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Edited version of private ruling

Authorisation Number: 1011524618703

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Ruling

Subject: GST liability on the sale of new residential units

Question 1

Is GST payable on your sale of new residential units?

Answer

Yes, GST is payable on your sale of new residential units.

Relevant facts

You carry on an enterprise of building and selling residential property.

You are registered for GST.

You acquired a residential property in Australia with a view to building and selling residential units.

You advise that you are prepared to reduce the selling price of some of the residential units in order to attract the required number of off the plan sales to satisfy the requirements of the bank so you can obtain funding.

To assist, you request the Commissioner of Taxation (Commissioner) waive part of the GST on these off the plan sales.

You state that if you have part of the GST liability on these off the plan sales waived, you will be able to reduce the selling price of these units to such an extent that you can attract buyers to achieve the required pre-sales to ensure finance is provided by the bank.

To support your request for waiver of part of the GST on these off the plan sales, you state that the project will create jobs in the construction industry, generate tax revenues for the Government, and benefit the Australian economy as a whole. You further state that your success in property development over the years has contributed to this in the past.

Reasons for decision

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act) provides that GST is payable on taxable supplies and taxable importations.

Section 9-5 of the GST Act provides that you make a taxable supply if:

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Subsection 40-65(1) of the GST Act provides that a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation. However, subsection 40-65(2) provides the sale is not input taxed to the extent that the residential premises are commercial residential premises or new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

'New residential premises' is defined in section 40-75 of the GST Act. Generally residential premises are new when any of the following apply:

As the sale of new residential premises is excluded from section 40-65 of the GST Act, and there is no other section which treats the sale as input taxed or GST free, the sale of new residential premises will be subject to GST where the requirements of a taxable supply are met.

In your circumstances, you will be selling new residential premises. You are registered for GST. You will be making the sales of the home units situated in Australia for consideration and in the course of carrying on your enterprise. Therefore these sales constitute taxable supplies and are subject to GST.

You request the Commissioner waive part of the GST on some of your sales of new residential units.

However, the Commissioner has no administrative discretion under the GST legislation or GST regulations to waive the GST payable on taxable supplies. This is regardless of a client's particular circumstances or history.

You may claim GST credits for any creditable acquisitions you make for the sale of new residential premises (subject to the normal rules on GST credits).

Further issues for you to consider

You may be eligible to use the margin scheme to work out the GST you must pay on the sale of new residential premises. If you are eligible and you choose to use the margin scheme, you pay GST on one-eleventh of the margin for the sale, not one-eleventh of the sale price. Your margin is generally the difference between the sale price and either the amount you paid for the property or the value of the property provided in an approved valuation of the property as at 1 July 2000 (if certain conditions are satisfied). You cannot use the margin scheme if you purchased a property as a taxable sale that did not also use the margin scheme.

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