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.