Disclaimer
You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private advice

Authorisation Number: 1052128890977

Date of advice: 14 June 2023

Ruling

Subject: Property

Question

Will the sale of the property be a taxable supply, in accordance with section 9-5?

Answer

No. The sale of the property will not be a taxable supply in accordance with section 9-5 of the GST Act because the sale of the property will be an input taxed supply of residential premises in accordance with section 40-65.

This ruling applies for the following periods:

Financial year ending 30 June 2023

Financial year ending 30 June 2024

The scheme commences on:

The date on which this notice of decision is issued.

Relevant facts and circumstances

•         The Partnership purchased the property, which was a residential premises.

•         The property has had a tenant in place since purchase.

•         The property was established in excess of 40 years ago.

•         Initially, the Partnership's intention was to develop the land.

•         The Partnership is registered for goods and services tax (GST)

•         The Partnership decided it would be uneconomical to continue with the development.

•         The partnership is now selling the property as is with a tenant in place.

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 40-65

Reasons for decision

Under section 9-5, an entity makes a taxable supply where the supply:

  1. is made for consideration; and
  2. is made in the course or furtherance of an enterprise being carried on; and
  3. is connected with the indirect tax zone; and
  4. is made by a supplier who is 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.

Subsection 40-65(1) provides that a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominately for residential accommodation (regardless of the term of occupation.)

Subsection 40-65(2) provides that 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.

Goods and services tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the ATO view on how subdivision 40-B and subdivision 40-C apply to supplies of residential premises.

Paragraph 9 of GSTR 2012/5 provides the requirement in sections 40-35, 40-65 and 40-70 that premises be residential premises to be used predominately for residential accommodation (regardless of the term of occupation) 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.

Paragraph 10 of GSTR 2012/5 states that the requirement for residential premises to be used predominately for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).

Paragraph 15 of GSTR 2012/5 states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

In this case, the property to be sold consists of a residential property in a residential area. Although the Partnership was intending to re-develop the property this did not eventuate, and the property has remained a residential rental property.

The property has continued to be subject to a lease.

Based on the facts of this case, the property satisfies subsection 40-65(1) and, as a result, the sale of the property will be the sale of an input taxed supply of residential premises.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).