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  • Property and Construction Industry Partnership – issues register – section 11 – non-commercial residential premises

     For GST, Luxury Car Tax and Wine Equalisation Tax purposes, from 1 July 2015, where the term ‘Australia’ is used in this document, it is referring to the ‘indirect tax zone’ as defined in subsection 195-1 of the GST Act.

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    (a) added, (u) updated, (w) withdrawn

    Issue Number

    Index

    Date

    History

     11

     Residential premises

     

     

    11.1

    Vacant Land

     

     

     11.1.1

    Can vacant land be 'residential premises' as defined in section 195-1 of the GST Act ?

     27/05/2013 (u)

     View history 

    11.2

    Supply of Residential Premises

     

    View history 

    11.2.1

    Is the sale of the following subject to GST:

    (a) a private residence; or

    (b) a residential rental property?

     27/05/2013 (u)

    View history 

    11.2.2

    Would the answer to Issue 11.2.1 above be different if the sale of the residential premises is to one of the following:

    • an owner occupier; or
    • an investor owner; or
    • an entity carrying on an enterprise?

     

    23/02/2004 (u)

     View history

    11.2.3

    If an entity sells a house that he or she had built and used as a private residence, is the sale subject to GST?

    23/02/2004 (u)

    View history 

    11.2.4

    If an entity who is carrying on an enterprise of building and selling houses sells a house that he or she had built and used as a private residence, is the sale subject to GST?

    23/02/2004 (u)

    View history 

    11.2.5

    If an entity that is carrying on an enterprise of building and selling houses sells a house that it had built and rented out, is the sale subject to GST?

    23/02/2004 (u)

    View history 

    11.2.6

    Is the sale of a newly constructed house by a developer/builder subject to GST?

    23/02/2004 (u)

    View history 

    11.2.7

    If an entity buys and sells a house in the course of carrying on an enterprise of buying and selling houses, is the sale subject to GST?

     27/05/2013 (u)

    View history 

    11.2.8

    If the entity in Issue 11.2.7. above had the house renovated before selling it, is the sale subject to GST?

    23/02/2004 (u)

    View history 

    11.2.9

    Is there a restriction on the area of land that can be included in the definition of 'residential premises' in section 195-1 of the GST Act?

    27/05/2013 (u)

    View history 

    11.2.10

    Guideline on the meaning of 'substantial renovation' as used in the context of 'new residential premises' as defined in s195-1(b)

    23/02/2004 (w)

    View history 

    11.2.11

    What is the GST treatment of lettingGoods and services tax residential premises that are partly commercial in character?

    23/02/2004 (u)

    View history 

    11.2.12

    What needs to be considered when determining whether residential premises are 'used predominantly for residential accommodation'?

    23/02/2004 (u)

    View history 

     

     'the GST Act'

     A New Tax System (Goods and Services Tax) Act 1999

     'the GST Regulations'

     A New Tax System (Goods and Services Tax ) Regulations 1999

     'the Transition Act'

     A New Tax System (Goods and Services Tax Transition) Act 1999

     'the Transition Regulations'

     A New Tax System (Goods and Services Tax Transition) Regulations 2000

     Relevant Public Rulings

    GSTR 2012/5 - Goods and services tax: residential premises 

    GSTR 2002/5 - Goods and services tax: when is a 'supply of a going concern' GST-free?

    GSTR 2001/7 - Goods and services tax:meaning of GST turnover, including the effect of section 188-25 on projected GST turnover

    GSTR 2001/8 - Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts

    GSTR 2003/3 - Goods and services tax: When is a sale of real property a sale of new residential premises

    MT 2006/1 - The New Tax System:  the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number ('ABN')

    TR 97/11 - Income Tax : Am I carrying on a business of primary production?

     Relevant Determinations

    GSTD 2006/6 - Goods and services tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999?

    GSTD 2000/9 - Goods and services tax: if you let out a residence do you need to get an ABN for PAYG purposes or register for GST?

