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Edited version of your written advice
Authorisation Number: 1051286470970
Date of advice: 4 October 2017
Ruling
Subject: Sale of Residential Premises
Question
Are the supplies of the properties input taxed supplies of residential premises?
Answer
Yes
Relevant facts and circumstances
A is the registered proprietor of property at B (“Property 1”).
B is the registered proprietor of property at C (“Property 2”).
Property 1 and Property 2 (“the Properties”) are mortgaged to X.
A and B (“the Mortgagors”) defaulted on their loans.
X (“Mortgagee”) entered into possession of the Properties and executed the following contracts for their sale:
● A contract of sale dated Y with Z (purchaser) for Property 1; and
● A contract of sale dated Y with K (as purchaser) for Property 2.
Property 1 is approximately Vm². It has a single freestanding brick residence, a garage and a shed on it. A valuation report states that it is functional for its existing residential use. It was leased under a residential tenancy agreement until W.
Property 2 is approximately D hectares in size. It has a single freestanding residence, a garden, and a garage/shed on it. It is comprised of a separately fenced residence and driveway and two paddocks. The two paddocks are only accessible via the land fenced off for the driveway and residence. A valuation report states that it is functional for rural residential use. It is leased under a residential tenancy agreement until X.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 40-65.
Reasons for decision
In this reasoning, unless otherwise stated, all legislative references are to A New Tax System (Goods and Services Tax) Act 1999 (the GST Act).
You advised that you are selling the Properties as mortgagee in possession and that you consider the supply of the properties would not be a taxable supply as they would be an input taxed supply of residential premises. Mortgagee in possession sales are dealt with under Division 105.
Subsections 105-5(1) and (2) state:
105-5 Supplies by creditors in satisfaction of debts may be taxable supplies
(1) You make a taxable supply if:
(a) You supply the property of another entity (the debtor) to a third entity in or towards the satisfaction of a debt that the debtor owes you; and
(b) had the debtor made the supply, the supply would have been taxable.
(2) It does not matter whether:
(a) you made the supply in the course or furtherance of an *enterprise that you *carry on; or
(b) you are registered, or *required to be registered.
Sub paragraph 105-5 (3) (b) provides that the supply will not be a taxable supply where you believe that based on reasonable information the supply would not be a taxable supply if the debtor were to make it.
Input taxed supply
Subsection 40-65(1) states:
40-65 Sales of residential premises
(1) A sale of *real property is input taxed to the extent that the property is *residential premises to be used predominantly for residential accommodation (regardless of the term of the occupation).
The term *residential premises is defined in section 195 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 occupation;
(regardless of the term of the occupation or intended occupation) and includes a *floating home.
As you have advised that the residential buildings on the Properties had the physical characteristics of being inhabitable and were subject to residential leases, we are satisfied they meet the definition of residential premises because they were capable of human habitation.
GSTR 2012/5 relevantly provides:
46. There is no specific restriction, in the definition of residential premise, on the area of land that can be included with a building. The extent to which land forms part of premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises.
GSTR 2003/3 provides that one method that is acceptable to determine whether surrounding land forms part of the residential premises is if it “actually or substantially contributes to the enjoyment of the building or the fulfilment of its purpose as a residence” (paragraphs 94 to 95).
Based on the information you have provided, including the valuation reports for each of the Properties, we are satisfied that the land surrounding the residential premises on them is so intrinsic to the use and enjoyment of those premises as to be included as part of the residential premises in each case. Accordingly, the sales of each of the Properties are input taxed supplies.
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