ATO Interpretative Decision

ATO ID 2013/57 (Withdrawn)

Goods and Services Tax

GST and the supply of residential premises by way of assignment of a long-term strata lot lease
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Status of this decision: Decision Withdrawn 27 May 2014
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.

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Are premises new residential premises under paragraph 40-75(1)(a) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) where individual strata lot leases are granted to an entity by a government body following the lodgement for registration of a strata plan leasehold plan on or after 27 January 2011 and the premises are newly constructed residential units developed and built by an entity in accordance with the 'building and development' provisions of a 99 year Crown lease?

Decision

Yes, the newly constructed residential premises are new residential premises under 40-75(1)(a) of A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Subsection 40-75 (2C) of the GST Act applies to disregard supplies of the residential units that is made upon the grant of the strata lot leases for the purposes of applying paragraph 40-75(1)(a) of the GST Act.

Facts

The entity is registered for GST and is carrying on a property development enterprise.

In January 2010, a 99 year Crown lease (Crown lease) with respect to land was granted, by a government body, to the entity.

The terms of the Crown lease include a 'building and development' provision that requires the entity to commence an approved development on the land within 12 months and to complete that development within 36 months of the date of the grant of the Crown lease.

The entity obtained development approval for the construction of a residential unit complex. The development application was approved by the same government entity that granted the Crown lease to the entity.

In June 2012, the development was completed and the entity lodged a strata leasehold plan for registration, in relation to the development, with a relevant government authority.

The strata leasehold plan was registered on 1 July 2012 and, as a consequence of registration of the strata leasehold plan, individual 99 year strata lot leases ('strata lot leases') were granted to the entity with respect to each of the individual residential units comprising the development.

Reasons for Decision

The meaning of new residential premises

The term 'new residential premises' has the meaning given by section 40-75 which states at paragraph 40-75(1)(a) that residential premises are new residential premises if they have not previously been sold as residential premises (other than commercial residential premises) and have not previously been the subject of a long-term lease.

However, section 40-75 comprises further provisions which provide that certain supplies of residential premises are disregarded for the purposes of determining whether the premises have previously been sold as residential premises or the subject of a long term lease for the purposes of paragraph 40-75(1)(a).

Subsection 40-75(2B) of the GST Act

Under subsection 40-75(2B), a particular supply ('wholesale supply') of newly constructed residential premises will be disregarded as a sale or supply in determining whether a subsequent supply of those premises is a supply of new residential premises.

Consistent with the majority of the Full Federal Court's decision in Federal Commissioner of Taxation v. Gloxinia Investments Ltd [2010] FCAFC 46, the grant of a strata lot lease is a 'wholesale supply' for the purposes of subsection 40-75(2B). However, subsection 40-75(2B) only applies to disregard a 'wholesale supply' if the 'wholesale supply' is made in accordance with the circumstances specified in paragraphs 40-75(2B)(a), (b), and (c).

Paragraph 40-75(2B)(a) requires the premises from which the residential premises were created to have earlier been supplied to the recipient of the wholesale supply, or their associates. In this case paragraph 40-75(2B)(a) is satisfied because the land from which the residential premises were created have previously been supplied to the entity when it received the grant of the Crown lease.

Paragraph 40-75(2B)(b) requires that an arrangement (including an agreement) be made between the supplier of the earlier supply, or their associate, and the recipient of that earlier supply, or their associate. In this case, the 99 year Crown lease comprising the 'building and development' provision, together with the development approval is considered to be an 'arrangement' between the entity (the recipient of the earlier supply) and the government entity that granted the 99 year Crown lease (the supplier of the earlier supply). Therefore, paragraph 40-75(B)(b) is satisfied.

Lastly, paragraph 40-75(2B)(c) requires that under the arrangement the 'wholesale supply' of the residential premises is conditional upon specified building or renovation work being undertaken by the recipient of the earlier supply (in this case, the entity).

