Edited version of private ruling

Authorisation Number: 1011681477882

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Ruling

Subject: GST payable on the sale of a residential property

Question

Are you making a taxable supply when you sell the house and land used as a doctor's surgery?

Answer: No.

The sale of your residence will be input taxed. Consequently no GST will need to be charged on the property and you are not entitled to claim any input tax credits for acquisitions relating to that supply.

Relevant facts

You are the registered proprietor for the property.

The property was constructed in19XX and purchased in a later year from another doctor who used it as a surgery.

The information you sent in identifies that permission was given in 19XX by the council to change the property from a dwelling house to consulting rooms.

You lease premises to a doctor and receive rental income.

The doctor converted the residence to doctor's rooms and conducted a medical practice there.

You have entered into a contract to sell the property.

The Contract for Sale describes the premises as residential premises.

A condition of the contract states that the purchaser warrants the property is to be used as residential premises and no GST is payable. If this condition is breached the GST is payable by the purchaser.

The property has the appearance of a residential house, it would require installation of a kitchen as at present there is only an office-type kitchen.

The property also has a front reception which you will remove.

The remainder of the property consists of sleeping, living and eating areas.

The contract outlines the property is zoned as residential and the purchasers intend to reside in the premises.

No substantial renovations have been made to the property during the term of your ownership.

You own no other land and are not a dealer or trader.

Reasons for decision

GST is payable on taxable supplies. For a supply to be taxable it must meet all the criteria set out in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Section 9-5 of the GST Act provides that a supply will be taxable if:

· you make the supply for consideration

· the supply is made in the course or furtherance of the enterprise you carry on

· the supply is connected with Australia, and

· you are registered or required to be registered for GST.

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

In your situation, you will be supplying the property:

· for consideration

· you are making the supply as part of a leasing enterprise that you carry on

· the property is located in Australia, and

· you are registered for GST.

Therefore the supply of your property will be a taxable supply unless it is GST-free or input taxed.

GST-free

There are no provisions in the GST Act that will make the supply of your property GST-free.

Input taxed

Under section 40-65(2) of the GST Act a sale of residential premises is not input taxed to the extent that it is commercial residential premises or new residential premises.

Commercial residential premises

Commercial residential premises are defined in section 195-1 of the GST Act, amongst other things as "a hotel, motel, inn, hostel or boarding house…." Based on the facts you provided your property would not fall within the scope of commercial residential premises.

New residential premises

According to subsection 40-75(2), residential premises are new residential premises, as defined in subsection 40-75(1), if they:

· have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or

· have been created through substantial renovations of a building; or

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

Information provided by you indicates that the property was previously sold as a residential premise and has not been substantially renovated during the term of your ownership. Further to this the premises have not been built or rebuilt to replace demolished buildings on the same land. Therefore your property will not be considered new residential premises.

Sale of residential premises

Section 40-65 of the GST Act provides for the status of a supply of residential premises by way of sale. 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.

The definition of residential premises in section 195-1 of the GST Act refers to land or a building that is occupied as a residence or is intended and capable of being occupied as a residence.

Goods and Services Taxation Ruling 2000/20: commercial residential premises (GSTR 2000/20) discusses at paragraph 19 the term to be used predominantly for residential accommodation. This term indicates that premises that are residential premises are capable of use for purposes other than residential accommodation. It is their physical characteristics that mark them out as a residence. In turn, these characteristics determine when the use or proposed use is for residential accommodation.

According to paragraph 26 of GSTR 2000/20 the physical characteristics common to residential premises are:

· Sleeping accommodation

· Some basic facilities for day to day living.

Paragraph 27 of GSTR 2000/20 lists other factors that may be used in determining whether premises are to be used for residential accommodation. These include:

· The purpose or context of the premises use is for personal accommodation.

· The tasks of day to day living, such as, preparing food, cleaning and laundering, are performed by the occupant.

· The status of the occupant is most commonly that of owner, tenant or lessee.

Although it would be possible for the premises to be used as a doctor's surgery again, as stated by you, it can also be occupied as a residence by installing the relevant kitchen equipment and removal of the reception counter. The tasks of day to day living such as preparing food, cleaning and laundering can be carried out in the premises as it retains a laundry, bathroom, bedroom and an office type kitchen.

The property also remains residentially zoned by the relative local authority and the purchasers have confirmed to you their intention to reside in the premises. Therefore, as the premises have retained the necessary characteristics of residential premises, they are capable of being used predominantly for residential accommodation. Accordingly, the sale of the premises by you will be an input taxed supply under subsection 40-65(1) of the GST Act. You will not be liable for GST in respect of the sale.

Accordingly the sale of your property will be input taxed and no GST will need to be charged. Consequently you are also not entitled to claim any input tax credits for acquisitions relating to that supply.