• (1) If you are the *recipient of a *supply of a going concern, or a supply that is *GST-free under section 38-480, Division 129 (which is about changes in the extent of creditable purpose) applies to that acquisition, in relation to:
  • (a) the proportion of all the supplies made through the *enterprise that you intend will be supplies that are neither *taxable supplies nor *GST-free supplies; and
  • (b) the proportion of all the supplies made through the *enterprise that are supplies that are neither taxable supplies nor GST-free supplies;

    in the same way as that Division applies:

  • (c) in relation to the extent to which you made an acquisition for a *creditable purpose; and
  • (d) in relation to the extent to which a thing acquired is *applied for a creditable purpose.
• (2) For the purpose of applying Division 129, the proportions referred to in paragraphs (1)(a) and (b) are to be expressed as percentages worked out on the basis of the *prices of the supplies in question.
• (3) This section applies in relation to any *supply of a going concern, or a supply that is *GST-free under section 38-480, whether or not it is a supply in respect of which you have had an *increasing adjustment under section 135-5.

22. The GST Act provides the following definitions in the Dictionary (s 195-1) of relevant asterisked terms in s 135-5:

" enterprise , has the meaning given by s 9-20" (see [20] above);

" recipient , in relation to a supply, means the entity to which the supply was made";

" supply of a going concern, has the meaning given by subsection 38-325(2)" (see [19] above).

23. It is common ground that, in the circumstances of this case, MBI is the "you" referred to in s 135-5. As will emerge below, where the parties primarily disagree is in respect of s 135-5(1)(b) and the question whether that provision is satisfied in the circumstances here.

Summary of MBI's arguments

24. The applicant's primary arguments as to why it is not liable to an increasing adjustment under Division 135 of the GST Act may be summarised as follows:

• (a) the statutory policy of s 38-325 is that an entity that purchases an enterprise as a going concern is not required to pay to the vendor the amount of GST that would otherwise be payable (in the absence of s 38-325) in respect of the supply. That is because the purchaser is relieved of the burden of having to fund the GST in circumstances where it would be entitled to a full input tax credit with the consequence that, from the Commissioner's perspective, the transaction is revenue neutral;
• (b) if, absent s 38-325, the purchaser would not have been entitled to a full input tax credit in respect of the GST paid to the vendor for the acquisition (such as where the acquisition relates to making supplies that are input taxed), the consequence is not revenue neutral;
• (c) the policy of Division 135 is to ensure that the revenue outcome is consistent whether or not the supply is treated as a GST-free going concern;
• (d) for the purposes of s 135-5, it should not be concluded that MBI intended to make supplies that were neither GST-free nor taxable supplies through the enterprise acquired as a GST-free supply of a going concern from South Steyne because:
  • (i) the section refers to the taxpayer's intention in respect of its own activities and not the activities of another entity;
  • (ii) that proposition is supported by the reference in s 135-5(1)(b) to supplies that " will be supplies that are neither taxable supplies nor GST-free supplies" (emphasis added), indicating that the relevant supplies must be made by the recipient following its acquisition of the GST-free supply of the going concern;
  • (iii) the definition of "proportion of non-creditable use" in s 135-5(2) provides context and further support for MBI's construction because it effectively requires the recipient in completing a Business Activity Statement to know particular details about the relevant supplies, including such matters as their price and the proportion they form of all supplies made through the enterprise, which could be problematic if a third party is making those relevant supplies and not the recipient itself; and
  • (iv) the intention referred to in s 135-5 is to the activities that will be conducted in carrying out the enterprise acquired as a going concern, not to the question whether those activities are to be characterised in law as constituting taxable supplies or GST-free supplies;
• (e) MBI had no intention of making supplies of any character through the enterprise acquired by it (namely the 3 apartments with leases in place to Mirvac Management) and, as the Full Court found in South Steyne, its mere toleration of the leases did not constitute the making of a new or fresh supply;
• (f) the Commissioner's contrary contention to the effect that the input taxed supplies which South Steyne continues to make to Mirvac Management are supplies which MBI intended be made through the enterprise to which the going concern relates should be rejected because:
  • (i) that contention is inconsistent with the phrase "will be" in s 135-5 which necessarily refers to supplies being made following MBI's acquisition;
  • (ii) as South Steyne did not make any supplies to Mirvac Management following completion of the purchases on 31 October 2007 (when South Steyne ceased to own the apartments or have any interest in the leases), the enterprise acquired by MBI did not depend upon South Steyne making any supply of any character following the acquisition; and
  • (iii) Division 156 (which treats certain supplies including by way of lease as a supply made on a progressive or periodic basic) applies for some purposes (such as attribution of GST payable on taxable supplies under ss 156-5 and 156-22), but has no application to s 135-5. In any event Division 156 has no application because it applies only to taxable supplies and the relevant leases granted by South Steyne to Mirvac Management were input taxed supplies as found by Stone J and the Full Court unanimously. The Commissioner's case effectively invites the Court to create a similar regime to that created by Division 156, but in respect of input taxed supplies; and
• (g) in any event, the Commissioner's contention that Division 135 makes an entity liable for GST by reason of supplies made not by it but by another entity is inconsistent with the "fundamental concern" of the GST Act, which is directed to an entity's liability for supplies made by it (see s 9-5 of the GST Act).

