Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private ruling

Authorisation Number: 1011718482002

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: GST and supply of real property

Question 1

Is the sale of the property an input taxed supply of existing residential premises?

Advice/Answers

No.

Question 2

Is there any GST to be charged on the rent received from the tenants of the premises?

Advice/Answer

Yes.

Question 3

If the supply of the property is not an input taxed supply, is the supply of the property a GST-free supply of a going concern?

Advice/Answer

Yes.

Relevant facts and circumstances

You are registered for goods and services tax (GST). Your enterprise is leasing.

You acquired residential premises located in Australia.

The property is a free standing residence and was divided into a ground floor and a first floor apartment. Each apartment comprised of a number of separate bedrooms, lounge, kitchen, meal and bathroom.

You received a notice of decision to grant a permit from the local council to use the property as a relevant centre (relevant centre) and associated car park dispensation. The planning permit (permit) was subsequent issued.

The property was converted into a number of medical practitioners suites following the grant of the permit. The conversion is not a substantial renovation of the existing residential premises.

The permit

The key details of the permit are provided.

The lease of the relevant property

The details relating to the lease of the relevant property are provided.

The sale of the relevant property

The details relating to the sale of the relevant property are provided.

Reasons for decisions

Question 1

Summary

The supply of the property under the contract is not an input taxed supply of residential premises. The contractual arrangements provide for the supply of a commercial property at settlement.

Detailed reasoning

In order to determine whether the supply of the property in question is an input taxed supply of residential premises we need to determine the character of the supply at the time the subject matter of the supply is transferred.

The supply occurs when settlement for the real property is completed. The definition of residential premises is applied to whatever is supplied at settlement.

The character of what is supplied is determined by all of the facts and circumstances surrounding the supply, primarily as reflected in the contractual arrangements between the supplier and the recipient.

Section 40-65 of the GST Act provides conditions for the input taxed treatment of the sale of residential premises. This section states:

*denotes a defined term in the Act

For their sale to be input taxed under section 40-65 of the GST Act, premises must not only be residential premises but must also satisfy the further condition that they are to be used predominantly for residential accommodation.

The term 'residential premises' is defined in section 195-1 - Definition of the GST Act to mean:

residential premises means land or a building that:

(a) is occupied as a residence or for residential accommodation; or

(b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation; (regardless of the term of the occupation or intended occupation) and includes a *floating home.

The Australian Taxation Office (ATO) has issued goods and services tax ruling GSTR 2000/20 to provide guidance on what is considered to be residential premises.

The definition requires that land must have a building affixed to it and that the building must have the physical characteristics that enable it to be occupied or be capable of occupation as a residence or for residential accommodation.

Paragraph 20 of GSTR 2000/20 provides the view of the ATO on the meaning of to be used for 'residential accommodation' or 'occupied as a residence'. It states:

Following the definition we need to determine:

As the property was occupied under a lease at the time of the supply, we only consider (1) above, not (2).

You have provided that:

The subject of the supply at the settlement date is a relevant centre (under a lease). As per the floor plan provided, what the relevant centre consists of is noted.

At the time of the supply, the question is whether the relevant centre is occupied as a residence or for residential accommodation. The following facts are considered:

It is considered that the subject matter of the supply, the relevant centre, is not occupied as a residence or for residential accommodation, at the time of the supply, due to its restricted usage under the permit.

We consider that the relevant centre is commercial premises rather than residential premises. There are a number of factors that can be taken into account when determining whether the premises have commercial characteristics:

The relevant centre is not residential premises at the time of the supply, it is a commercial premises and therefore section 40-65 of the GST Act does not apply to make the supply input taxed.

Question 2

Summary

Yes, the supply by way of lease of the relevant centre is subject to GST as all of the requirements under section 9-5 of the GST Act are met and no exceptions apply to make the supply input taxed or GST-free.

Detailed reasoning

The supply of the relevant centre by way of lease is subject to GST if all of the requirements under section 9-5 of the GST Act are met and there is no provision in the GST Act applies to make the supply input taxed or GST-free.

Section 9-5 of the GST Act states:

In your circumstances:

The supply of the relevant centre is a taxable supply to the extent that it is not GST-free or input taxed.

The supply of the relevant centre by way of lease is not GST-free under any provisions of the GST Act or any Act.

The supply of the relevant centre by way of lease is not input taxed because the supply is not a supply of residential premises as discussed above.

Therefore, the supply of the relevant centre is a taxable supply under section 9-5 of the GST Act.

