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Edited version of your private ruling

Authorisation Number: 1012618449259

Ruling

Subject: GST and the supply of real property

Question

Was the supply of your property located in Australia, a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Relevant facts and circumstances

You, Entity A, are a company that is registered for GST. You are a registered charity, exempt from Income Tax and have gift deductibility status.

A property located in Australia was donated to you in the early 1900's. You then constructed a building on the property known as Building X. It was constructed to cater for females who were described as "gentlewomen without means". Building X was home to X female residents.

The building originally comprised XX bedrooms (X bedrooms on the ground floor and Y on the first floor), some bathrooms, a common lounge, dining room and a large kitchen.

This was the first hostel type accommodation operated by you. You also acquired other properties through bequests, donations and purchase. You currently own and operate X aged care facilities.

The area in which the Property is located is currently zoned R2-Low Density Residential. Construction of Building X occurred at a time when there were no specific design requirements. As a result of the use of the Property from earlier times, being for hostel type accommodation, you acquired 'existing use rights' under the State planning laws and were allowed to supply 'low care' aged care in these premises.

Whilst many of your other facilities were extended and upgraded to meet various legislative requirements within the aged care industry, Building X was never extended or significantly upgraded to meet these requirements. However, a lift was added at a later date and furniture in some bedrooms was changed to make those rooms available for use as a staff room and office. Another room was used by cleaners. The cleaner's room has a sink and space for cleaning equipment to be stored. The premises have not been extended or significantly modified beyond the above since its original construction.

Immediately prior to 19XY, you operated Building X under former State based Aged Care Legislation. You advised that from 19XY until 20XX, Building X was a registered Aged Care Facility under the current Aged Care Act 19XY. (We note that the term Aged Care Facility is not a term used in the Aged Care Act of 1997.)

From 19XY until 20XX, Building X was an 'ageing in place facility' where residents were assessed by the Aged Care Team to require assisted (low care) living. You provided the residents of Building X with accommodation, food and residential care service. Once accepted into Building X, residents were guaranteed a permanent place (under legislation) until:

You operated this facility up until 20XX, when it was closed. At this time the 'existing use rights' were lost. Without the 'existing use rights', Building X would not satisfy the current regulatory requirements for certification as an Aged Care Facility and there are no new bed licenses for aged care available within the area. The aged care operation ceased because the characteristics and amenities of the building were no longer appropriate to supply aged care. The principle issue with the construction of Building X for its continued use by you for aged care was the bedroom/bathroom ratio and the issues with ease of access to the bathrooms.

The building has been vacant since 20XX. You sold the Property on ddmmyyyy for $X.XX which was the market value of the Property at that time.

You enclosed copies of the following.

Relevant legislative provisions

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

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

A New Tax System (Goods and Services Tax) Act 1999 195-1 and

A New Tax System (Goods and Services Tax) Act 1999 38-G.

Reasons for decision

In this ruling, unless otherwise stated:

You must pay the GST payable on any taxable supply that you make.

Section 9-5 provides that you make a taxable supply if:

In your case, you made a supply of a vacant building that was previously used in your enterprises of providing aged care and hostel style accommodation. The supply was made for consideration. The Property was located in Australia and you are registered for GST. In addition, we note that the GST-free provisions in Division 38 do not apply to your circumstances. Therefore, your supply was a taxable supply unless it was an input taxed supply.

Subsections 40-65(1) and (2) provide 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, except to the extent that the residential premises are commercial residential premises or new residential premises other than those used for residential accommodation before 2 December 1998.

'Residential premises' is defined in section 195-1 to include land or a building that:

In this case, the Property is intended to be occupied and is capable of being occupied as a residence or for residential accommodation in that it consists of bedrooms, a large kitchen, bathrooms, toilets and living area. It therefore satisfies the definition of residential premises to be used predominantly for residential accommodation and would be input taxed under subsection 40-65(1). However, the sale would not be input taxed to the extent that the premises are commercial residential premises or new residential premises.

The Property does not meet the criteria for new residential premises. However, we need to consider whether it met the definition of commercial residential premises.

Commercial residential premises

The term 'commercial residential premises' is defined in section 195-1 to include a hotel, motel, inn, hostel or boarding house, or anything similar.

Guidance on whether premises are characterised as commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2012/6 Goods and service tax: commercial residential premises (GSTR 2012/6).

Paragraph 11 of GSTR 2012/6 explains that:

It is considered that your premises do not meet the description of hotel, motel or inn as set out in GSTR 2012/6. In addition, the Property was not used for accommodation of any type after 20XX and it was sold as vacant premises. We will therefore consider the characteristics of your vacant premises and compare it to:

Paragraphs 86 to 88 of GSTR 2012/6 state:

Paragraphs 28, 31, 32 and 33 of GSTR 2012/6 state:

Paragraphs 36 to 40 of GSTR 2012/6 state:

In this case, there are a number of similarities between your property and the description of boarding houses and hostels. Based on the description of these types of premises in GSTR 2012/6 and the guidance provided on classifying vacant premises, the property mostly closely matches the physical description of a hostel/boarding house as it:

Further, it is noted that the Government Aged Care Guide website refers to properties such as yours, which supplied low care accommodation, as hostels.

You have contended that the original construction of Building X was as a large residential building.

We consider however, that the property was built and designed by you to cater for the accommodation of X females and was operated as a hostel from inception for a number of years. It was not designed as a private residential home.

A building constructed for this purpose and used by you for hostel type accommodation, will reflect sufficient likeness or resemblance to a hostel or boarding house or similar premises. We therefore consider it is reasonable to characterise Building X as being a hostel/boarding house or something similar to a hostel/boarding house and it therefore satisfies the definition of commercial residential premises.

Therefore, paragraph 40-65(2)(a) applies and the supply of the Property is not an input taxed supply but a taxable supply of residential premises that is commercial residential premises, namely something similar to a hostel or boarding house.

Therefore your supply of the property was a taxable supply pursuant to section 9-5.


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