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Edited version of your written advice
Authorisation Number: 1013110901993
Date of advice: 25 October 2016
Ruling
Subject: Goods and services tax - Property - Premises - Residential premises
Question 1
Are you making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sell unit X being a new residential town house?
Answer
No, because you do not satisfy all the conditions in section 9-5 for a taxable supply.
The sale of new residential premises can be classified as a taxable supply where all the conditions of section 9-5 are met. You satisfy paragraphs (a), (b) and (c) of section 9-5 and it remains open whether you satisfy paragraph (d) whether you are required to be registered. There are no other GST sections to classify the sale of unit 9 as GST-free or input taxed.
Relevantly, Division 23 requires you to register if your GST turnover exceeds $75,000. Whether your GST turnover exceeds that amount depends on the classification of the asset as capital or revenue, because capital assets are not counted in the turnover. Generally, we consider trading stock for resale as revenue assets, and where you derive income from leasing a property we consider it a capital asset.
In your case, unit X, at the time of settlement was used as residential premises, deriving rental income under an existing lease. We considered that unit X at the time of settlement was of a capital nature, being used as residential premises to derive rental income.
Accordingly, the proceeds from the sale of unit X will be disregarded when calculating your GST turnover. Further, as the residential rents you receive from your leasing are input taxed, these will also be disregarded in calculating your GST turnover. Consequently, as your turnover does not exceed $75,000 you are not required to be registered for GST. As you are not registered for GST you do not meet the condition of paragraph 9-5(d) and your sale of unit X is not taxable.
This ruling applies for the following periods:
01/7/20XX to 30/6/20YY
The scheme commences on:
Relevant facts and circumstances
● In 20AA, you acquire residential land without goods and services tax (GST) in the price and you have never been registered for GST.
● You entered into an agreement to construct X townhouses which entitled you to Y residential properties.
● You intended to retain them as a long term investment obtaining residential rent
● The development progress slowed due to the global financial crisis of 20AA.
● In 20ZZ, the development commenced however one of the participants of the agreement withdrew their support.
● Your intention was to proceed with the development and therefore purchased the interest in unit Y from the outgoing member in 20ZZ
● Your acquisition of unit Y allowed the financing of the construction project to continue.
● In 20DD construction commenced and you considered your financial position to carry unit Y as an additional property. At the time of acquisition you intended to sell unit X as it was a more attractive proposition for future potential and to reduce your debt.
● You believed the increased debt of holding W units was not viable for you or your private rental accommodation situation in the long term. Your need to sell one unit was not based on the address rather, your financial situation.
● No input tax credits were claimed for the construction costs as you were not registered and you did not hold any tax invoices in your name.
● In 20SS construction of unit X was completed and you were issued with the certificates of occupancy you provided additional fit outs of blinds for unit X before it was listed for rental with the estate agent.
● One month prior to its sale unit X was leased to a residential tenant; prepaid rent for that month was reported in your tax return.
● In the next month you entered into a lease for unit X
● In early 20YY you entered into a contract to sell your interest in unit X which was sold with the existing residential lease to a residential property investor rather than as vacant possession.
● Settlement of unit X occurred.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 sections 9-5 and 9-40 and 23-5 and 188-25
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