Edited version of private advice

Authorisation Number: 1051570028637

Date of advice: 22 August 2019

Ruling

Subject: GST and residential premises

Question

Was your supply of the property located in a commercial zone (the Property) 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 supply is an input taxed supply pursuant to sections 40-65 and 9-5 of the GST Act.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You owned a property located in Australia. It was built in the early 19XX's and was used as a rooming house. It has x bedrooms, y kitchens, z shower rooms and multiple toilets. The property is zoned commercial. Off street parking is available for xx cars with an open backyard. Each room contained power points, a fan, a light and climate control equipment. There was one kitchen located on the ground floor and one kitchen located on the upper storey. The kitchens are not commercial Kitchens.

On ddmmyyy you entered into a contract to sell the property for $XX.00. In relation to goods and services tax (GST) the property was not sold as a GST-free supply nor was the margin scheme applied to the sale. At the GST statement in the contract it says:

"This price includes GST (if any) unless the words plus GST appear in this Box. In the box the words 'not applicable' are typed.

The property settlement occurred on ddmmyyy.

You advised your company that the sale was input taxed, however the conveyancing law firm thought that the sale was a taxable supply as the rooming house was located in a commercial zone.

You did not issue a tax invoice for the supply.

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 9-40

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(a)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(b)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(c)

A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(d)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-35(1)

A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-65(1)

A New Tax System (Goods and Services Tax) Act 1999 Section 40-75

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

Reasons for decision

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

Section 9-5 provides you make a taxable supply if:

(a)  you make the 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 your case you did not supply the property as a GST free supply and you meet paragraphs 9-5 (a) to (d). Therefore the supply of the property will be taxable unless it is input taxed.

Input taxed supplies and residential premises

Subsection 40-65(1) provides 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 except to the extent the property is commercial residential premises or new residential premise.

Where you make an input taxed supply you are not liable for GST on the supply nor are you entitled to claim input tax credits on the costs associated with the sale of the residential premises.

'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).

Paragraphs 9 and 15 of Goods and Services Tax Ruling GSTR 2012/5

Goods and services tax: residential premises (GSTR 2012/5)explain that a single test looking at the physical characteristics of the property will determine the premises suitability and capability for residential premises. To satisfy the definition of residential premises, the premises must provide shelter and basic living facilities.

Paragraph 7 of GSTR 2012/5 explains that the physical characteristics of the premises will determine whether the property is residential premises for the purposes of subsection 40-35(1). It states that the definition of residential premises 'refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises'.

We consider that your premises as described in the facts meet the definition of residential premises as set out in 195-1. That is land or a building that is occupied as a residence or for residential accommodation or is intended and capable of being occupied as a residence or for residential accommodation.

In addition your property does not meet the definition of new residential premises found in section 40-75 therefore we will consider whether the premises are commercial residential premises.

Commercial residential premises

'Commercial residential premises' is defined in section 195-1 and includes a hotel, motel, inn, hostel or boarding house, or anything similar.

Guidance on whether premises are characterised as residential premises or commercial residential premises is provided in Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6).

The GSTR 2012/6 provides at paragraphs 86 to 88 that:

86. Premises may be characterised under paragraphs (a) or (f) of the definition of commercial residential premises when they are not operating. Premises that are not being operated at the time of supply may be classified by their overall physical character, considered with other objective characteristics.

87. Evidence that may objectively indicate whether premises are a hotel, motel, inn, hostel or boarding house includes:

· the premises' physical characteristics,

· architectural plans and drawings,

· contractual documentation that provides evidence of how the premises will be used in the future, or

· council or other government planning and zoning restrictions and approvals and permissions.

These types of evidence may be relevant where the premises have been newly constructed and not yet operated. Where these indicators reveal that the premises have been specifically constructed for a different purpose (for example, to be used as a retirement village), or not designed as a hotel, motel, inn, hostel, boarding house or similar premises, the non-operating premises are not commercial residential premises.

88. The supply of a vacant house that was not designed, built or modified as a boarding house is not a supply of commercial residential premises

Paragraph 102 to 103 of GSTR 2012/6 explains that in order for premises to be commercial residential premises, the living accommodation areas must be accompanied by commercial infrastructure to support the commercial operation of the premises.

We consider that the premises have no design features that set it apart from a house nor is there evidence from the information provided that there is commercial infrastructure to support the commercial operation of the premises at the Property. Therefore we consider that the premises are residential premises and the supply of the Property, albeit in a commercial zone location is not a taxable supply under section 9-5. The supply of the Property is input taxed and therefore there is no GST payable on the sale of the Property.

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