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Ruling

Subject: GST and the supply of residential property

Question 1

Is your lease of property a taxable supply of commercial residential premises as defined in the GST Act.

Answer

No.

Relevant facts and circumstances

· You, are registered for GST.

· You constructed premises on a property after your GST registration date.

· The premises consists of x apartments, entry and secure undercover parking for one vehicles per unit.

· The premises. does not, contain any additional infrastructure.

· Each apartment comprises of a bedroom, a living area, bathroom, laundry and kitchen.

· Your original intent was to sell the property.

· You claimed input tax credits on the construction of the premises.

· On a specified date you entered into a lease agreement with a Lessee for a specified term.

· You are leasing the property as unfurnished apartments, with an annual rent paid.

· The Lessee has furnished the apartments and on leases them to individuals.

· You have provided a copy of the lease agreement.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 40-35.

Reasons for decision

You are liable for goods and services tax (GST) on any taxable supply that you make.

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if:

· you make the supply for consideration,

· the supply is made in the course or furtherance of an enterprise you carry on,

· the supply is connected with Australia, and

· you are registered, or required to be registered for GST.

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

You are carrying on a leasing enterprise of a property in Australia for consideration. Furthermore, you are registered for GST. There are no provisions in the GST Act under which the supplies would be GST-free.

However, we need to determine if the lease of the property is an input taxed supply.

Input taxed supplies of accommodation in residential premises

A supply of premises by way of lease, hire or license is input taxed under subsection 40-35(1) of the GST Act if:

(a) the supply is of residential premises (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or

(b) the supply is of commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25.

Residential premises are defined in section 195-1 of the GST Act as 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 2012/5 Goods and Services Tax: residential premises provides the Tax Office view on residential premises.

To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Paragraph 14 of GSTR 2012/5 states that 'residential premises' are not limited to premises suited to extended or permanent occupation. Residential premises provide 'living accommodation', which does not require any degree of permanence. It includes lodging, sleeping or overnight accommodation.

Some of the characteristics of residential premises are that they are capable of providing the occupants with sleeping accommodation and at least some basic facilities for day-to-day living.

Further to this a supply of a residential apartment in a building may include a garage, car-parking space, or storage area located within the building complex. It is considered that this space is ancillary or incidental to the dominant component of the supply being the residential apartment, as explained in paragraph 15 of GSTR 2012/5.

You have built a building containing x individual apartments, with each apartment having an allocated car space. The apartments have a sleeping area, and facilities for day-to-day living such as bath, kitchen and laundry. It is therefore considered that the apartments possess the physical characteristics to satisfy the definition of residential premises.

Next, it is necessary to determine whether the apartments have the characteristics of commercial residential premises.

Commercial residential premises

Goods and Services Tax Ruling 2012/6 'Goods and services tax: commercial residential premises' provides the Commissioner's view about how Subdivision 40-B, 40-C and section 9-5 apply to supplies of commercial residential premises and accommodation in commercial residential premises.

'Commercial residential premises' is defined in section 195-1 of the GST Act to include (amongst other things):

(a) a hotel, motel, inn, hostel or boarding house; or

…

(f) anything similar to *residential premises described in paragraphs (a) to (e).

However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an *education institution that is not a *school.

The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary (Macquarie) provides the following definitions:

Hotel a building in which accommodation and food, and alcoholic drinks are available

Motel a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles.

Inn a small hotel that provides lodging, food etc., for travellers and others

Hostel a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, etc..

Boarding house a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room,etc.

Paragraph 86 of GSTR 2012/6 explains that premises may be characterised under paragraph (a) to (f) of the definition when they are not operating. Premises that are not being operated at the time of supply may be classified by their overall physical character, considered with other objective characteristics.

In regards to separately titled rooms, apartments cottages or villas, paragraph 95 of GSTR 2012/6 states:

In addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. This infrastructure may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This infrastructure is used to provide services to occupants. Premises described in paragraph (a) and similar premises under paragraph (f) of the definition contain some or all of these areas to some degree.

You are leasing a property which consists of individual apartments, entry and secure undercover parking for a vehicle per apartment. You have advised that the apartment block does not contain any other infrastructure such as a reception desk, pool or gym.

Based on the information provided, it is considered that your Property does not fall within one of the premises under paragraph (a) of the definition of commercial residential premises, nor is it similar to a hotel, motel, inn, hostel or boarding house under paragraph (f) of the 'Commercial residential premises' definition.

Therefore, your supply of apartments at does not constitute commercial residential premises. The lease of these apartments is input taxed under section 40-35 of the GST Act. When you make an input taxed supply, you do not include GST in the price, nor are you entitled to claim GST credits for purchases made in providing the input taxed supply.

Further issues for you to consider

Your actual application (input taxed supply of residential premises) of the various acquisitions associated with the property development is different to your intended application (taxable supply by way of sale). Therefore, you are required to review and amend your BAS as required under Division 129 of the GST Act to reflect the change in extent of creditable purpose.

Please refer to ruling GSTR 2009/4 - Changes to the extent of Creditable Purpose for guidance. The ruling can be found on our website at www.ato.gov.au

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