     Relevant sections

    Section 9-5 'Taxable supplies' of the GST Act

    Section 9-20 'Enterprises' of the GST Act

    Section 9-40 'Liability for GST on taxable supplies' of the GST Act

    Section 11-15 'Meaning of creditable purpose' of the GST Act

    Section 11-20 'Who is entitled to input tax credits for creditable acquisitions?' of the GST Act

    Section 23-5 'Who is required to be registered' of the GST Act

    Section 40-65 'Sales of residential premises' of the GST Act

    Section 40-75 'Meaning of new residential premises' of the GST Act

    Section 75-5 'Choosing to apply the margin scheme' of the GST Act

    Section 75-10 'The amount of GST on taxable supplies' of the GST Act

    Section 188-15 'Current GST turnover' of the GST Act

    Section 188-25 Transfer of capital assets, and termination etc. of enterprise, to be disregarded' of the GST Act

    Section 195-1 'Dictionary' of the GST Act

     11 Residential premises 

     1 1.1 Vacant land

     1 1.1.1 Can vacant land be 'residential premises' as defined in section 195-1 of the GST Act?

    For source of ATO view refer to:

    • GSTR 2012/5 - Goods and services tax: residential premises
    • GSTR 2003/3 - Goods and services tax: when is a sale of real property a sale of new residential premises?

     ATO position

    No. The ATO position is discussed in the public ruling GSTR 2012/5. To be residential premises, land needs to be intended for, and capable of, occupation as a residence. Land that has no buildings attached to it does not fall into this category. Vacant land, of itself, can never have sufficient physical characteristics to mark it out as being able to be, or intended to be, occupied as a residence (see paragraphs 24 and 25 of GSTR 2000/20).

     1 1.2 Supply of residential premises

    For more information about the GST implications of a supply of residential premises, refer to GSTR 2000/20 and GSTR 2003/3.

     1 1.2.1 Is a sale of the following subject to GST:

     a) a private residence; or 
     b) a residential rental property? 

    For source of ATO view refer to:

    • MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number
    • paragraphs 9 and 11 of GSTR 2003/3 - Goods and services tax: when is a sale of real property a sale of new residential premises?

     ATO position

     a) Sale of private residence

    It is input taxed under section 40-65 of the GST Act unless all of the following requirements are met:

    i. the residence is new residential premises as defined in section 40-75 of the GST Act;

    ii. the residence has not been used for residential accommodation before 2 December 1998;

    iii. the sale is made for consideration;

    iv. the sale is made in the course or furtherance of an enterprise carried on by the vendor;

    v. the residence is in Australia; and

    vi. the vendor is registered, or required to be registered.

    If all of these requirements are met, the sale will be a taxable supply.

    (For more information about when a sale of real property is a sale of new residential premises, see GSTR 2003/3.)

    Unless the owner of the private residence acquired the residence as part of an activity of acquiring and selling homes for a profit, or used it for carrying on a business, the sale of the private residence would not be made in the course or furtherance of an enterprise carried on by the vendor. This is because the mere realisation of a private residence or a family home is not a supply made in the course or furtherance of an enterprise (paragraph 13 of GSTD 2006/6).

     b) Sale of a residential rental property

    Similar to the sale of a private residence, a sale of a residential rental property is input taxed under section 40-65 of the GST Act unless all of the requirements (i) to (vi), as set out above, are met.

    While the sale of a rental property is part of the rental or leasing enterprise carried on by the owner (section 195-1 of the GST Act states that carrying on an enterprise includes doing anything in the course of commencement or termination of the enterprise), the owner may not be registered, or required to be registered, for GST. This would be so if the renting of the property is the only enterprise carried on by the owner. This is because, in renting out residential premises, the owner is making input taxed supplies. The sale of the rental property would also not require the owner to be registered because the proceeds from the sale will not form part of the registration turnover threshold (sections 188-10 and 188-25 of the GST Act). So, if the owner is not already registered, or required to be registered, the sale of the rental property will not be a taxable supply.

     1 1.2.2 Would the answer to Issue 11.2.1 above be different if the sale of the residential premises is to one of the following:

    •  an owner occupier; or
    •  an investor owner; or
    •  an entity carrying on an enterprise?

    For source of ATO view refer to:

    • MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number
    • GSTR 2003/3 - Goods and services tax: when is a sale of real property a sale of new residential premises?