Summary of Commissioner's arguments

25. In broad terms the Commissioner's arguments may be summarised as follows:

• (a) the following extract from the Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 at [6.256]-[6.257] illuminates the purpose of Division 135:

  Division 135 provides for an adjustment to ensure you account for GST in proportion to the private or input taxed use of a going concern that you acquire. The adjustment increases your net amount by an amount equal to the GST you would bear on the acquisition if it had been a taxable supply to you. The adjustment is equivalent to the difference between what would have been the GST on the supply and the input tax credit you would have been entitled to for the acquisition if the supply had been a taxable supply. This is the effect of s 135-5 .

  This means that you only get a going concern GST-free to the extent that you intend to make taxable supplies with it.

• (b) there was no dispute that the sale of the 3 apartments subject to the leases granted to Mirvac Management constituted a supply of all things that are necessary for the continued operation of the enterprise of a serviced apartment business and that South Steyne was to carry on that enterprise until completion of the contract, therefore MBI was the recipient of a supply of a GST-free going concern under s 38-325 of the GST Act (thus satisfying the requirement in s 135-5(1)(a));
• (c) as to s 135-5(1)(b), intention is to be objectively determined and ascertained by reference to the nature of the enterprise to which the supply of the going concern relates and through which the supplies will be made;
• (d) if the character of an enterprise that is to be supplied as a going concern is such that input taxed supplies are made through it, the recipient of that enterprise as a going concern is objectively taken to have intended that input taxed supplies will be made through that enterprise because that is the character of the supplies which the enterprise makes;
• (e) there is no warrant for reading into s 135-5(1)(b) a requirement that the relevant supplies have to be made only by MBI. MBI's intention need not relate to its own activities nor must it intend itself to make input taxed supplies in order for an increasing adjustment to arise. All that is required is that MBI objectively intend that the leases granted by South Steyne to Mirvac Management in respect of the 3 apartments (being the input taxed supplies of residential premises) would continue to be made through the enterprise of the serviced apartment business which MBI acquired from South Steyne as a going concern;
• (f) it is not determinative that South Steyne made no further supplies after it supplied the serviced apartment business to MBI because, by their very nature, input taxed supplies of residential premises by lease are continuous or progressive supplies, as Edmonds J found in South Steyne at [76] (see also Finn J at [2] and Emmett at [32]). It is sufficient that a supply which is treated as a continuing supply (namely the supply of the residential premises by lease) continues to be made "through the enterprise" after its supply as a going concern; and
• (g) the evidence clearly demonstrates that MBI intended that the input taxed supplies would continue to be made through the serviced apartment business because the apartments were sold subject to the leases and MBI elected to participate in the Scheme which permitted Mirvac Management to use the apartments in the serviced apartment business.

Analysis

26. For the following reasons, I consider that the MBI's construction of the relevant provisions should be rejected and the Commissioner's construction accepted.

27. First, I do not accept that s 135-5(1)(b) should be construed such that the reference "supplies made through the enterprise to which the supply relates" refers only to supplies made by the recipient and not a third party. MBI contends that the provision should be read as though it referred to "supplies made by you [in this case MBI]" through the enterprise. I accept the Commissioner's contention that there is no basis for reading those words into the provision. There is nothing in the text, context or apparent policy relating to the provision which supports MBI's contention that its intention must relate to its own activities or that it must intend to make input taxed supplies itself in order for an increasing adjustment to arise under s 135-5. As Emmett J observed in
KAP Motors Pty Ltd v Federal Commissioner of Taxation (2008) 168 FCR 319 at [32] in respect of a contention that words actually used should be read as if they contained additional words:

… the occasions on which the words actually used should be construed as if they contained additional words, so as to expand the sphere of operation that could be given for the words actually used, will be rare, assuming it would ever be a permissible way of construing a provision, in a statute relating to taxation (see, for example,
R v PLV (2001) 51 NSWLR 736 at [88]).

