Edited version of private advice

Authorisation Number: 1012637724540

Ruling

Subject: GST and sale of property by an executor of a deceased estate

Question

Will your supplies of the properties be taxable supplies of new residential premises?

Answer

Your supplies of some properties will be input taxed supplies of residential premises.

Your supplies of the other properties will be taxable supplies of new residential premises.

Relevant facts and circumstances

The deceased owned several (the properties):

Some properties were purchased as house and land packages.

For the other properties, the deceased purchased vacant land and subsequently had the residential premises built for him.

The deceased also carried on a business activity and was consequently registered for GST.

The deceased always intended that the residential premises were to be rented out. Accordingly input credits were not claimed on the associated construction costs. Following construction, the premises were leased to tenants.

You, the executor were appointed over the estate of the deceased and continued to lease the properties. They have been leased for less than five years.

One of the properties is now being sold to an unrelated third party. The other three properties are to be transferred to the beneficiaries of the estate. The beneficiaries are children of the deceased.

The beneficiaries intend to continue holding the properties as long-term investments to generate rental income.

Your contentions

Your agent contends that, but for the death of the deceased, the properties would have continued to be rented for a period exceeding five years, whereby they would no longer be new residential premises.

Relevant legislative provisions

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

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

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

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

Reasons for decision

In this ruling,

• unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website www.ato.gov.au

Goods and services tax (GST) is payable on taxable supplies. Section 9-5 states:

You make a taxable supply if:

(a) you make a 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.

(terms marked * are defined in section 195-1)

As explained is ATO Interpretative Decision ATO ID 2001/779 Goods and Services Tax: GST and the sale of farmland under the administration of a deceased estate the term 'carried on" includes doing anything in the course of the commencement or termination of the enterprise.

Taxation Ruling No IT 2622 Income Tax: Present entitlement during the stages of administration of deceased estates explains that upon the death of a person, the property of the deceased passes to their estate, the legal control over which is exercised by an executor or an administrator. The executor or administrator, in effect, steps into the shoes of the deceased and winds up the deceased's personal affairs.

ATO ID 2001/779 further explains that the winding up of a business, whether performed by the business operator themselves, or by an executor or administrator upon the death of the business operator, will still be part of carrying on the business. Prior to his death, the deceased carried on an enterprise of primary production and leasing of residential property.

Therefore, you, as executor of the estate will be making taxable supplies where those supplies, if made by the deceased, would have been taxable supplies.

Some of the properties were purchased as house and land packages. As the premises were previously supplied to the deceased as residential premises, the subsequent supply by you will be an input taxed supply in accordance with subsection 40-65(1).

The supplies of the other properties to the beneficiaries will be made in the course of (the winding up of) your enterprise. The supplies are connected with Australia and you are registered for GST. Your supplies of the other properties to the beneficiaries will not be for consideration. As children of the deceased, the beneficiaries are associates and Division 72 may have application.

Section 72-5 provides that a supply to an associate for no consideration can still be a taxable supply if the associate either:

• is not registered or required to be registered or

• acquires the thing otherwise than solely for a creditable purpose.

The beneficiaries have advised you that they plan to lease out the residential premises which means they will have acquired the premises otherwise than solely for a creditable purpose.

Therefore, pursuant to sections 72-5 and 9-5, your supplies of the properties to the beneficiaries or unrelated third party will be taxable supplies unless they are GST free or input taxed. In your circumstances, there is no provision in the GST Act whereby your supplies will be GST-free. Therefore, the only remaining issue to be determined is whether your supplies are input taxed.

Section 40-65 provides 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 (regardless of the term of occupation).

However, the sale is not input taxed if the residential premises are commercial residential premises or new residential premises. In your case, the premises do not meet the definition of commercial residential premises

'Residential premises' is defined in section 195-1 as follows:

Residential premises means 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.

(terms marked * are defined in section 195-1

'New residential premises' is defined in section 40-75. It includes residential premises that have not previously been sold as residential premises. However, those premises are excluded if they have been rented for a period of at least 5 years since construction.

The other properties have not been supplied previously as residential premises. Nor have they been rented for a period of at least 5 years since construction. Therefore, they are still new residential premises.

Therefore your supplies of these premises will be taxable supplies of new residential premises pursuant to sections 72-5 and 9-5.

Section 72-10 provides that the value of the supply will be the GST exclusive market value of the property. Therefore, you will be required to report and pay GST on the sale of the other properties. You may be eligible to use the margin scheme in the calculation of the GST payable.

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