Edited version of private ruling

Authorisation Number: 1011711159539

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: GST and supplies of residential properties

Question 1

Are your supplies of the residential properties subject to goods and services tax (GST)?

Answer

No

Relevant facts and circumstances

You have been registered for GST since 1 July 2000.

You own several properties.

You purchased the properties individually from the owners who were using them as their principal residence at the time of acquisition.

The properties were thirty to forty years old.

The people from whom you bought the individual properties were not registered for GST.

The properties comprise either two or three bedrooms, a lounge, a dining room, kitchen, bathroom and toilet.

The properties are rented to tenants who pay rent through a local real estate agent.

You do not charge GST on the rent as they are input taxed supplies.

The current tenants have not used the properties for business purposes.

The properties have not been created through substantial renovations, nor have they been built to replace demolished premises on the land.

The properties have been re-zoned by the Council and are capable of being redeveloped into a mix of residential and retail use.

You are going to sell the properties that have been re-zoned by the council with development approval.

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

Reasons for decision

Summary

Your supplies of the residential properties are not subject GST. They are input taxed supplies of residential premises.

Detailed reasoning

Under subsection 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), the sale of real property is input taxed to the extent that it is residential premises to be used predominantly for residential accommodation.

However, subsection 40-65(2) of the GST Act provides that the sale is not input taxed to the extent that the residential premises are:

· commercial residential premises, or

· new residential premises other than those used for residential accommodation before 2 December 1998.

As per your facts the properties are not commercial residential premises.

The definition of 'residential premises' is found in section 195-1 of the GST Act. This definition 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.

Goods and Services Tax Ruling GSTR 2000/20 explains the Australian Taxation Office's view on the meaning of residential premises.

Paragraph 25 of GSTR 2000/20 provides that the building must have the physical characteristics that enable it to be occupied or be capable of occupation as a residence.

Paragraph 26 of GSTR 2000/20 that the physical characteristics common to residential premises are that the premises provide the occupants with sleeping accommodation and at least some basic facilities for day to day living.

In your situation, the properties will satisfy the definition of residential premises as they contain sleeping accommodation, a dining room, lounge, kitchen, bathroom and toilet.

Predominantly for residential accommodation

However, subsection 40-65(1) of the GST Act states that the supply is input taxed only to the extent that the residential premises are to be used predominantly for residential accommodation.

The properties in question have all the physical characteristics that enable them to be used for residential accommodation. They were purchased individually from the owners who were using them as their principal residence. After you purchased the properties you have let them as residential premises. Therefore, we consider that the properties are used predominantly for residential accommodation.

Moreover, you have stated that no businesses were conducted on the properties.

Zoning

Paragraph 36 of GSTR 2000/20 states:

36. For premises to be residential, it must be legal for them to be used for accommodation. As the concepts of 'residential' are given a broad treatment under GST, it is only necessary that the land on which premises stand is zoned by the Council or Shire in a way that contemplates human habitation or accommodation, even if only for short term occupancy. A certain zoning, or a change of zoning cannot, by itself, alter the character of premises.

We consider that the zoning by the local council is not sufficient to alter the character of the premises.

Therefore, the properties are residential premises.

However, we need to determine if the properties fall within the definition of new residential premises. If the properties are new residential premises, the supply will be taxable where the requirements of section 9-5 of the GST Act are satisfied.

New residential premises

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

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

· 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.

In your case the properties have been sold previously as residential premises (that is, when you originally purchased them). They have not been created through substantial renovations, nor have they been built to replace demolished premises on the land. Therefore, the properties do not fall within the definition of new residential premises.

In your case, you are not selling new residential properties or substantially renovated residential properties. Furthermore, the development approvals attached to the supplies and re-zoning of the residential properties do not result in anything more being transferred to the purchaser.

Accordingly, you are making input taxed supplies when you sell the properties under section 40-65 of the GST Act.

Consequently, they are not taxable supplies and therefore, they are not subject to GST.

Furthermore you may consider the following:

1. The properties may be sold as GST-free supply of a going concern provided you supply the residential properties with the leases in tact and you meet all of the requirements specified in section 38-325 of the GST Act. Please refer to enclosed Goods and Tax Ruling GSTR 2002/5.

2. Where the properties are sold as GST-free supplies of going concern and the recipient/recipients of the supplies intend/s to use the properties to make input taxed supplies (by leasing those residential properties), they will have an increasing adjustment under section 135-5 of the GST Act.