28. It is true that, as MBI pointed out, practical difficulties might arise for a recipient ascertaining details such as price and proportion under the definition of "proportion of non-creditable use" in s 355-5(2) if the relevant supplies are being made by a third party and not the recipient, but I do not regard such theoretical practical difficulties as providing a sufficient basis to read words into s 135-5(1)(b) which are simply not there. This is consistent with Stone J's observations in
Saga Holidays Ltd v Commissioner of Taxation (2006) 156 FCR 256 at [29] and [30] to the effect that, while it is appropriate to take into account that the GST Act imposes "a practical business tax" which provides relevant context under a purposive approach to interpretation, there is no special canon of construction that should be applied when interpreting the GST Act by reference to the phrase "a practical business tax".

29. While it is appropriate to consider statutory text in its context and to acknowledge that this context includes legislative history and relevant extrinsic materials, the High Court has recently reiterated the fundamental proposition that the task of statutory construction must begin and end with a consideration of the text. In
Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; (2012) 87 ALJR 98 at [39], French CJ, Hayne, Crennan, Bell and Gageler JJ said:

"This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text [citing
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 at [47] per Hayne, Heydon, Crennan and Kiefel JJ]. So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of a statutory text. Nor is their examination an end in itself.

30. A similar approach was adopted by the High Court in
Commissioner of Taxation v Qantas Airways Limited [2012] HCA 41 in construing various provisions of the GST Act. In particular, emphasis was placed on the need to pay close attention to the operative provisions of the GST Act in construing particular provisions (see at [14] and [21] per Gummow, Hayne, Kiefel and Bell JJ).

31. Secondly, I do consider that MBI's construction is advanced by the presence in s 135-5(1)(b) of the terms "will be". Even if it were accepted that those terms indicate that the supplies to which the relevant intention relates are supplies made through the enterprise after the supply of the going concern, there is no warrant for construing the provisions as requiring that the supplies have to be made by the acquirer of the enterprise. Section 135-5(1)(b) merely requires that the recipient intend that some or all of the supplies made through the enterprise to which the supply of the going concern relates will be supplies that are neither taxable supplies nor GST-free supplies. The provision does not state that the relevant intention relates only to future supplies made by the recipient through the enterprise. Nor in my view is there any proper basis for implying such a restriction.

32. Thirdly, I should add that, in any event, I consider that the terms "will be" are sufficiently broad to cover the situation where supplies continue to be made through an enterprise, as is the case here. I accept the Commissioner's contention that all s 135-5(1)(b) requires in the circumstances here is that MBI intend that the leases granted by South Steyne to Mirvac Management in relation to the 3 apartments (constituting the input taxed supplies of residential premises) would continue to be made through the enterprise of the serviced apartment business which MBI acquired from South Steyne as a going concern.

33. Fourthly, to the extent there is any dispute about the matter, I accept the Commissioner's contention that, for the purposes of s 135-5(1)(b), the issue of MBI's intention is to be determined objectively and by reference to the nature of the enterprise to which the supply of the going concern relates. The issue of construction here differs from those which arose in Marana and
Sunchen Pty Ltd v Federal Commissioner of Taxation (2010) 190 FCR 38. Those cases involved the proper construction of s 40-65 and the definition of "residential premises" in s 195-1 of the GST Act (noting that the provisions were amended post-Marana). The Full Court held in both cases that the expression "intended to be occupied" did not mean that the purchaser's subjective intention was a relevant consideration in determining whether a building satisfied the definition of "residential premises" as that provision stood at the relevant times. In reaching that view, some emphasis was placed on the fact that the legislation did not indicate whose intention was relevant in applying the relevant definitions.

34. In contrast to the provisions considered in those two earlier decisions, it is made abundantly clear in s 135-5(1)(b) that the relevant intention is that of the recipient of the supply of a going concern (in this case MBI).

