Australia: Serviced apartments and GST on lease and sale of premises: South Steyne Hotel Pty Ltd & Ors vs FC Of T

Last Updated: 26 November 2009

Article by Stephen O'Flynn and Lin Ma

The Full Federal Court handed down the decision of South Steyne Hotel Pty Ltd & Ors vs FC of T on 20 November 2009 confirming most of the previous judgement in relation to characterisation of supplies in relation to serviced apartments. For property developers, this is an important case as it details the Courts view on different types of supply by way of lease and sale of premises and the GST consequences. The decision generally coincides with the Commissioners views as expressed in GSTR 2000/20 regarding the sale and lease of commercial residential premises.


  • The property was purchased by South Steyne in 2000;
  • Each apartment unit, car park, management lot, offices etc became separate strata titled lots on 10 August 2006;
  • On 29 September 2006, South Steyne:
    • transferred the management lot to Mirvac Hotels Pty Ltd ("MHL");
    • granted 83 separate leases to Mirvac Management Pty Ltd ("MML") for apartments which obliged MML to carry on a serviced apartment business;
    • MHL took exclusive control of the operation of the serviced apartment business pursuant to an agreement with MML which conferred upon MHL the benefit of MML's rights under the leases
  • Between 29 September 2006 and 31 October 2007, South Steyne sold 3 apartments to MBI Properties Pty Ltd ("Properties") where each apartment sold was subject to the applicable lease that had been granted to MML and which allowed Properties to participate in a management scheme that mirrored the scheme under the MML leases ;
  • On 17-18 October 2007, an individual stayed in an apartment and used various services available to guests of the serviced apartment.

Issue And Decision

There are four categories of supply that were considered:




The grant of leases by South Steyne to MML

Whether the apartments were residential premises.

Stone J at first instance held that the apartments were residential premises to be used predominantly for residential accommodation and were not commercial residential premises. The Court held that their supply by way of lease was an input taxed supply.

The Full Court agreed and concluded that a single apartment cannot constitute a hotel but rather was a residential premise. It was held that each lease was not to be considered with the other leases.

The sale of three apartments by South Steyne to Properties, subject to the leases previously granted to Management.

Whether South Steyne and Properties (the recipient), have agreed in writing that the supply is of a going concern.

Initially, the primary judge concluded that the supplies made by South Steyne in the sale of three apartments to MML were neither GST-free nor input taxed (i.e. a taxable supply) as it was considered commercial residential accommodation.

However upon appeal, the Full Federal Court held that the sale of apartments from South Steyne to Properties was a supply of a going concern, and therefore GST-free, as the parties had agreed in writing that the supply was of a going concern.

The continuation by Properties of leases granted by South Steyne to MML

Whether the continuation of a lease is a supply.

The Full Federal Court agreed that there was no supply. This is because the interest acquired from South Steyne was the reversionary interest after the leases in favour of MML. Thus there was no further supply by way of lease merely by reason of the continuation of leases after the sale of the reversion.

The provision of accommodation to an individual

Whether the provision of accommodation by MHL is: as agent for MML or as principal; and whether it is taxable or input taxed.

The majority of the Full Federal Court held, in agreement with the Stone J at first instance, that the supply of accommodation was a taxable supply by MHL, as MHL controlled the premises as an integral part of it's a serviced apartment business and MHL contracted as a principal rather than an agent of the owners in supplying the accommodation. Edmonds J held that MHL were agents for the owners and thus the supply was input taxed.

Please note that Treasury has undertaken a review of the margin scheme generally and in particular the margin scheme valuation provisions. We are awaiting Treasury's response to the numerous submissions made to them.

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2009 Moore Stephens Australia Pty Limited. All rights reserved.

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