Edited version of private advice

Authorisation Number: 1051528610227

Date of advice: 12 June 2019

Ruling

Subject: GST and the sale of property

Question

Is the sale of the property, at a specified location, a taxable supply pursuant to section 9-5 of the A New tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the sale of the property, at a specified location, is an input taxed supply of residential premises.

Relevant facts and circumstances

You are registered for GST.

You acquired a property in xxxx with the intention to develop it for a profit at some time in the future.

You did not pay GST on the acquisition of the Property.

The Property comprises of land and a residential dwelling. The Property is approximately x.xx hectares and contains a four bedroom, one bathroom house with kitchen and living facilities.

The Property has been leased back to the previous owner (the tenant) since you acquired the Property. The tenant occupied the house and used the land for domestic purposes.

The Property has not been used for income producing purposes and there are no farm buildings on the Property.

You submitted a plan of subdivision to the local council to develop the Property which was approved. You claimed input tax credits for acquisitions related to the proposed development of the Property.

You did not demolish the Property, nor make substantial renovations to it.

You decided not to proceed with the development of the Property and you sold the Property in xxxx. The Property was sold with an ongoing tenancy lease.

You have subsequently amended the activity statements to repay input taxed credits previously claimed for acquisitions related to the proposed Property development.

Relevant legislative provisions

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

Section 9-5

Section 9-40

Section 40-65

Reasons for decision

In this ruling:

·  all legislative references are to theGST Act

·  all terms marked with an *asterisk are defined in the Dictionary at section 195-1 of the GST Act.

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 states:

You make a taxable supply if:

(a)  you make a supply for *consideration; and

(b)  the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c)  the supply is *connected with the indirect tax zone; and

(d)  you are *registered, or *required to be registered for GST.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

In this case, the supply of the Property by you is made for consideration, it is made in the course or furtherance of an enterprise that you carry on, it is connected with the indirect tax zone and you are registered for GST.

Therefore, we need to consider if the supply is GST-free or input taxed. There are no provisions within the GST Act that in your case would make the supply of the Property GST-free.

However, under section 40-65 certain supplies of real property are input taxed. Input taxed means that there is no GST payable on the supply and there is no entitlement to an input tax credit for anything that is acquired to make the supply.

Section 40-65 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

(b) *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

The definition of 'residential premises' in section 195-1 refers to 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 occupation or intended occupation).

The Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) outlines the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 explains that the requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominately for residential accommodation' 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. Further, paragraph 15 of GSTR 2012/5 states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Paragraph 20 of GSTR 2012/5 further explains that the premises must be fit for human habitation in order to be suitable for, or capable of, being occupied as a residence or for residential accommodation.

The Property is approximately x.xx hectares in area and contains a four bedroom, one bathroom house with kitchen and living facilities. There are no farm buildings on the Property.

Since you purchased the Property in xxx, you did not demolish and rebuild the house, nor did you substantially renovate the existing Property.

Since you purchased the Property in xxxx, it was continually leased to the former owner (the tenant). The tenant occupied the house and used the land for domestic purposes. When you sold the Property in xxxx it was sold with an ongoing tenancy lease.

In regard to the size of the land being sold, paragraph 46 of GSTR 2012/5 states:

46. There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor 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.

In this case we consider that the land forms part of the premises being sold. Therefore, as a whole, we consider the Property satisfies the definition of 'residential premises' pursuant to section 195-1.

As detailed above, section 40-65 provides that the sale of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation. However, the sale will not be input taxed to the extent the premises are 'commercial residential premises' or 'new residential premises' (other than those used for residential accommodation before 2 December 1998).

From the information you have provided, we consider the Property to be residential premises used predominantly for residential accommodation. Furthermore, the Property is not considered to be 'commercial residential premises' or 'new residential premises'.

Therefore, the supply of the property by you is an input taxed supply of residential premises. GST does not apply to the supply and you cannot claim input tax credits for acquisitions that relate to the making of the supply.

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