Edited version of private ruling

Authorisation Number: 1011556544665

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Ruling

Subject: GST - taxable supply

Was your supply of property in Australia (the Property) a taxable supply?

No, your supply of the Property was an input taxed supply of residential property.

Relevant facts

You are registered for GST.

On ddmmyyyy, you entered into a contract to sell the Property to the Purchaser. You also entered into a contract to sell the adjoining property to the Purchaser.

The Property is located in a Residential 1 Zone.

The Property contains a residential house that is designed and built as, and is capable of being occupied as, residential premises.

You did not pay GST when purchasing the Property.

While you owned the Property, you leased it for residential purposes. You applied for a planning permit for a redevelopment across both properties. The permit was subsequently granted.

Subsequent to obtaining the planning permit and before carrying out any works under the planning permit, you marketed and sold the Property and the adjoining property to the Purchaser.

Because you and the Purchaser disagree on the GST consequences of the transaction, you have applied for this ruling.

At the Purchaser's request, you terminated the lease of the Property so that vacant possession of the Property could be provided to the Purchaser at settlement. The lease terminated after the contract date and the Property was vacant from that date until the date of settlement.

You provided a copy of a valuation report prepared by a licensed valuer and dated prior to the contract date. The report states that the house is a dwelling built in the 1920s.

You have not renovated, repaired or modified the residential premises.

The Property is not part of a resort, serviced apartment or hotel type setting.

The adjoining property also had a house erected at the time of settlement.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 40-65

A New Tax System (Goods and Services Tax) Act 1999 Section 40-75

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1

A New Tax System (Goods and Services Tax) Act 1999 Section 9-5

Reasons for decision

GST is payable on taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a taxable supply if:

(a)     you make the supply for *consideration; and

(b)     the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c)     the supply is *connected with Australia, and

(d)     you are *registered or *required to be registered for GST.

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

(*denotes a term defined under section 195-1 of the GST Act).

You made the supply for consideration in the course or furtherance of your enterprise. The property is located in Australia and you are registered for GST. Therefore, unless the property is GST free or input taxed it will be a taxable supply.

In your situation, there are no provisions in the GST Act that would make your supply of the property a GST-free supply.

Input taxed supplies

In accordance with section 40-65 of the GST Act, 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 (regardless of the term of occupation).

However, 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.

Goods and Services Tax Ruling GSTR 2000/20: Commercial residential premises, provides guidance on the meaning of residential premises and commercial residential premises. Paragraph 26 of GSTR 2000/20 states:

The physical characteristics common to residential premises that provide accommodation are:

(i)The premises provide the occupants with sleeping accommodation and at least some basic facilities for day to day living.  

(ii)The premises may be in any form, including detached buildings, semidetached buildings, strata-title apartments, single rooms or suites of rooms within larger premises.

Paragraphs 28 and 29 of GSTR 2000/20 state:

28. The definition states that residential premises must be capable of occupation as a residence. To be a residence in this sense, a place normally should have the facilities required for day to day living. These characteristics are inherent in the fabrication of the structure itself. The premises should have such things as areas for sleeping, eating and bathing, but it is not necessary that these things be arranged in a similar manner to a conventional house or apartment.

29. Premises that lack these basic features may not be either residential premises or commercial residential premises. Supplies of buildings or other structures without these characteristics are subject to GST under the basic rules, regardless of whether or not they are or have been at one time, occupied as some form of residence

From the facts provided, the building that existed on the Property at the time of settlement had the physical characteristics of residential premises, but not commercial residential premises. This is evidenced by the fact that, until shortly before settlement, the dwelling was tenanted and the residential tenancy being terminated at the Purchaser's request.

In accordance with section 40-75 of the GST Act, residential premises are new residential premises if they:

· have not been previously sold as residential premises (other than commercial 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.

From the facts provided, the property does not meet the definition of new residential premises set out in section 40-75 of the GST Act.

You advised that, prior to sale, you obtained planning approval for the construction of apartments across both properties.

However, even though the Purchaser may proceed with the permitted redevelopment, at settlement, the Property satisfied the requirements of residential property. Further, it was neither commercial residential premises nor new residential premises. Therefore, your supply of the Property was an input taxed supply of residential property.

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