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Edited version of private ruling
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Ruling
Subject: GST and supply of common property held by company title
Question
Is GST payable on the supply to a shareholder of exclusive use of a courtyard/terrace area adjacent to their residential premises?
Answer: No.
Relevant facts
You are registered for goods and services tax (GST).
You own a property consisting of 5 residential flats and a courtyard.
The property is held under company title.
The capital of the company has been divided into numbered shares which are classified as Share Group A, B, C, D and E.
Holding shares entitles the shareholders to occupy a certain area and to use the common areas.
Article 3 of the Articles of Association details the areas that each shareholder is entitled to the exclusive use of, and also specifies that common areas are for common enjoyment and not allocated to a particular shareholding.
Article 3 (e) provides that the rights conferred, and the obligations imposed, by the Article shall not be altered except by unanimous resolution of the members.
A courtyard is part of the title of the land on which the residential flats were constructed, and is not capable of having a residence placed upon it.
Originally the courtyard was common property and all unit owners had access to that area.
In a general meeting there was unanimous agreement to provide an exclusive right to the courtyard to Share Group A for monetary consideration. This is reflected in the minutes of the meeting.
The shareholding of the company does not change when the company alters the rights attached to Share Group A by including exclusive rights to the courtyard. However, the articles of association will be amended to reflect the altered rights, obligations and entitlements of Share Group A.
Reasons for decision
Question 1
Summary
GST is not payable by you on the supply to a shareholder of exclusive use of a courtyard area adjacent to their residential premises. You have made a financial supply, which is an input taxed supply.
Detailed reasoning
Company title is explained in the ATO ruling GSTR 2002/2 (GST treatment of financial supplies and related supplies and acquisitions). A company title is the grant by a company of a right of exclusive use or occupancy of real property that the company owns or holds to a shareholder as a right attached to the holding of the shares. The right may be a lease, licence or a contractual right. The company's constitution must permit the granting of such rights.
You have made a supply of a right to occupation of premises held under company title. This supply is made by way of a change in the articles of association to amend the rights attached to the holdings of Share Group A.
The supply of an interest in a company that gives the recipient a right to exclusive occupation of a home unit or other areas is not the supply of residential premises. Rather, it is a supply of an interest attached to shares that may be a financial supply.
Section 9-5 of the GST Act provides that you make a taxable supply if:
· you make the supply for consideration
· the supply is made in the course of carrying on an enterprise
· the supply is connected with Australia, and
· 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. Section 40-5 of the GST Act provides that a financial supply is input taxed and that the term 'financial supply' has the meaning given in the regulations.
Under sub regulation 40-5.09(1) of the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations), the provision, acquisition or disposal of an interest mentioned in sub regulation 40-5.09(3) of the GST Regulations is a financial supply if:
· the provision, acquisition or disposal is:
o for consideration
o in the course of carrying on an enterprise
o connected with Australia, and
· the supplier is:
o registered or required to be registered for GST, and
o a financial supply provider in relation to the supply of the interest.
Item 10 in the table given at sub regulation 40-5.09(3) of the GST Regulations explains that an interest in or under a security is a financial supply where the requirements above are met.
According to the Glossary of Terms in Schedule 1 of GSTR 2002/2 a share in a body is a security. A financial supply provider is the entity who held the interest immediately before the supply or created the interest in making the supply. In this case, you hold the interest immediately before the supply and you are therefore the financial supply provider.
Furthermore, schedule 2 of GSTR 2002/2 lists supplies of financial interests (and related supplies) by financial supply providers and determines their GST treatment. Company title schemes are specifically listed as a security for the purposes of the GST Regulations (as stated at line no D18A). The GST status is stated as input taxed. Therefore, according to the table in GSTR 2002/2, a supply of an interest in a company title will be an input taxed financial supply.
An interest is defined in regulation 40-5.02 of the GST Regulations as 'anything that is recognised at law or in equity as property in any form.' GSTR 2002/2 explains further that
'The term "interest" is taken to be very broad even taking into account the use of the word property… the term is given its broadest application so that an interest is as wide as the legal and equitable concept of property, including rights arising under a contract.'
As the term interest is broadly defined, and includes rights arising under a contract, the rights arising from the resolution in your meeting will be considered to be the supply of an interest in a security.
While the shareholdings in actual shares in your company do not change, you have granted exclusive use of real property that you own as a right attached to a particular Share Group. This is permitted by your articles of association. This is within the scope of an interest in a security.
The provision of the interest is for consideration, is in the course of carrying on your enterprise in relation to the flats and is connected with Australia. As you are registered, and are the financial supply provider in relation to the supply of the interest, it is a financial supply.
Therefore the fees and charges for this particular company title scheme supply are consideration for financial supplies and are input taxed. Input taxed supplies are not subject to GST. GST is therefore not payable on the supply to a shareholder of exclusive use of a courtyard/terrace area adjacent to their residential premises.
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