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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1051380805468

NOTICE

This is an edited version of a revised private ruling. It replaces the edited version of the private ruling with the authorisation number 1051376687105.

Date of advice: 7 June 2018

Ruling

Subject: Goods and services tax (GST) and the sale of residential premises and supplies of accommodation

Question and answers

Relevant facts and circumstances

Entity A;

Entity B:

Entity A and B have similar broad charitable objects however:

Contentions

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 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 9-30

A New Tax System (Goods and Services Tax) Act 1999 Division 11

A New Tax System (Goods and Services Tax) Act 1999 Section 38-250

A New Tax System (Goods and Services Tax) Act 1999 Section 40-35

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 Division 72

A New Tax System (Goods and Services Tax) Act 1999 Division 87

A New Tax System (Goods and Services Tax) Act 1999 Division 129

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

The Income Tax Assessment Act 1936 Section 318

Reasons for decision

In this reasoning, unless otherwise stated,

Question 1

Section 9-5 of the (GST Act provides that you make a taxable supply if:

Entity A will be selling new residential premises for consideration in the course of an enterprise it is carrying on in Australia and is registered for GST. Further, the supply of the premises will not be input taxed.

Therefore, the supply will be taxable unless it is GST-free.

Under subsection 38-250(1), a supply that is not a supply of accommodation will be GST-free where:

As the consideration Entity A will receive for the supply of the premises will exceed 50% of the GST inclusive market value, Entity A’s supply will not meet the requirements of section 38-250(1). Therefore, the supplies of the new residential premises by Entity A will be taxable supplies.

You contended that the sales of new residential premises would be supplies of accommodation.

We advise the following.

The Macquarie Dictionary definition of premise includes:

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

From the above definitions, it can be seen that ‘residential premises’ refers to a physical asset. The physical asset can be used to provide a service of accommodation.

Ownership of residential premises carries with it a bundle of rights which are to be enjoyed indefinitely by the owner. These rights include, but are not limited to:

Ownership of residential premises also carries with it certain obligations, such as the obligation to pay rates for the premises.

A supply by way of sale of residential premises is the supply of ownership of the physical asset and the rights and obligations listed above.

Accommodation

The Macquarie Dictionary definition of accommodation includes:

6. lodging, or food and lodging

Accommodation is one of the possible uses of residential premises, ie they are used to provide accommodation. Accommodation is provided in residential premises.

A supply of accommodation or the right to accommodation, in residential premises does not include the supply of ownership of the physical asset. The right to accommodation will only be supplied for a specified period. Further, it will not convey most of the rights and obligations listed above. Some of the rights supplied under a supply of accommodation are set out below.

Section 38-250 provides amongst other things that supplies of accommodation by a charity will be GST-free as long as the consideration does not exceed 75% of the GST exclusive market value.

However it provides that all other supplies that are not a supply of accommodation by the charity will only be GST-free if the price of the supply is less than the 50% of the GST inclusive market value of the supply.

Explanatory Memorandum (EM)

The original intent of the legislation is an important consideration and is evidenced in the EM. We consider the phrase supply of accommodation would not include the sale of real property in circumstances where the title of the property is transferred to the purchaser. The EM for the bill which originally introduced increases in the threshold rates within section 38-250, contains references to “rental costs” and “residential rents” (at par.1.74), but does not contain any mention of sales of real property:

Therefore the sale of new residential premises is not a supply of accommodation.

Question 2

As per our advice in question one, the sales of new residential premises are not supplies of accommodation and will be taxable supplies unless they are GST-free.

Subsection 38-250 (2) provides that a supply by an endorsed charity, which is not a supply of accommodation is GST-free if the consideration provided is less than 75% of the consideration the supplier provided or was liable to provide for acquiring the thing.

Therefore where the consideration Entity A receives for the supply of the premises is less than 75% of the consideration (including monetary and non-monetary consideration) Entity A provided, or was liable to provide, for acquiring the new residential premises then the supply will be GST free.

Question 3

Division 72 C sets out the values for taxable supplies where inadequate consideration is provided between ‘associates’.

The definition of “associates” for GST purposes relies on the definition of that term in section 318 of the Income Tax Assessment Act 1936.

You advised in your application that Entity A and B are not associates for the purposes of section 318 of the ITAA 1936, therefore subdivision 72-C will not apply to them.

Question 4

Subsection 38-250(1) relevantly provides that a supply of accommodation by an endorsed charity for consideration that is less than 75% of the GST inclusive market value of the supply will be GST-free.

This section of the GST Act is not an election therefore where you meet the criteria your supplies will be GST-free.

Therefore, where you supply accommodation at less than 75% of the GST inclusive market value, the supply will be GST-free.

Question 5

Section 11-5 of the GST act provides that you make a creditable acquisition if:

As:

Your acquisitions of the new residential premises will be creditable acquisitions.

Question 6

Will the sale of residential premises at a price that exceeds 50% of market value from Entity B to Customers be input taxed under section 40-65 of the GST Act?

The sale of residential premises by Entity B will not be GST free under the GST Act.

Section 40-65 provides that sales of real property that are residential premises to be used predominantly for residential accommodation are input taxed to the extent that they are not new residential premises or commercial residential premises.

The sale of individual houses will not meet the definition of commercial residential premises.

New residential premises

Residential premises are defined in section 40-75 to be ‘not new residential premises’ where they have previously been sold as new residential premises. As you acquired the premises you are selling, from Entity A they are not new residential premises.

Therefore your sale of the residential premises will be input taxed supplies pursuant to section 40-65.

Question 7

Section 129-40 explains how to work out whether you have an adjustment. The first requirement is that there is an adjustment period. Where there are no remaining adjustment periods, there will be no adjustments. Therefore, as per Division 129, there will be no adjustments for Entity B when they sell any of their residential premises following the expiry of all adjustment periods.


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