     ATO position

    No. It does not matter to whom the premises is sold.

     1 1.2.3 If an entity sells a house that he or she had built and used as a private residence, is the sale subject to GST?

    For source of ATO view refer to MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number

     ATO position

    While the house is new residential premises as defined in section 40-75 of the GST Act, its sale will not be a taxable supply unless all of the following requirements are met:

    i. the residence has not been used for residential accommodation before 2 December 1998;

    ii. the sale is made for consideration;

    iii. the sale is made in the course or furtherance of an enterprise carried on by the entity;

    iv. the residence is in Australia; and

    v. the entity is registered, or required to be registered.

    Unless the entity built the residence as part of an activity of building and selling homes for a profit, or used it for carrying on a business, the sale of the house will not be in the course or furtherance of an enterprise carried on by the entity. This is because the mere realisation of a private residence or a family home is not a supply made in the course or furtherance of an enterprise (paragraph 13 of GSTD 2006/6).

     1 1.2.4 If an entity who is carrying on an enterprise of building and selling houses, sells a house that he or she had built and used as a private residence, is the sale subject to GST?

    For source of ATO view refer to:

    • MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number
    • GSTR 2006/8 - Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000

     ATO position

    See the answer to Issue 11.2.3 above. The fact that the entity had used the premises as a private residence before the sale does not necessarily mean that the sale is not in the course or furtherance of an enterprise carried on by the entity. It will be a matter of fact and degree in each case. For example, if the evidence indicates that the entity had intended to build the house and sell it for a profit, but lived in it temporarily before selling it, the sale would still be considered to be in the course or furtherance of the entity's enterprise.

    If the sale is a taxable supply, the entity may be able to apply the margin scheme to work out the GST payable. For more information about the margin scheme, see Section 15 of the Property and Construction Industry Partnership Issues Register.

     1 1.2.5 If an entity that is carrying on an enterprise of building and selling houses sells a house that it had built and rented out, is the sale subject to GST?

    For source of ATO view refer to:

    • GSTR 2003/3 - Goods and services tax: when is a sale of real property a sale of new residential premises?
    • GSTR 2006/8 - Goods and services tax: the margin scheme for supplies of real property acquired on or after 1 July 2000
    • GSTR 2009/4 - Goods and services tax: new residential premises and adjustments for changes in extent of creditable purpose

     ATO position

    Yes, it is subject to GST as a supply of new residential premises unless the house has been:

    (a) rented out for a period of at least 5 years since it was built; or

    (b) used for residential accommodation before 2 December 1998.

    If the house has been rented out for a period of at least 5 years since it was built; or used for residential accommodation before 2 December 1998, its sale will be input taxed (section 40-65 of the GST Act).

    If the sale is a taxable supply, the entity may be able to apply the margin scheme to work out the GST payable. For more information about the margin scheme, see Section 15 of the Property and Construction Industry Partnership Issues Register.

     1 1.2.6 Is the sale of a newly constructed house by a developer/builder subject to GST?

    For source of ATO view refer to GSTR 2003/3 - Goods and services tax: when is a sale of real property a sale of new residential premises?

     ATO position

    Yes, if it's a sale of new residential premises located in Australia by a GST registered (or required to be registered) entity in the course or furtherance of an enterprise it carries on. For more information about the GST implications of a sale of new residential premises, see GSTR 2003/3.

     1 1.2.7 If an entity buys and sells a house in the course of carrying on an enterprise of buying and selling houses, is the sale subject to GST?

    For source of ATO view refer to:

    • GSTR 2012/5 - Goods and services tax:  residential premises
    • GSTR 2003/3 - Goods and services tax: when is a sale of real property a sale of new residential premises?

     ATO position

    No, the sale is input taxed under section 40-65 of the GST Act, unless part of the house is commercial in character (see Issue 11.2.12 below for more information about residential premises that are partly commercial in character). If the house sold is partly commercial in character and the requirements of a taxable supply are met, the sale will be partly a taxable supply and partly an input taxed supply. The consideration for the supply will need to be apportioned between the taxable and input taxed parts to work out the GST payable. See GSTR 2001/8 for guidance on how to apportion the consideration for a mixed supply.

