Edited version of private ruling

Authorisation Number: 1011751709406

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Ruling

Subject: GST and sale of residential premises

Question

Is the sale of your property a taxable supply?

Answer

No.

Relevant facts and circumstances

You own a specified property (the property). You acquired the property about X number of months ago.

On a specified date (the specified date), you entered into a contract for the sale of the property (the contract) with a third party (the purchaser) for a specified amount. The settlement has not taken place yet.

The owner of the adjoining property also entered into a contract for the sale of their property to the purchaser on the specified date.

You and the adjoining property owner had applied for a development approval for the construction of a specified number of residential premises on both properties, before you were introduced to the purchaser.

A special condition in the contract of sale provides that the completion is conditional upon the council approving the development application.

The contract identifies the improvement on the land as a house.

The house existed when you acquired the property. The house contains three bedrooms, a lounge, kitchen, laundry and bathroom. The house is fit for human habitation and is currently leased under a formal lease agreement.

You have not done any substantial renovations to the house since its acquisition. You will not demolish or substantially renovate the house on the property before the settlement.

The contract requires the property to be supplied with vacant possession.

You have not used any part of the property for income producing activities other than residential leasing.

The development consent will be attached to the land and will run with the land.

You are not registered for GST.

Reasons for decision

Summary

The sale of the property is not a taxable supply. The sale is an input taxed supply of residential premises. Therefore, you are not liable to pay GST on the sale of the property.

Detailed reasoning

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:

(a) you make the supply for consideration

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

(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.

For the sale of the property to be a taxable supply, all of the requirements listed in section 9-5 of the GST Act must be met.

In your case, you meet the requirements of paragraphs 9-5(a), 9-5(b) and 9-5(c) of the GST Act. This is because:

· you will be selling the property for consideration

· the sale of the property will be made in the course or furtherance of your leasing enterprise, and

· the sale will be connected with Australia as the property is located in Australia.

Furthermore, the sale of the property is not GST-free under a provision of the GST Act or a provision of another Act. Therefore, what remains to be determined is whether the sale of the property is input taxed and whether you are required to be registered for GST.

Whether the sale of the property is input taxed

As mentioned above, a supply is not a taxable supply to the extent that it is 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 (regardless of the term of occupation).

However, under subsection 40-65(2) of the GST Act, the sale is not input taxed to the extent that the residential premises are:

(a) commercial residential premises, or

(b) new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

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

Goods and Services Tax Ruling GSTR 2000/20 explains, amongst other things, the Commissioner's view on the meaning of 'residential premises', 'residence' and 'to be used predominantly for residential accommodation'. In particular, paragraph 19 of GSTR 2000/20 states:

19. … the requirement in paragraph 40-35(2)(a) and subsection 40-65(1) that input taxing only applies to the extent that the premises are 'to be used predominantly for residential accommodation' indicates that premises that are residential premises are capable of use for purposes other than residential accommodation. It is their physical characteristics that mark them out as a residence. In turn, these characteristics determine when the use or proposed use is for residential accommodation.

Paragraph 26 of GSTR 2000/20 outlines the characteristics of residential premises and states:

26. 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.

Further, paragraph 20 of GSTR 2000/20 states, in part, that:

20. To be used for residential accommodation or to be occupied as a residence, premises do not have to be a home or a permanent place of abode. To be residential premises as defined, a place need only provide sleeping accommodation and the basic facilities for daily living, even if for a short term.

You advised that the house on the property contains living and sleeping areas, such as three bedrooms, a lounge, kitchen, laundry and bathroom and is capable of being occupied as a residence. In this regard, the house is considered to possess the physical characteristics of residential premises to be used predominantly for residential accommodation. Accordingly, the property satisfies the definition of residential premises in section 195-1 of the GST Act.

However, as stated above, a sale of residential premises is not input taxed to the extent that the residential premises are commercial residential premise or new residential premises.

Whether the property is commercial residential premises

The definition of commercial residential premises, in section 195-1 of the GST Act includes, amongst other things, a hotel, motel, inn, hostel or boarding house or anything similar to residential premises under these descriptions.

Based on the information provided, the property is not considered to be commercial residential premises.

Whether the property is new residential premises

The term 'new residential premises' is defined in section 40-75 of the GST Act. Subsection

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

(a) 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

(b) have been created through substantial renovations of a building, or

(c) have been built, or contain a building that has been built, to replace demolished premises on the same land.

In your case, based on the information provided, the house is not new residential premises as it was previously sold as residential premises, it was not created through substantial renovations and was not built and does not contain a building that was built to replace demolished premises on the same land. Therefore, the property is not new residential premises as it does not meet any of the definitions of new residential premises in subsection 40-75(1) of the GST Act.

As the property is neither commercial residential premises nor new residential premises, the sale of the property will be input taxed under subsection 40-65(1) of the GST Act. Consequently, the sale of the property is not a taxable supply as it does not meet all the requirements of section 9-5 of the GST Act. Therefore, you are not liable to pay GST on the sale of the property.

Development consent

You advised that you have applied for a development approval and the development approval will be attached to the land and run with the land.

In this case, upon the sale of the property, the development consent will be automatically transferred to the purchaser as a natural consequence of the sale. The fact that you have applied for a development approval and that the sale is conditional upon the council approving the development application does not change the input taxed status of the supply.

Additionally, what the purchaser intends to do with the property after the sale does not alter the character of the supply.

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