Edited version of your private ruling

Authorisation Number: 1012495121958

Ruling

Subject: GST and residential premises

Question 1

Is the sale of the property a taxable supply or an input taxed supply of residential premises?

Answer

The sale of the property is an input taxed supply of residential premises. Consequently, GST is not payable on the supply.

This ruling applies for the following periods:

On or after 1 January 2013

Relevant facts and circumstances

· You owned a property which was sold.

· Settlement occurred.

· The property was originally purchased by you as a GST-free supply of a going concern. A copy of the purchase contract was submitted with your ruling request.

· The contract of sale was ticked in the box "yes in full" for the label "GST: Taxable supply" but also the 'GST Amount' label was completed showing GST included in the price as being '$Nil'.

· The property is a house that was leased to an entity for use in that entity's business.

· The property is zoned residential and the only alterations made for use in the business were to install additional televisions and CCTV system, all of which were removed prior to sale.

· The property is capable of being occupied as a residence for residential accommodation with no further alterations.

· The contract of sale states that the property is a house with a garage and was sold as vacant possession. Inclusions were blinds, curtains, insect screens, stove, dishwasher, light fittings, clothes line, fixed floor coverings and TV antenna.

· You verbally advised that the house contains X bedrooms, a kitchen, bathroom, toilet and laundry.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999:

Section 9-5

Section 40-65

Section 195-1

Reasons for decision

Summary

The property is not considered to be commercial residential premises nor new residential premises. The property is considered to be residential premises capable of being occupied as a residence or for residential accommodation. Therefore, the supply by way of sale is an input taxed supply under subsection 40-65(1) of the GST Act. Consequently, GST is not payable on the supply.

Detailed reasoning

GST is payable on taxable supplies.

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 that is defined in section 195-1 of the GST Act).

In your case, your sale of the property satisfies the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is, your sale of the property is a supply made for consideration; the supply is made in the course or furtherance of the leasing enterprise that you carried on with the property. Additionally, the sale of the property is a supply connected with Australia, as the property is located in Australia, and you are registered for GST.

There are no provisions in the GST Act under which your sale of the property could be GST-free. Therefore, what remains to be determined is whether the sale of the property would be input taxed.

Under subsection 40-65(1) of the GST Act, 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, subsection 40-65(2) of the GST Act provides exceptions to the rule in subsection 40-65(1). Subsection 40-65(2) of the GST Act states:

(2) However, 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.

Residential Premises

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 occupation or intended occupation) and includes a floating home.

As your property is sold as 'vacant possession' it does not satisfy paragraph a) of the definition of 'residential premises'. Paragraph b) of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied as a residence or for residential accommodation. This aspect is demonstrated through the physical characteristics of the premises rather than a subjective intention of any particular entity.

The Commissioner's opinion, on the way Subdivision 40-C (Residential premises) of the GST Act applies, is contained in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5). Section 40-65 of the GST Act is found within Subdivision 40-C. In particular, paragraphs 9 and 10 of GSTR 2012/5 state:

9. The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.

10. The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).

To satisfy the definition of 'residential premises' paragraph 15 of GSTR 2012/5 states:

15. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

It is considered that the physical characteristics common to residential premises that provide accommodation are:

· the premises provide the occupants with sleeping accommodation and at least some basic facilities for day to day living.

· the premises should have areas for sleeping, eating and bathing but it is not necessary that these things be arranged in similar manner to a conventional house or apartment.

· these characteristics are inherent in the fabrication of the structure itself.

Paragraph 20 of GSTR 2012/5 states:

20. Premises must be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. An objective consideration of the relevant facts and circumstances determines whether residential premises are fit for human habitation. Residential premises are not fit for human habitation when they are in a dilapidated condition which prevents them being occupied for residential accommodation

You have submitted that the house contains X bedrooms, a kitchen, bathroom, toilet and laundry. These characteristics commonly provide accommodation in the form of basic shelter and living facilities to any occupants, therefore we consider the property in question to be residential premises to be used for residential accommodation.

Modifications

Any modifications need to be substantial enough to change the physical characteristics of the residential premises. Example 9 (paragraphs 44-55) in GSTR 2002/5 is akin to your situation:

Example 9 - the addition of furniture and minor fittings is not sufficient to modify physical characteristics

44. Rebecca is a solicitor. She lives in a terrace house that is not new residential premises, and decides to convert a room at the front of the house into an office for her practice. Rebecca arranges the installation of an electricity point and telephone line for the place in the room where she intends to set-up a printer and facsimile machine. She fits the room out with book shelves, filing cabinets, desk, office chairs, a table for the printer and facsimile machine, and suitable floor coverings. She also has an advertising sign placed outside the front door of her house. Rebecca does not modify any of the other rooms in the house.

45. These changes are not sufficient to modify the physical characteristics of the terrace house into premises other than residential premises to be used predominantly for residential accommodation. The furniture and fittings that Rebecca has brought into the room do not change the physical characteristics of the house itself. Also, the installations of an electricity point and telephone line, and the placement of a sign outside the house, are not sufficient modifications to alter the physical characteristics of the premises so that they are no longer residential premises to be used predominantly for residential accommodation. If Rebecca sells or leases the premises she will be making a wholly input taxed supply under section 40-65 or section 40-35 respectively.

The installation of additional televisions and a CCTV system are not substantial modifications enough to alter the physical characteristics of the residential premises, notwithstanding the fact that they were removed prior to sale.

New Residential Premises

From the relevant facts and circumstances submitted we also consider that the property is not new residential premises.

Commercial Residential Premises

'Commercial residential premises' is defined in section 195-1 of the GST Act to include (of relevance) a hotel, motel, inn, hostel or boarding house, or anything similar to such residential premises. Notwithstanding the fact that the premises was leased and used as business premises by the occupier prior to sale, the physical characteristics of the property remained that of residential premises.

From the relevant facts and circumstances submitted we consider that the property is not commercial residential premises.

Conclusion

The property in your case has the physical characteristics of residential premises and was constructed to be residential premises. It is suitable and capable of being occupied as a residence or for residential accommodation. Therefore the supply of the property by way of sale satisfies the requirements of subsection 40-65(1) of the GST Act. The sale is an input taxed supply, consequently GST is not payable.

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