     1 1.2.8 If the entity in Issue 11.2.7 above had the house renovated before selling it, is the sale subject to GST?

    For source of ATO view refer to  53-83 of GSTR 2003/3 - Goods and services tax: when is a sale of real property a sale of new residential premises?

     ATO position

    It depends on whether the renovations to the house are substantial renovations that amount to the creation of new residential premises as defined in section 40-75 of the GST Act. If so, the sale may be subject to GST if it meets all the requirements of a taxable supply. For more information about the GST implications of new residential premises created through substantial renovations, see GSTR 2003/3.

    If the renovations to the house do not amount to a creation of new residential premises, the answer here would be the same as for Issue 11.2.7.

     1 1.2.9 Is there a restriction on the area of land that can be included in the definition of 'residential premises' in section 195-1 of the GST Act?

    For source of ATO view refer to paragraph 46 of GSTR 2012/5 - Goods and services tax:  residential premises

    No, as long as the land has a building affixed to it with the physical characteristics that enable it to be occupied or be capable of occupation as a residence. However, the input tax treatment of a supply of residential premises by way of residential rent, sale or long-term lease only applies to the extent that the land and the building are 'to be used predominantly for residential accommodation'. Whether land and building are 'to be used predominantly for residential accommodation' is a question of fact and degree in each case to be determined by the physical characteristics that mark out the premises as a residence - see GSTR 2012/5.

     1 1.2.10 Guideline on the meaning of 'substantial renovation' as used in the context of 'new residential premises' as defined in s195-1(b)

    This issue has been withdrawn. For information about the GST implications of new residential premises created through substantial renovations, see GSTR 2003/3 .

    1.2.11 What is the GST treatment of letting residential premises that are partly commercial in character?

    of letting residential premises that are partly commercial in character?

    For source of ATO view refer to:

    • paragraph 9 of  - Goods and services tax: when is a sale of real property a sale of new residential premises?
    • GSTR 2001/8 - Goods and services tax: apportioning the consideration for a supply that includes taxable and non-taxable parts

     ATO position

    Section 40-35 of the GST Act provides that the letting of residential premises is input taxed only to the extent that it is to be used predominantly for residential accommodation. Therefore, if the premises are not to be used predominantly for residential accommodation (that is part of the premises has a commercial character) and the owner is required to be registered for GST, the letting of the premises will be a supply that is partly a taxable supply and partly an input taxed supply. If so, the owner is making a 'mixed supply'. The consideration for the supply will need to be apportioned between the taxable and input taxed parts to work out the GST payable. See GSTR 2001/8 for guidance on how to apportion the consideration for a mixed supply.

    For information about the registration requirements of an entity making a mixed supply of residential accommodation, see GSTD 2000/9 (in particular, see paragraphs 27 to 36).

     1 1.2.12 What needs to be considered when determining whether residential premises are 'used predominantly for residential accommodation'?

    For source of ATO view refer to GSTR 2012/5 - Goods and services tax: residential premises

     ATO position

    GSTR 2012/5 deals with the term 'predominantly for residential accommodation'. This term indicates that premises that are residential premises are capable of use for purposes other than residential accommodation. It is their physical characteristics that mark them out as a residence. In turn, these characteristics determine when the use or proposed use is for residential accommodation.

    The function of this term is to differentiate the GST treatment of any portions of residential premises that are commercial. This would apply, for example, to a house that has been partly converted for use as a doctor's surgery. Several parts of the house may still be used predominantly for residential accommodation, such as bedrooms, bathroom, kitchen, living rooms and gardens, while other areas are not, being turned over to office and consulting room space, and storage for the surgery. In this case these commercial parts are excluded from the input-taxed treatment of the rest of the property.

    Whether or not a particular room or part of residential premises is to be used predominantly for residential accommodation, as opposed to commercial purposes, is a question of fact and degree. A home office in a house will not generally be sufficiently separate from the rest of the residential premises to distinguish its use and its predominant use will still be residential accommodation.

      Last modified: 01 Sep 2015QC 16480