Question 3

Summary

The supply of the property under the contract meets all of the requirements under section 38-325 of the GST Act to be a GST-free supply of a going concern.

Detailed reasoning

Subdivision 38-J of the GST Act provides that if certain conditions are satisfied, a 'supply of a going concern' is GST-free.

The first thing to consider is whether the supply in question is a supply of a going concern pursuant to subsection 38-325(2) of the GST Act. That is, for subsection 38-325(1) of the GST Act to apply (to determine whether a supply of a going concern is GST-free supply), the prerequisite is that the supply must be a supply of a going concern.

Consequently, the requirements under subsection 38-325(1) of the GST Act will only be considered if the supply in question is a supply of a going concern.

The term 'supply of a going concern' is a statutory term which is defined in subsection 38-325(2) of the GST Act. It states:

For the purposes of the definition, it is not a supply itself that must satisfy the conditions in paragraphs 38-325(2)(a) and (b) of the GST Act but the arrangement under which the supply is made.

ATO's view of the application of section 38-325 of the GST Act is explained in Goods and Services Tax Ruling GSTR 2002/5.

Paragraphs19 and 21 of GSTR 2002/5 state:

It is considered that the supply of the property is a supply made under a sale contract and therefore is a supply under an arrangement for the purposes of section 38-325 of the GST Act.

Identifying the enterprise

The arrangement between you and the Purchaser under the contract provides that the legal and beneficial ownership of the Land and the leasing business are being transferred to the Purchaser. Subsection 38-325(2) of the GST Act requires the identification of an enterprise that is being carried on by you, the supplier (the identified enterprise). This is the enterprise, which the vendor must supply for it to be a supply of a going concern. 'Enterprise' is defined in subsection 9-20(1) of the GST Act. This subsection states:

In the application for the Private Ruling your tax agent provides that you were carrying a leasing business on the property.

Therefore, your leasing activity is considered to be an activity or series of activities done on a regular or continuous basis, in the form of a lease under paragraph 9-20(1)(c) of the GST Act.

The supplier supplies

Paragraphs 42 and 45 of GSTR 2002/5 state:

The contract indicates that there is only one supplier (you) and one recipient, the Purchaser.

All the things necessary

Paragraphs 65 to 68 of GSTR 2002/5 provide the ATO's view on the term 'necessary'

Land/Building

Under the contract, the Land comprised in Title Particulars Volume X Folio Y is to be sold to the Purchaser. This is the Land on which the leasing business is being carried on.

Your contract has provided that the main asset, the Land, necessary for the conduct of the enterprise is to be transferred by you to the Purchaser.

Leasing business

You were operating a leasing business on the property. Under the contract, you will assign the lease to the Purchaser at the settlement date.

It is considered that you have provided all the things that are necessary for the continued operation of your leasing business as required under paragraph 38-325(2)(a) of the GST Act.

The supplier carries on the enterprise until the day of the supply

The term 'carrying on an enterprise' is defined in section 195-1 of the GST Act to include 'doing anything in the course of the commencement or termination of the enterprise.'

A supplier is unable to supply all the things that are necessary for the continued operation of an enterprise unless the relevant enterprise is not only being 'carried' on, but is also operating. Where an entity engaged in activity ceases to carry on that activity and the assets are in the course of being sold off, the enterprise is being carried on but not operating.

A clause of the contract provides:

This Clause indicates that you will continue to operate the leasing business until the day of the supply.

The requirement under paragraph 38-325(2)(b) of the GST Act is met.

As both paragraphs 38-325(2)(a) and (b) of the GST Act are satisfied, the supply of the leasing business including the Land is the supply of a going concern for GST purposes.

GST-free supply of a going concern

The supply of the leasing business including the Land/Building will be a GST-free supply of a going concern pursuant to subsection 38-325(1) of the GST Act if:

Consideration

The term 'consideration' is defined in subsection 9-15(1) of the GST Act. This subsection provides that consideration includes:

Your contract stipulates a certain monetary payment for the supply. The payment is the consideration under section 9-15 of the GST Act.

GST registration

You have stated that you are registered for GST and the Purchaser is also registered for GST.

Agreed in writing as the supply of a going concern

The Particulars of sale and a clause of the contract provide that you and the Purchaser acknowledge and agree that the supply is a supply of a going concern.

Therefore, all of the requirements of section 38-325 of the GST Act are met. The supply of the leasing business including the Land/Building is a GST-free supply of a going concern.


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).