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Ruling

Subject: GST and sale of a residential property

Question 1

Is the sale of a residential property with a development approval, subject to Goods and Services Tax (GST)?

Answer

No. The sale of the residential property with a development approval is not subject to GST.

Relevant facts and circumstances

Our decision is based on the following facts.

· You are registered for GST.

· You entered a contract with a purchaser to sell this property.

· The sale price under the contract is exclusive of GST.

· There is a house on the property with numerous bedrooms, a bathroom, a kitchen and general physical characteristics which make it suitable for residential occupation.

· This house was rented out by you until recently and currently is not occupied.

· The condition of the house is poor; holes have been smashed in some areas of the gyprock walls and the ceiling and all taps have been stripped from the property as has some copper piping.

· The property has been described as "untenantable" and in need of repairs to bring it to a tenantable state. The house is not condemned or safety risk.

· The contract of sale describes this property as "Uninhabited House".

· The house was built in the late 1970s and the property was purchased by you in the 1980's.

· The property is zoned so that it may be used either as residential premises or for industrial uses.

· No part of the property has been used for commercial, retail or industrial purposes by you or tenants of the property.

· The property is a single registered lot, but has a current development approval, from the Council, and operations works approval to be developed into numerous industrial lots.

· The property has been marketed as an industrial property or development by subdivision.

· You claimed input tax credits for GST on acquisitions in relation to pursuing the development approval.

· You confirmed that the property being sold is one single lot.

· This property has been zoned by the Council as Residential Non Owner Occupied for council rate purposes.

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 9-40

A New Tax System (Goods and Services Tax) Act 1999 Division 40

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

Section 9-5 of the GST Act provides that you make a taxable supply if you make the supply for consideration; in the course or furtherance of an enterprise that you carry on; the supply is connected with Australia; and you are registered, or required to be registered.

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

Division 40 of the GST Act includes supplies which are input taxed and therefore not taxable supplies. More specifically a sale of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation (subsection 40-65(1) of the GST Act).

According to the facts provided, the property was used predominantly for residential accommodation purposes; there is a house on the property with bedrooms, bathroom, a kitchen and general physical characteristics which make it suitable for residential occupation. Furthermore, no part of the property has been used for commercial, retail or industrial purposes by you or tenants of the property.

Therefore, the sale of this property satisfied the characteristics of residential premises as per subsection 40-65(1) of the GST Act.

Subsection 40-65(2) of the GST Act provides that the sale of real property 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 premises before 2 December 1998.

According to section 40-75 of the GST Act residential premises are new residential premises if they:

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

· the premises 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.

Based on the information provided, the property has previously been sold, it has not been created through substantial renovations and has not been rebuilt to replace demolished premises on the same land. Therefore, this property does not constitute a 'new residential premises' and the supply will not be a taxable supply of new residential premises.

Consequently, the sale of the property was input taxed and not subject to GST. The fact that the sale included a development approval does not alter the GST status of the sale in this case.

Please note that input tax credits are not available to the supplier of an input taxed supply of residential premises for any GST included in the price of goods and services acquired in connection with the purchase.

Additional information:

Development Approval

The development approval is attached to the land belonging to the residential premises and runs with that land. Upon the sale of the residential premises, the development approval is automatically transferred to the purchaser as a natural consequence of the sale. This transfer takes place regardless of any formal assignment in a sale contract. Assignment of development approval does not result in anything being transferred to the purchaser that would not result naturally from the transfer of the land itself.

Therefore the supplier will not be supplying the purchaser with anything more than the residential premises. Even a formal assignment of the development approval will not amount to a separate supply because it will not affect the transfer of anything that will not already be transferred to the purchaser as a direct and natural consequence of the sale of the premises.

As such, the supplier will not be making a separate taxable supply under section 9-5 of the GST Act when they assign to the purchaser, under a contract of sale, development approval that runs with the premises. The sale will be a single input taxed supply of the residential premises, which includes the development approval.