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Ruling
Subject: GST and the sale of residential premises
Question:
Is your sale of the property, located in Australia, an input taxed supply of residential premises?
Answer:
Yes.
Relevant facts and circumstances
You are registered for GST.
You are a not for profit organisation.
In YYYY, you acquired a residential property located in Australia (the property).
The property is located in a council and is zoned residential.
The house on the property has four bedrooms, one bathroom, a kitchen, laundry, and air-conditioning.
You have not significantly upgraded the house or engaged in extensive renovations.
You have undertaken general repairs on the house on an ongoing basis.
The property is leased to another party who use it to provide care to their clients.
The only modification you have made to the house is to bolster a door to one room, for security/safety reasons.
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 Paragraph 9-5(a).
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(b).
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(c).
A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-5(d).
A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.
A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-75(1).
A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-75(2).
A New Tax System (Goods and Services Tax) Act 1999 Section 40-65.
A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-65(1).
A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-65(2).
Reasons for decision
1. GST is payable on taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 Australia; and
(d) 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.
(The asterisks indicate terms defined under section 195-1 of the GST Act)
In this case, the sale of the property will be for consideration, in the course or furtherance of your enterprise. The sale will be connected with Australia as the property is in Australia and you are registered for GST.
Section 40-65 of the GST Act states 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 regardless of the term of occupancy. However, 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 (regardless of the term of occupation) before 2 December 1998.
Residential premises
The definition of residential premises refers to land or a building that is occupied as a residence, or is intended to be occupied as a residence, and is capable of being occupied as a residence or for residential accommodation.
The property is a residential house that has been used as residential accommodation. However, for the sale of this property to be input taxed, it must not be commercial residential premises or new residential premises other than those used for residential accommodation since 2 December 1998.
Commercial residential premises
Under section 195-1 of the GST Act, commercial residential premises means:
(a) a hotel, motel, inn, hostel or boarding house; or
(b) premises used to provide accommodation in connection with a *school; or
(c) a *ship that is mainly let out on hire in the ordinary course of a *business of letting ships out on hire; or
(d) a *ship that is mainly used for *entertainment or transport in the ordinary course of a *business of providing ships for entertainment or transport; or
(da) a marina at which one or more of the berths are occupied, or are to be occupied, by *ships used as residences; or
(e) a caravan park or a camping ground; or
(f) anything similar to *residential premises described in paragraphs (a) to (e).
The definition expressly excludes premises to the extent that they are used to provide accommodation to students in connection with an education institution that is not a school.
The property is a residential house which does not fall within any of the categories of commercial residential premises listed above.
New residential premises
Subsection 40-75(1) of the GST Act states:
(1) *Residential premises are new residential premises if they:
(a) have not previously been sold as 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.
However, subsection 40-75(2) of the GST Act provides that premises are not new residential premises if, for the period of at least five years since the premises first became residential premises, the premises have only been used for making supplies of residential rental accommodation.
The property that you propose to sell is an older residential home. The property is not new residential premises because it has:
· been sold previously as residential premises
· not been substantially renovated
· not been built to replace demolished premises on the same land and
· been used to make supplies of residential rental accommodation for a period of more than 5 years since it was first built.
Therefore, the sale of the property by you will be an input taxed supply of residential premises. Hence, you will have no GST liability when you sell the property.