35. MBI ultimately accepted in its reply submissions that in determining what a particular taxpayer intended for the purposes of s 135-5(1)(b), regard is to be had to all the relevant evidence, including any evidence demonstrating the taxpayer's subjective intention, but also any other relevant "objective" matters. MBI did not dispute that it subjectively intended the leases over the apartments to continue and it accepted that it would be "objectively determined" that it intended those leases to continue. That concession was appropriately made having regard to the following matters:

• (a) the findings made in South Steyne that the supplies of residential premises by way of lease of the 3 apartments were input taxed supplies made by South Steyne through its serviced apartment business;
• (b) MBI acquired the serviced apartment business carried on by South Steyne as a going concern. The serviced apartment business was subject to the leases granted by South Steyne to Mirvac Management. Those leases continued and MBI exercised its option to participate in the Scheme;
• (c) merely because South Steyne made no further new supplies itself after it sold the 3 apartments to MBI is not determinative. As the Full Court found in South Steyne, input taxed supplies of residential premises by lease are by their very nature continuous or progressive supplies. The supply of the residential premises by lease is a continuing supply and continues to be made through the enterprise of the serviced apartment business as a central aspect of the going concern; and
• (d) MBI intended that the input taxed supplies of residential premises would continue to be made through the serviced apartment business it acquired from South Steyne. The 3 apartments were sold subject to the leases granted in favour of Mirvac Management by South Steyne and MBI elected to participate in the Scheme which permitted Mirvac Management to use the apartments in the serviced apartment business.

36. Fifthly, I accept the Commissioner's contention that the leases are intrinsically linked with the serviced apartment business which constitutes the relevant "enterprise" for the purposes of s 135-5(1)(b) of the GST Act. Reference is made in this context to the four matters set out in the paragraph immediately above.

37. MBI effectively urged the Court to view the leases in isolation from the serviced apartment business to which they relate. MBI sought to separate their interest as owner and lessor of the apartments from Mirvac Management's conduct of the serviced apartment business. But the terms of the leases themselves demonstrate a strong if not virtually inextricable connection with the serviced apartment business. As noted above, the leases incorporate a standard annexure containing detailed provisions concerning the use of an apartment the subject of a lease as part of the serviced apartment business operated by Mirvac Management in the event that the owner elects to participate in the Scheme. The recitals to each lease refer to the owner of the apartment wishing to grant a lease of the apartment to Mirvac Management for use as part of the serviced apartment business. That business is defined as meaning "the business of operating the Scheme Apartments as serviced apartments". "Scheme Apartments" is defined to mean all lots in the relevant Strata Plan in respect of which there is a "Current Lease". "Current Lease" is defined as being each current lease between the owner of a lot in the Strata Plan (including lots owned by South Steyne) and Mirvac Management for the use of the lot as a serviced apartment as part of the Scheme. Mirvac Management is obliged to pay rent to the owner of an apartment participating in the Scheme. The rent is calculated by reference to a pool of income generated by the serviced apartment business with each participant's return fixed for a 2 year period, as a percentage of the purchase price.

38. Having regard to all these matters, I consider that the requirements of s 135(1)(b) are satisfied in circumstances where there is a supply that is treated as a continuing supply (namely the supply of the residential premises by lease) which continues to be made through the enterprise constituted by the serviced apartment business after its supply as a going concern. Moreover, for reasons given above in [35], I find that MBI as recipient of the going concern intended that that be the case.

39. Finally, I consider that the non-application of Division 156 in the circumstances here has no particular bearing on the determination of the relevant issues. That Division applies to a supply or acquisition by way of lease where there is a taxable supply. It has no direct application where a supply is an input taxed supply, even where a lease is involved. Chapter 4 of the GST Act does not contain any relevant special rules concerning input taxed supplies by way of lease. The scheme of the GST Act is such that, in the case of an input taxed supply to which Division 135 applies, adjustments under that Division are to be calculated without reference to the attribution rules in Division 29 or the special rules set out in Division 156. I appreciate that this means that there is potential for an "imbalance" to arise as between successive reversionary owners over the term of a lease (a matter referred to by Edmonds J in South Steyne at [76]), but I do not consider that that practical possibility precludes acceptance of the Commissioner's position. The quite limited scope of the special rules (as stated in s 45-1 of the GST Act), such as those set out in Division 156, should also be noted (see [8] above). It appears that the legislature was content to have the basic rules apply to leases other than those specifically covered by Division 156.

Conclusion

40. For these reasons, the appeal should be dismissed and MBI ordered to pay the Commissioner's costs.