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ATO Interpretative Decision

ATO ID 2001/703

Goods and Services Tax

GST and supply of residential premises rented out for more than five years
FOI status: may be released

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CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is the entity, a property developer, making an input taxed supply under section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells residential premises for the first time after it has been rented out for a period of more than five years?

Decision

Yes, the entity is making an input taxed supply under section 40-65 of the GST Act when it sells residential premises for the first time after it has been rented out for a period of more than five years.

Facts

The entity is a property developer. The entity builds residential premises and plans to rent it out for a period of more than five years. The entity then plans to sell the residential premises. The premises are to be used predominantly for residential accommodation. The premises arenot commercial residential premises. The premises will not be the subject of a sale or a long term lease prior to the planned sale.

The entity is registered for goods and services tax (GST).

Reasons for Decision

Subsection 40-65(1) of the GST Act states that a sale of real property is input taxed to the extent that it is residential premises to be used predominantly for residential accommodation. However, subsection 40-65(2) of the GST Act provides that the sale of such premises is not input taxed to the extent that it is:

•
commercial residential premises; or
•
new residential premises not used for residential accommodation before 2 December 1998.

The premises in question are not commercial residential premises. However, as it has not been used for residential accommodation before 2 December 1998, it may come within the definition of new residential premises, the supply of which is taxable where the requirements of section 9-5 of the GST Act are satisfied.

Subsection 40-75(1) of the GST Act provides that residential premises are new residential premises if they:

•
have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or
•
have been created through substantial renovations of a building; or
•
have been built, or contain a building that has been built, to replace demolished premises on the same land.

As the premises will not be the subject of a sale or a long term lease prior to the planned sale, itsatisfies the positive limb of the definition of new residential premises in subsection 40-75(1) of the GST Act.

However, the negative limb of the definition contained in subsection 40-75(2) of the GST Act provides that premises are not new residential premises if, for the period of at least five years since the premises first became residential premises, the premises have only been used for making supplies that are input taxed because of paragraph 40-35(1)(a) of the GST Act.

The entity is supplying a premise that will be rented out for residential accommodation for a period of more than five years. This supply will be input taxed under paragraph 40-35(1)(a) of the GST Act. As such, subsection 40-75(2) of the GST Act operates to prevent the premises from being new residential premises.

Accordingly, the entity is making an input taxed supply of residential premises under section 40-65 of the GST Act, when it sells residential premises for the first time after it has been rented out for a period of more than five years.

[Note: Where the entity builds residential premises and subsequently rents out the residential premises, the entity cannot claim the input tax credits for the construction costs under section 11-20 of the GST Act, because the construction costs relate to making an input taxed supply of those premises.]

Date of decision:  20 September 2001

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 11-20
   paragraph 40-35(1)(a)
   section 40-65
   subsection 40-65(1)
   subsection 40-65(2)
   subsection 40-75(1)
   subsection 40-75(2)

Keywords
Goods & services tax
GST property & construction
GST new residential premises
GST residential premises
GST sale of real property
Input taxed supply

Business Line:  GST

Date of publication:  30 November 2001

ISSN: 1445-2782

history
  Date: Version:
You are here 20 September 2001 Original statement
  28 March 2008 Archived

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