Edited version of private advice

Authorisation Number: 1052340072866

Date of advice: 5 December 2024

Ruling

Subject: GST - taxable supply

Question

Are you making a taxable supply for the sale of Property B?

Answer

No, under section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). the supply of residential premises is input taxed.

This ruling applies for the following period:

December 2024 to December 2028

Relevant facts and circumstances

You are registered for GST as a partnership and have been since July 20XX.

One of your properties, Property A was purchased in 20XX. Since purchase, you have owned Property A and used it for commercial purposes. You entered into a contract to sell Property A to Purchaser A in April 2024. The sales contract stated that settlement would occur in July 2024.

Another of your properties, Property B was purchased in 20XX. Since purchase, you have used Property B as your primary residence. You entered into a contract to sell Property B to Purchaser B in April 2024. The sales contract stated the settlement would occur on in July 2024.

Property B is described as a 4-bedroom house with 2 bathrooms. It contains a fully functioning kitchen which included a gas stove, exhaust & oven. The house also contained a communal living area. The property included a garage that was situated at the rear of the property with a driveway that ran along the side of the house.

You have lived in Property B with both of your children since you purchased the property.

You claimed an exemption for land tax for Property B as it is your principal place of residence.

As stated in the sales contracts, both Property A and Property B are zoned as light industrial use.

The purchaser for Property B has paid the amount of GST for their purchase into your solicitor's trust account in accordance with the sales contract. These funds have not been disbursed.

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

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

Supply

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

a)    you make the supply for consideration

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

c)    the supply is connected with Australia, 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.

For the sale of the Property B to be a taxable supply, all of the requirements listed in section 9-5 must be met.

In your case, you meet the requirements of paragraphs 9-5(a), and 9-5(c). This is because:

•         you will be selling the property for consideration and

•         the sale will be connected with Australia as the property is located in Australia.

Furthermore, the sale of the property is not GST-free under a provision of the GST Act. Therefore, what remains to be determined is whether the sale of the property is input taxed and whether you are required to be registered for GST.

Whether the sale of the property is input taxed

As mentioned above, a supply is not a taxable supply to the extent that it is 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 predominantly for residential accommodation (regardless of the term of occupation).

However, under subsection 40-65(2), 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 term 'residential premises' is defined in section 195-1 to mean 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 accommodation;

(regardless of the term of the occupation or intended occupation) and includes a floating home.

Goods and Services Tax Ruling 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 that the residential premises are to be used predominately for residential accommodation in section 40-65 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 15 of GSTR 2012/5 goes on to say 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.

Paragraph 20 of GSTR 2012/5 provides that premises must be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. An objective consideration of the relevant facts and circumstances determines whether residential premises are fit for human habitation.

In this case, Property B has a dwelling on the property that contains living and sleeping areas, such as four bedrooms, a lounge, kitchen, and two bathrooms and is capable of being occupied as a residence. In this regard, the house is considered to possess the physical characteristics which satisfy the definition of residential premises to be used predominantly for residential accommodation. You have additionally advised that you have used Property B as your primary residence for 23 years where you have raised your two children.

Accordingly, the property satisfies the definition of residential premises in section 195-1.

However, as stated above, a sale of residential premises is not input taxed to the extent that the residential premises are commercial residential premise or new residential premises.

Whether the property is commercial residential premises

The definition of commercial residential premises, in section 195-1 includes, amongst other things, a hotel, motel, inn, hostel or boarding house or anything similar to residential premises under these descriptions.

Based on the information provided, the property is not considered to be commercial residential premises.

Whether the property is new residential premises

The term 'new residential premises' is defined in section 40-75.

Subsection 40-75(1) provides that residential premises are new residential premises if they:

a)    have not previously been sold as residential premises (other than commercial residential premises) and have not previously been the subject of a long-term lease

b)    have been created through substantial renovations of a building, or

c)    have been built, or contain a building that has been built, to replace demolished premises on the same land.

In your case, based on the information provided, the house situated on Property B is not new residential premises, it was not created through substantial renovations and was not built and does not contain a building that was built to replace demolished premises on the same land. Therefore, the property is not new residential premises as it does not meet any of the definitions of new residential premises in subsection 40-75(1).

Conclusion

As Property B is neither commercial residential premises nor new residential premises, the sale of the property will be input taxed under subsection 40-65(1). Consequently, the sale of the property is not a taxable supply as it does not meet all the requirements of section 9-5. Therefore, you are not liable to pay GST on the sale of the property.

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