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Edited version of your written advice
Authorisation Number: 1013103580039
Date of advice: 6 October 2016
Ruling
Subject: GST and residential premises
Question
Is the property located in Australia residential premises pursuant to section 195 of A New Tax System (Goods and Services Tax) Act 1999?
Answer
No
Relevant facts and circumstances
Lot A was originally owned by a single entity. It contained a large house and various buildings and a carport. The Buildings were joined and had a common wall with a door to allow access between the buildings. At some time during this ownership Lot A was subdivided into lots A and B.
The large house and various buildings remained within the boundaries of Lot A. However the subdivision line for Lot A and B separated the buildings on Lot A from the Building on Lot B. A carport which was attached to the Building also became part of lot B. The Building was named a recreation building on one of the plans you submitted in your ruling application. When the property was subdivided the doorway between the Building and the other various buildings was bricked up. The carport was demolished at some point in time during the ownership by this entity.
Lot B was then renamed to Lot C.
On XXXX Entity A acquired Lot A and the Entity B acquired Lot C.
Lot C as it stands today is unchanged from when it was purchased as a recreation building by the Entity B. Lot C contains:
• X rooms
• air conditioners and a security system with smoke detectors and electrical fixtures and fittings and
• a veranda.
The Building does not have a toilet, bathroom facilities, laundry or a kitchen.
On XXXX Entity B entered into a contract to sell Lot C to Entity C, for $X. Settlement has not yet occurred.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 195
Reasons for decision
In this reasoning, unless otherwise stated,
• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999
• all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au
• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act
'Residential premises' is defined in section 195-1 as land or a building that:
• is occupied as a residence or for residential accommodation, or
• 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).
Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises considers how Subdivision 40-B and Subdivision 40-C of the GST Act apply to supplies of residential premises.
Paragraph 9, 10, 11, 15 and 101 of GSTR 2012/5 provide that:
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).
11. Premises that do not display physical characteristics demonstrating that they are suitable for, and capable of, being occupied as a residence or for residential accommodation are not residential premises to be used predominantly for residential accommodation, even if the premises are actually occupied as a residence or for residential accommodation. For example, someone might occupy premises that lack the physical characteristics of premises suitable for, or capable of, residential accommodation (such as a squatter residing in a disused factory). Although the premises may satisfy paragraph (a) of the definition of residential premises in section 195-1, the premises are not residential premises to be used predominantly for residential accommodation.
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.
101. In Case 54 /, the Administrative Appeals Tribunal considered whether accommodation provided on an offshore mobile drilling unit (being a drilling rig capable of drilling holes at sea) was 'residential accommodation' for the purposes of paragraph 30(2)(c) of the Fringe Benefits Tax Assessment Act 1986 . The Tribunal found that the accommodation was residential accommodation as the sleeping, mess and recreational quarters, together with food provided on board, provided the drill crew with a place to reside (or lodge) and meals. In such circumstances there is a segregated area that can be identified as residential premises.
These paragraphs require an examination of the physical characteristics of the building and the facilities within that building. The intention of the purchaser of the property or the use by any individuals such as squatters is not taken into consideration. The physical characteristics of the building must demonstrate that they are suitable for and capable of being occupied as residences.
In your case:
• The physical characteristics of the premises are those of a non-residential building as is shown by its design and designation as a 'recreation' building
• The building does not contain any living facilities for sleeping, eating, bathing or toileting and is therefore not suitable for residential accommodation
• The subjective intention of the purchasers or use by any particular person that have occupied the building from time to time is not to be taken into account and
• There is no area within the Building that has been segregated for residential accommodation.
Therefore we consider that the premises do not meet the definition of residential premises as set out in section 195-1.
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