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Ruling

Subject: GST and the sale of residential premises

Question

Is the sale of residential premises by you, an input taxed supply and therefore not subject to GST?

Answer

Yes, the sale of residential premises is an input taxed supply and therefore not subject to GST.

Relevant facts and circumstances

You are registered for GST.

You own a residential property located in Australia (the property).

The zoning of the property permits both commercial and residential development.

The property was purchased as residential premises a number of years ago, and leased out to be used for commercial purposes.

The lease has now ended and the property is being sold as vacant possession.

The property has the attributes of a home with bedrooms, kitchen, bathroom and living areas,

You advised there was no requirement to renovate or modify the premises for the use as a health centre, nor have you not upgraded the house or engaged in extensive renovations or modifications to the premises.

You are selling the premises to an unregistered purchaser, who intends to lease it as residential premises.

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 195-1.

A New Tax System (Goods and Services Tax) Act 1999 Subsection 40-75.

A New Tax System (Goods and Services Tax) Act 1999 Section 40-65.

A New Tax System (Goods and Services Tax) Act 1999 Section 75-5.

Reasons for decision

GST is payable on taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides:

You make a taxable supply if:

· you make the supply for consideration; and

· the supply is made in the course or furtherance of an enterprise that you carry on; and

· 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.

In this case, the sale of your property will be for consideration, in the course or furtherance of your enterprise, the sale will be connected with 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 occupation). 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 before 2 December 1998.

Residential premises

Residential premises are defined under section 195-1 of the GST Act to mean land or a building that:

· is occupied as a residence or for residential accommodation, or

· is intended to be occupied or capable of being occupied as a residence or for residential accommodation.

Draft Goods and Services Tax Ruling 2012/D1 - Goods and services tax: residential premises and commercial residential premises provides guidance on what is residential premises and what are commercial residential premises.

Paragraph 7 of GSTR 2012/D1 provides that the second limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of, being occupied as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises. This is further explained in paragraphs 10 through to 14 of GSTR 2012/D1.

Paragraph 10 provides that premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for purpose other than to provide residential accommodation. The requirement for residential premises to be used predominantly for residential accommodation does not require an examination for the subjective intention or, or use by any particular person.

In your case while the property was utilised for commercial purposes, the use by your tenant does not change the nature of your supply. It will be the physical characteristics of the premises which determine whether the premises are residential or not.

To satisfy the definition of residential premises, premises must be fit for human habitation and provide shelter and basic living facilities. The property that you propose to sell is an older residential home, which contains bedrooms, kitchen and living areas. Based on the physical characteristics of your property, it is a residential property.

Based on the facts provided the, property would not be new residential premises, or commercial residential premises. Therefore, the sale of the property by you will be an input taxed supply of residential premises, and you will have no GST liability when you sell the property.