• Issue no. 3 – Property

    Schedule:

    • The postscript (a) indicates the date the original issue was placed on the register
    • The postscript (u) indicates the date the original issue was updated
    • The postscript (w) indicates the date the issue was withdrawn from the register
    • Withdrawn issues have been placed in the NTLG-GST Issues Register Archive (Issue 3 archive)
    Date Question Further information

    28/02/05(w)

    3.1 When will guidelines be issued to confirm what actions a taxpayer wishing to adopt the margin scheme should take to value the property as at 30 June 2000?

    These issues have been withdrawn and placed in the archive.

    28/02/05(w)

    3.2 What will be the valuation requirements under Division 75?

    28/02/05(w)

    3.3 Why is the valuation necessary under Division 75 different from the one that applies to section 19 of the Transition Act?

    28/02/05(w)

    3.4 Will it be necessary to individually value units in an incomplete apartment block? How do you value individual units that may not physically be commenced?

    22/03/01(u)

    14/06/05(w)

    3.5 Will lease agreements be treated as a single taxable supply at the point in time when the lease agreement is entered into? Otherwise, what is the value of the agreement to lease?

    GSTA TPP 009 replaces this issue. The original issue has been archived.

    28/02/05(w)

    3.6 For the purposes of the A New Tax System (Goods and Services Tax) Act 1999, is the sale of a commercial building which has a commercial lease in place (so that it is an enterprise) the sale of a going concern for the purposes of Subdivision 38-J?

    These issues have been withdrawn and placed in the archive.

    28/02/05(w)

    3.7 Is the sale of land and/or a new building by a builder previously acquired as zoned residential land an input taxed supply?

    28/02/05(w)

    3.8 Can an entity use the cost to completion method to value land on hand as at 1 July 2000?

    28/02/05(w)

    3.9 New residential premises

    20/08/01 (a)

    14/06/05(w)

    3.10 Zoning and GSTR 2000/20

    28/02/05(w)

    3.11 Properties acquired after 1 July 2000

    Can the formula in GSTR 2000/21 (paragraph 75) be used to work out the GST-inclusive price of a property acquired after 1 July 2000 by GST registered entities?

    19/02/04(a)

    14/06/05(w)

    3.12 Sale of Property to an Associate under the Margin Scheme

    GSTA TPP 011 replaces this issue. The original issue has been archived.

    19/02/04(a)

    14/06/05(w)

    3.13 Fixtures and fittings

    GSTA TPP 012 and GSTA TPP 013 replace this issue. The original issue has been archived.

    19/02/04(a)

    14/06/05(w)

    3.14 Sale of going concern – debtors

    GSTA TPP 014 replaces this issue. The original issue has been archived.

    24/08/04(a)

    14/06/05(w)

    3.15 Margin schemes, Division 75 and fractional interests

    These issues have been withdrawn and placed in the archive. You can find the ATO's view on these issues in the GST and the Margin Scheme Guide.

    3.16 Margin scheme and valuations

    24/04/05 (a)

    26/06/13 (u)

    3.17 Residential premises and commercial residential premises

    Please see below for the existing ATO view.

    19/02/04(a)

    14/06/05 (w)

    3.18 Margin scheme press release

    These issues have been withdrawn and placed in the archive. You can find the ATO's view on these issues in the GST and the Margin Scheme Guide.

    3.19 GST Transition Act and the acquisition of land

    3.20 GSTR 2000/21 and the margin scheme

    This issue has been withdrawn and placed in the archive.

    24/08/04 (a)

    3.21 Division 135 and the sale of a farm as a going concern

    GSTA TPP 092 replaces this issue. The original issue has been archived.

    3.17 Residential premises and commercial residential premises

    • Non-interpretative – other references: GSTR 2012/5 Goods and Services Tax: residential premises,
    • GSTR 2012/6 Goods and Services Tax: commercial residential premises.

    Issue

    Can the ATO please provide guidance on the GST treatment in the following scenario? A property owning company wishes to lease 2 floors of a multi-storey building to another company. The lessee company will use the premises to provide hostel -style accommodation to both secondary and tertiary students. The secondary student accommodation will be in connection with a school.

    The issue concerns the lease payments to be made to the property owning entity by the lessee ie are these payments:

    a. input taxed (view 1)

    b. taxable supplies (view 2), or

    c. partly taxable and partly input taxed (view 3).

