Commissioner of Taxation v MBI Properties Pty Ltd, [2014] HCA 49

Before finding that leases entailed a continuous supply by the lessor including, in this case, by a subsequent lessor by virtue of the purchase of apartments already subject to the leases, the Court stated (at para. 35):

Federal Commissioner of Taxation v Qantas Airways Ltd [(2012) 247 CLR 286, [2012] HCA 41] shows that it is wrong to consider that one transaction must always involve the making of just one supply. It is similarly wrong to consider that the making of a supply must always involve the taking of some action on the part of the supplier.

See summary under s. 133.

"South Steyne," which owned strata-titled apartments comprising the guest rooms of a hotel, leased each of those apartments to "Mirvac," and then sold three of those apartments to the respondent ("MBI"), which remained subject to the leases to Mirvac.

The High Court held that each apartment lease, as an executory contract, obliged MBI to give Mirvac use and occupation of the apartment throughout the term of the lease in consideration for the periodic payment of rent, so that MBI's observance of this continuing obligation was properly characterized as an intended supply of residential premises by way of lease by it to Mirvac which was input taxed under s 40-35 of the Australian GST legislation. The Court stated (at paras. 35, 38):

A transaction which involves a supplier entering into and performing an executory contract will in general involve the supplier making at least two supplies: a supply which occurs at the time of entering into the contract, in the form of both the creation of a contractual right to performance and the corresponding entering into of a contractual obligation to perform; and a supply which occurs at the time of contractual performance, even if contractual performance involves nothing more than the supplier observing a contractual obligation to refrain from taking some action or to tolerate some situation during a contractually defined period. …

Once the general operation of the GST Act is understood in that way, it is apparent that there is no warrant in the text or policy of the GST Act for reading the reference in the special rule in s 40-35 to a supply of "residential premises" that is a supply "by way of lease" as referring to the supply which occurs at the time of entering into the lease but not as referring to the further supply which occurs by means of the lessor observing and continuing to observe the express or implied covenant of quiet enjoyment under the lease. The reference encompasses both, and both are therefore input taxed.