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Edited version of private ruling
Authorisation Number: 1011752380072
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Ruling
Subject: GST and sale of a residential property
Question
What is the GST status of your supply of a residential property?
Advice/Answers
Your supply of the residential property is input taxed and therefore you are not required to collect GST from the purchaser on the sale.
Relevant facts
You are the vendor for the sale of the property.
The property consists of a large allotment of land with a residential building.
The residential building is a house but has some minor modifications which allowed it to be used as a sales office for a short time.
The modifications to the house which were council approved were the addition of a decking area as an entry for visitors and some minor improvements to make the area suitable as an office such as additional power points installed.
The building contains all of the standard features and facilities of a residential house.
The purchaser intends to build holiday apartments on the property and will also retain the residential building on the land for personal or future caretaker use.
Both the purchaser and you are registered for GST.
The purchaser paid you GST on the property and the GST was reported and remitted to the ATO by you.
The purchaser advised you that the ATO has determined they are not entitled to claim credit for the GST paid as the property was not a taxable supply.
You have now requested a ruling on the GST status of the property to ascertain whether you are required to refund the GST to the purchaser.
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
As the trust acquired the property with the residence already established, the property cannot be regarded as 'new residential' and therefore its sale is input taxed. As an input taxed supply no GST liability arises on the transaction.
Detailed explanation
Under the GST legislation, GST applies to taxable supplies. A taxable supply is one where:
o the supply is made for consideration,
o the supplier is registered for GST,
o the supply is made in carrying on the suppliers enterprise, and
o the supply is connected with Australia.
However a supply is not taxable to the extent that it is GST-free or input taxed. The term input taxed means that no GST is payable on a supply, and the supplier is not entitled to claim input tax credits (ITCs) in relation to making this supply.
Generally, the GST legislation treats the supply of residential premises as input taxed. Residential premises are premises that are occupied as a residence or are intended to be occupied and are capable of being occupied as a residence. In the context of this situation, the supply is real property which is residential premises to be used predominantly for residential accommodation, and is not new or not commercial residential premises, is therefore input taxed.
New residential premises are premises that have not been previously sold as residential premises, or have been created through substantial renovations. The meaning of new residential premises and substantial renovations is further explained in Goods and Services Tax Ruling 2003/3. It states that substantial renovations are renovations in which all, or substantially all of a building is removed or replaced. However the renovations need not involve removal or replacement of foundations, external walls, interior supporting walls, floors, roof or staircases.
Commercial residential premises are hotels, motels, inns, hostels, boarding houses, premises in connection with a school, ships, marinas, caravan parks or camping grounds or anything similar to the above.
In your case you owned a large property with a residential house. It is not a new residential premises as it has previously been sold and used as a residential premises and there have not been any substantial renovations. As such on sale the supply will be input taxed and no GST will apply to the sale.
Further issues for you to consider
The GST paid by the vendor now creates a situation where a refund by them to the purchaser is required to allow for a refund under section 105-65.