Having regard to the High Court decisions in Federal Commissioner of Taxation v. Sara Lee Household Body Care (Aust) Pty Ltd [2000] HCA 35 and Chan v. Cresdon [1989] HCA 63 about the meaning of the word 'under' in the context of the phrase 'under a lease' and 'under a contract', it is considered that the words 'under the arrangement' as used in subsection 40-75(2B)(c) impart that the arrangement itself must make the 'wholesale supply' conditional upon specified building and renovation work being undertaken by the recipient of the earlier supply.

In this case, the terms of the arrangement between the entity and the government entity (comprising the Crown lease and associated development approval) do not provide, and are not the source of, conditions that, when satisfied, give rise to the grant of the strata lot leases. While envisaged in the arrangement with the Government entity the decision to lodge a strata leasehold plan is independent of the arrangement.

As a result subsection 40-75(2B)(c) is not satisfied in this case and thus, for the purposes of applying paragraph 40-75(1)(a), subsection 40-75(2B) does not apply to disregard the supply of the residential units that is made when the strata lot leases are granted.

Accordingly, because subsection 40-75(2B) does not apply, the exception to the 27 January 2011 application date for subsection 40-75(2B) in item 12 of Schedule 4 to the Tax Laws Amendment (2011 Measures No. 9) Act 2012 has no application, and thus does not require consideration in this instance.

Subsection 40-75(2C) of the GST Act

Under subsection 40-75(2C), a supply of the newly constructed residential premises is disregarded as a sale or supply for the purposes of applying paragraph 40-75(1)(a) if it is made because a property sub-division plan relating to the premises was lodged for registration (however described) by the recipient of the supply or their associate.

In this case the strata leasehold plan is a property sub-division plan as defined in section 195-1, and the supplies of the residential units upon the grant of the strata lot leases were made as a consequence of the registration of that strata leasehold plan lodged by the entity. Accordingly, subsection 40-75(2C) applies, and the grant of the strata lot leases is disregarded for the purposes of applying paragraph 40-75(1)(a).

Item 13 of Schedule 4 to the Tax Laws Amendment (2011 Measures No. 9) Act 2012 (Item 13) provides that subsection 40-75(2C) does not apply to supplies made in cases where the relevant property subdivision plan was lodged for registration before 27 January 2011. Item 13 therefore does not apply in this case, because the strata leasehold plan was lodged for registration on 1 July 2012.

Note: Because the newly constructed residential units remain new residential premises under paragraph 40-75(1)(a) subsequent to the grant of the strata lot leases, any sale of the residential units by the entity, by way of assignment of the strata lot leases, will be a taxable supply of new residential premises.

Amendment History

Date of amendment Part Comment
8 November 2013 Decision Amended for clarity.

Date of decision:  24 October 2013

Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
   section 40-75
   paragraph 40-75(1)(a)
   subsection 40-75(2B)
   paragraph 40-75(2B)(a)
   paragraph 40-75(2B)(b)
   paragraph 40-75(2B)(c)
   subsection 40-75(2C)

Tax Laws Amendment (2011 Measures No. 9) Act 2012
   Item 12 of Schedule 4
   Item 13 of Schedule 4

Case References:
Federal Commissioner of Taxation (Cth) v. Sara Lee Household & Body Care (Aust) Pty Ltd
   [2000] HCA 35

Chan v. Cresdon
   [1989] HCA 63

Federal Commissioner of Taxation v. Gloxinia Investments Ltd
   [2010] FCAFC 46

Related Public Rulings (including Determinations)
GSTR 2003/3

Keywords
goods and services tax
GST lease and real property
GST long term lease
GST new residential premises
GST residential premises
GST sale of real property

Business Line:  Interpretative Assistance, Indirect Tax

Date of publication:  25 October 2013

ISSN: 1445-2782

history
  Date: Version:
  24 October 2013 Original statement
  8 November 2013 Updated statement
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