    According to the ATO in GSTR 2000/20*, it is the physical characteristics of premises that mark them out as both 'residential premises' and 'residential premises to be used predominantly for residential accommodation'. Further, according to the ATO, the premises need only provide sleeping accommodation and the basic facilities for daily living, even if for a short time, to be considered 'residential premises used predominantly for residential accommodation'. This approach to the construction of the meaning of 'residential premises' may have the effect of treating the whole of the lease payments to the property owning company as being input taxed.

    An alternative view is that in determining the question of whether particular premises are 'residential premises to be used predominantly for residential accommodation', one should have regard to the actual use to which the premises are put by the recipient of a particular supply. In this case this could mean that the lease of the 2 floors would be a taxable supply because the recipient lessee would not intend to occupy the floors itself for residential purposes.

    A third view is that the lease payments would be taxable to the extent that the floors will be used to provide accommodation to students in connection with a school (ie secondary students). This is because, to this extent the premises will be commercial residential premises ( see the definition of ‘commercial residential premises’ in section 195-1 of the GST Act) and therefore not subject to input taxation under section 40-35 of the Act. To the extent that the building will be used to provide accommodation to students in connection with an education that is not a school, the supplies under the lease will be input taxed. This is because, to this extent, the premises will be residential premises that are not commercial residential premises (in accordance with the proviso at the end of definition of ‘commercial residential premises’ in section 195-1). The problem in this case appears to stem from the fact that in determining whether premises come within paragraph (b) or the proviso to the definition of ‘commercial residential premises’ in section 195-1 an inquiry must be made as to the actual use of the premises.

    This is in conflict with the approach adopted by the Commissioner in relation to characterising ‘residential premises’. In the above case, if the proportion of secondary and tertiary students using the premises changes from month to month (eg in one month 60% of the students are secondary students, while in the next month, 60% are tertiary students) then the GST treatment of the rental payments may vary from one month to the next depending on the institution which students are attending (a fact which the property owning company will not know).

    It is submitted that, in the above scenario, the Commissioner's approach to the interpretation of the expression 'residential premises' in GSTR 2000/20 is flawed and that the premises should be treated as a taxable supply to the lessee.

    ATO response

    Characterisation of the supply of two floors of a building from a property owner to a lessee

    To determine the GST treatment of this supply we have to look at what the property owner is supplying to lessee.

    The supply made by the property owner will be a taxable supply unless the supply is input taxed or GST-free.

    The supply is not GST-free as it does not come within any of the provisions contained in Division 38. The supply will be input taxed if section 40-35 applies (this is the only relevant section within Division 40).

    The supply will be input taxed under section 40-35 if it is a supply by way of lease of residential premises other than commercial residential premises.

    Whether the supply of the two floors is a supply of residential premises will depend on the physical character of the units located on the floors supplied, considered with other objective characteristics. It is assumed that the units are capable of being occupied as a residence.

    Is the supply of units by the property owner to lessee the supply of ‘commercial residential premises’?

    When the premises are supplied by the property owner through entry into the lease with the lessee, the property owner is not supplying commercial residential premises. The premises that the property owner is supplying, the units, do not have the characteristics of commercial residential premises. It is the lessee who puts the premises together with the management services and then offers accommodation to students. The property owner does not use the premises to supply accommodation in connection with a school nor does the property owner supply a hostel or anything similar to a hostel. On the assumption that the units contain the characteristics and facilities referred to in paragraphs 14 and 15 respectively of GSTR 2012/5, the supply made by property owner will be an input taxed supply.

    If, however, as discussed at paragraphs 86 to 88 of GSTR 2012/6, it is determined from the physical character of the premises and other objective characteristics that the premises are commercial residential premises (for example premises similar to a hostel under paragraph (f) of the definition in section 195-1 of the GST Act** ), the supply of the premises by the property owner will be a taxable supply of commercial residential premises.

    If the part of the building that the property owner leases does not contain the ability for day to day living that enable it to be occupied as a residence, it will not be residential premises. By this we mean, if the property owner leases empty floors of a commercial office building, the supply will not be input taxed. In this case the floors leased will not have the physical characteristics of residential premises.

      Last modified: 04 Aug 2016QC 16309