Edited version of private advice

Authorisation Number: 1052409738467

Date of advice: 17 June 2025

Ruling

Subject: GST - residential premises

Question 1

Are you entitled to claim an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the purchase of the?

Answer 1

No. Based on the information provided, the supply of the property to you is an input taxed supply of a residential premises under subsection 40-65(1) the GST Act.

Question 2

If the acquisition is not a creditable acquisition, then will the acquisition be an acquisition of a GST-free supply of a leasing enterprise going concern under section 38-325 of the GST Act?

Answer 2

Unnecessary to answer.

The scheme commences on:

17 June 20XX

Relevant facts and circumstances

•                You are not registered for goods and services tax (GST).

•                You and your partner entered into a contract of sale of real estate with Entity X (which is registered for GST) to purchase a property.

•                The property is sold with two commercial leases in place with two different parties, Entity A and Person B, with 5 year lease terms.

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 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

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

Section 11-20 of the GST Act provides that you can claim an input tax credit for any creditable acquisition that you make.

Section 11-5 of the GST Act states that you make a creditable acquisition if:

(a) you acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply, and

(c) you provide, or a liable to provide, consideration for the supply, and

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

In your case, subsections 11-5(c) of the GST Act is satisfied as you provided consideration for the property of $X however you are not registered for GST.

The definition of a taxable supply is contained in section 9-5 of the GST Act and states:

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, we need to determine whether the supply of the property to you is a taxable supply or whether the evidence supplied by you as purchaser, provides sufficient information to conclude that the supply to you is an input taxed supply of residential premises.

Residential premises

Subsection 40-65(1) of the GST Act 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).

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 and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation).

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the ATO view of the factors to consider and the characteristics of residential premises.

Physical Characteristics

Paragraph 9 of GSTR 2012/5 explains that residential premises to be used predominantly 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.

Paragraph 10 of GSTR 2012/5 provides that 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).

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.

However, not all premises that possess basic living facilities are residential premises to be used predominantly for residential accommodation. If it is clear from the physical characteristics of the premises that their suitability for living accommodation is ancillary to the premises' prevailing function, the premises are not residential premises to be used predominantly for residential accommodation.

In this case, the property will satisfy the definition of 'residential premises' as the premises provide shelter and basic living facilities. The property was constructed as a residence and based on its physical characteristics, including the alterations made over time, it is clearly residential premises to be used predominately for residential accommodation. The property has bathrooms, rooms that can be used as bedrooms, a kitchen and living areas.

The alterations made over time have not changed the physical character of the property from that of a residential property used predominately for residential accommodation.

Subsection 40-65(2) of the GST Act provides the sale of real property 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.

Commercial residential premises:

Under section 195-1 of the GST Act, the term 'commercial residential premises' means in part:

(a) a hotel, motel, inn, hostel, or boarding house; or

...

(f) anything similar to residential premises described in paragraphs (a) to (e).

However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an education institution that is not a school.

New Residential premises

The next issue to consider is whether the premises meets the definition of new residential premises.

Subject to subsection 40-75(2) of the GST Act, residential premises are new residential premises, as defined in subsection 40-75(1) of the GST Act, 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; or

(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.

The property does not meet the definition of commercial residential premises or new residential premises.

Summary

As we consider the supply of the property to you to be an input taxed supply of residential premises it cannot be a creditable acquisition under section 11-5 and there is no entitlement to input tax credits.

The property was clearly designed as residential premises and, notwithstanding the alterations made to it over time, it still retains the physical characteristics of residential premises. It does not matter if the premises are being used for other purposes as it is the physical characteristics that will ultimately determine whether or not premises are residential premises.

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