Edited version of your written advice

Authorisation Number: 1012917832292

Date of advice: 27 November 2015

Ruling

Subject: Transfer of property to self-managed superannuation fund

Question

Is the transfer of the Property by X to X's self-managed superannuation fund a sale of residential premises which is input taxed under subsection 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the transfer of the Property by X to X's self-managed superannuation fund is a sale of residential premises which is input taxed under subsection 40-65(1) of the GST Act.

Relevant facts and circumstances

X commenced business in 19XX and registered for GST with effect from 1 July 2000.

In 19YY X purchased the Property.

From the date the Property was purchased it has been used for the purposes of the business carried on by X.

The Property is a semi-detached cottage. The Property has not been modified in any way and comprises of less than five bedrooms, sitting room, kitchen, bathroom, veranda and backyard.

The ruling request included external and internal photographs of the Property. The external photographs show a semi-detached cottage with parking on the side. The internal photographs show a bedroom and sitting room used for various purposes, a bathroom and a kitchen which contains a number of cabinets.

X intends to transfer the Property to X's self-managed superannuation fund

Relevant legislative provisions

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

Reasons for decision

Summary

The transfer of the Property is a sale of residential premises which is input taxed under subsection 40-65(1) of the GST Act and is not a sale of commercial residential premises or new residential premises.

Detailed reasoning

Section 9-5 of the GST Act sets out the circumstances in which an entity ('you') makes a taxable supply:

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

(e) 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.

The requirements of paragraphs (a) to (d) of the 'taxable supply' definition appear to be satisfied. In relation to paragraph (a) X advised that the transfer of the Property to the self-managed superannuation fund is for consideration as X's account with the self-managed superannuation fund will show the Property as an asset and a non-concessional member's contribution as a liability. In relation to paragraph (b) a disposal of a capital asset which has been used in carrying on an enterprise is considered to be a supply in the course of furtherance of that enterprise. In relation to paragraph (c), the supply of the Property is connected with the indirect tax zone as the Property is located in Australia. In relation to paragraph (d), we have confirmed that X has been registered for GST since 1 July 2000.

As the requirements in paragraphs (a) to (d) of section 9-5 of the GST Act are satisfied, the sale of the Property will be a taxable supply unless it is GST-free or input taxed.

Division 40 of the GST Act deals with input taxed supplies. Subdivision 40-C deals with residential premises and includes section 40-65 of the GST Act which states:

(1) 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).

(2) However, the sale is not input taxed to the extent that the residential premises are:

(a) commercial residential premises; or

'Residential premises' are defined in section 195-1 of the GST Act:

'Residential premises' means land or a building that:

(f) is occupied as a residence or for residential accommodation;

(g) 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.

Paragraphs 6 to 8 of Goods and Services Tax Ruling GSTR 2012/5 (GSTR 2012/5) discuss the residential premises' definition:

6. Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

7. Premises, comprising land or a building, are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises.

8. A supply of residential premises may consist of a single room or apartment, or a larger complex consisting of rooms or apartments.

The Property does not satisfy paragraph (a) of the 'residential premises' definition because the Property is occupied and used for business purposes rather than as a residence or for residential accommodation.

However, the Property does satisfy paragraph (b) of the 'residential premises' definition as the photographs of the Property indicate that the Property is designed and built so as to be suitable and capable of being occupied as a residence, as demonstrated by the physical characteristics of the Property.

Paragraph 40-65(2)(a) of the GST Act states that the sale of residential premises is not input taxed to the extent that the residential premises are 'commercial residential premises'. Section 195-1 of the GST Act states that 'commercial residential premises' means:

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

(b) premises used to provide accommodation in connection with a school; or

(c) a ship that is mainly let out on hire in the ordinary course of a business of letting ships out on hire; or

(d) a ship that is mainly used for entertainment or transport in the ordinary course of a business of providing ships for entertainment or transport; or

(da) a marina at which one or more of the berths are occupied, or are to be occupied, by ships used as residences; or

(e) a caravan park or a camping ground; 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.

Paragraph 9 in Goods and Services Tax Ruling GSTR 2012/6 (GSTR 2012/6) states that the terms used in paragraph (a) of the 'commercial residential premises' definition are not defined in the GST Act and therefore take their ordinary meaning in context. Paragraph 10 of GSTR 2012/6 states:

10. Objective factors that are relevant to characterising premises as falling within either paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. Where these objective factors do not give a clear characterisation, the following may also be considered:

contractual documentation that provides evidence of current or future use, and

government zoning and planning permissions.

We do not consider that the Property has the physical characteristics or is operated in a manner similar to a hotel, motel or inn as described in paragraphs 13 to 25 of GSTR 2012/6. In relation to a motel or inn paragraph 13 of GSTR 2012/6 states:

13. A motel is a particular type of hotel that primarily caters to the needs of motorists seeking roadside accommodation. An inn is a small hotel at which board (meals) and lodging are provided to travellers. Subject to those qualifications, the following features of hotels are equally relevant to motels and inns.

GSTR 2012/6 states that hotels usually offer meals to guests and have a kitchen and dining room for that purpose (paragraph 16) and supply linen and towels and daily cleaning and servicing of rooms, the cost of which is included in the tariff. In addition, guests of hotels are predominantly travellers who have their principal place of residence elsewhere (paragraph 19) and do not enjoy an exclusive right to occupy a particular part of the premises in the same way as a tenant of a house or apartment (paragraph 20). The Property does not have any of these features and therefore is not a hotel, motel or inn.

Nor do we consider that the Property is a hostel, as described in paragraph 29 of GSTR 2012/6:

29. Hostels are typically centrally managed by an on-site manager who manages the accommodation and arranges or provides services. The feature that a hostel, or premises similar to a hostel, be a supervised place of accommodation can be evident where occupants can raise queries and concerns pertaining to the management of the premises with an on-site manager.

We do not consider that the Property falls within paragraphs (b), (c), (d), (da) or (e) of the 'commercial residential premises' definition.

In relation to paragraph (f) of the 'commercial residential premises' definition (i.e. anything similar to a hotel, motel, inn etc.), paragraphs 11 and 42 of GSTR 2012/6 state that determining whether premises falls within paragraph (a) or (f) of the 'commercial residential premises' definition involves matters of impression and degree. Based on the description and photographs of the Property, we consider that the Property does not fall within paragraph (f) of the 'commercial residential premises' definition.

Paragraph 40-65(2)(b) of the GST Act states that the sale of residential premises is not input taxed to the extent that the residential premises are new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998. Subsection 40-75(1) of the GST Act states:

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

(c) have been built, or contain a building that has been built, to replace demolished premises on the same land.

Paragraphs (b) and (c) have effect subject to paragraph (a).

In relation to paragraph 40-75(1)(a) of the GST Act paragraph 30 of Goods and Services Tax Ruling GSTR 2003/3 (GSTR 2003/3) states:

30. For the purposes of paragraph 40-75(1)(a) we consider the residential premises referred to are the land and the residential building on that land (that is, you look at the land and a building as a 'package'). This is because the definition of 'residential premises' specifically refers to land or a building in the context of residential occupation, and vacant land by itself can never have sufficient physical characteristics to mark it out as being intended to be, or capable of being, occupied as a residence. We consider that the land and building 'package' concept also applies to paragraphs 40-75(1)(b) and 40-75(1)(c).

The Property was sold to X in 19XX and it was stated in the ruling request that the Property has not been modified in any way. On that basis and considering the land and building as a package, we consider that the Property has previously been sold as residential premises and therefore is not 'new residential premises'.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).