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Ruling

Subject: goods and services tax (GST) and sale of property

Question 1

Will GST be payable on your sale of the property?

Answer

No.

Question 2

Will you be required to be registered for GST as a result of your sale of the property?

Answer

No.

This ruling applies for the following periods:

The scheme commences on:

Relevant facts and circumstances

You are not registered for GST.

You purchased a property located in Australia (the property) under a contract dated a certain date.

The property contains a house and garage.

The house contains a small number of bedrooms, a bathroom, a kitchen and a living room.

You have leased out the property for the full period of your ownership.

At the time you purchased the property, you intended to proceed with a re-development of the property but re-development has not proceeded. You obtained a development approval for the development of the property as a boarding house.

The property is zoned Residential - Medium and High Density.

You have not carried out renovations, repairs or modified the premises apart from any minor repairs of a non-substantial nature.

You have entered into a contract to sell the property.

You will sell the property with vacant possession.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(c)

A New Tax System (Goods and Services Tax) Act 1999 section 23-5

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-35(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(2)

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-75(1)

A New Tax System (Goods and Services Tax) Act 1999 Division 188

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-15(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 188-20(1)

Reasons for decisions

Question 1

Summary

GST will not be payable on your sale of the property as it will be a sale of residential premises to be used predominantly for residential accommodation and it is not commercial residential premises or new residential premises.

Detailed reasoning

GST is payable by you where you make a taxable supply.

You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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.

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

or *input taxed.

(*Denotes a term defined in section 195-1 of the GST Act)

A sale of residential premises is input taxed under subsection 40-65(1) of the GST Act, but only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation).

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

(a) commercial residential premises (for example, a hotel, boarding house or something similar); or

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

Paragraphs 19 to 22 of Goods and Services Tax Ruling GSTR 2000/20 explain the meaning of residential premises and to be used for residential accommodation. They state:

19. Further, 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.

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. This follows from the definition of commercial residential premises referred to in paragraph 18.

21. Some examples will indicate the differences that need to be understood in this context. If a building consists of a shop below and a flat above, the physical characteristics indicate that only part of the building is residential premises, that is, the flat. The shop is not residential premises and is taxable in the normal way when leased or sold.

22. The function of paragraph 40-35(2)(a) and subsection 40-65(1) is to differentiate the GST treatment of any portions of residential premises that are commercial. This would apply, for example, to a house that has been partly converted for use as a doctor's surgery. Several parts of the house may still be used predominantly for residential accommodation, such as bedrooms, bathroom, kitchen, living rooms and gardens, while other areas are not, being turned over to office and consulting room space, and storage for the surgery. In this case paragraph 40-35(2)(a) and subsection 40-65(1) operate to exclude these commercial parts from the input-taxed treatment of the rest of the property.

The premises in your case contain bedrooms and the basic facilities for daily living. Therefore, they are residential premises to be used predominantly for residential accommodation.

These residential premises are not commercial residential premises. We do not consider that the existence of the planning approval to develop a boarding house has changed the character of the premises to commercial residential premises, such as a boarding house.

New residential premises is defined in section 40-75 of the GST Act.

Subsection 40-75(1) of the GST Act states:

*Residential premises are new residential premises it they:

(a) have not previously been sold as residential premises (other than commercial

residential premises) and have not previously been the subject of long-term lease; or

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

(c) have been built, or contain a building that has been build, to replace demolished

premises on the same land.

The residential premises in your case have previously been sold as residential premises other than commercial residential premises.

Paragraph 28 of Good and Services Tax Ruling 2003/3 provides that paragraphs 40-75(1)(b) and 40-75(1)(c) of the GST Act raise the question of what has been done to the building or the activity of building by the current owner and this will determine whether the residential premises are new residential premises under those paragraphs.

You have not substantially renovated the residential premises in your case. Additionally, these residential premises have not been built, and do not contain a building that has been built, by you to replace premises you demolished on the same land.

Therefore, the residential premises are not new residential premises.

Hence, your sale of the property will be an input taxed supply under subsection 40-65(1) of the GST Act. Therefore, you will not make a taxable supply of the property when you sell it. Hence, GST will not be payable on your sale of the property.

Question 2

Summary

You will not be required to be registered for GST as a result of your sale of the property, as the sale will be an input taxed supply and therefore it will be excluded from the calculation of GST turnover.

Detailed reasoning

Section 23-5 of the GST Act provides that you are required to be registered for GST if:

(a) you carry on an enterprise; and

(b) your GST turnover meets the registration turnover threshold of $75,000.

You are carrying on an enterprise in relation to the property in question. The enterprise is a property leasing enterprise.

In accordance with subsections 188-15(1) and 188-20(1) of the GST Act, input taxed supplies are excluded from the calculation of GST turnover.

As your sale of the premises will be an input taxed supply, the proceeds from the sale will not be included in the calculation of your GST turnover. Therefore, your sale of the property will not result in your being required to be registered for GST.

Additional information

Leasing out residential premises is an input taxed supply under subsection 40-35(1) of the GST Act. The leasing out of the premises in your case is an input taxed supply under subsection 40-35(1) of the GST Act. Hence, the rent you received from these premises is not included in the calculation of your GST turnover. Therefore, leasing out the premises has not resulted in you being required to be registered for GST.

This ruling does not consider whether you are required to be registered for GST as a result of other activities you conduct or activities you conduct at other locations.

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