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Ruling

Subject: GST & the supply of residential premises

Question 1

Will your supplies of residential premises be input taxed supplies?

Answer

Yes

Relevant facts and circumstances

· You acquired a 50% share in a Crown Lease over land in the ACT ("the Land").

· The specimen Crown Lease which was attached to the Contract for Sale when the land was acquired, was for a term of ninety-nine years.

· You, through a Joint Venture arrangement, in conjunction with another party undertook a residential development on the Land.

· The development comprised residential buildings.

· You intended to make input taxed supplies of residential premises (by way of short term lease) upon finalisation of the development and accordingly, during the construction phase of the development, you did not claim any input tax credits in relation to construction costs incurred.

· The development was finalised before 27 January 2011 and an application was made to register a unit plan (ie strata plan).

· A title search for the Land notes that the unit plan was registered by ACT Planning and Land Authority ("ACTPLA").

· Upon registration of the unit plan, the provisions of the Crown Lease (purpose clause, term etc) were carried over in Form 4 of the Unit Plan.

· Accordingly, the unit title leases that were granted to you in respect of the registered unit plan had a term of approximately 97 years.

· Upon finalisation of the development and subsequent to the issue of the unit title leases, the bare trust arrangement was collapsed and each joint venture party retained their pre nominated share of the developed stock.

· In your case, you retained xy buildings.

· Since that time, you have sold x buildings.

· The remaining xx buildings are unsold.

· No GST was remitted to the ATO in relation to the sales, due to you classifying the sales as input taxed supplies of residential premises.

· You have provided the following supporting documentation:

· Contract For Sale

· Trust Deed In Respect Of Land

· Specimen Crown Lease

· Lease Conditions and Development Requirements

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 Subsection 40-70(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 Subsection 40-75(2C) and

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

Under subsection 40-70(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), a supply of residential premises by way of long term lease is input taxed. However subsection 40-70(2) provides that the supply 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

The definition of residential premises in section 195-1 of the GST Act refers to land or a building that is occupied as a residence or for residential accommodation, or is intended to be, and is capable of being, occupied as a residence or for residential accommodation.

Input taxed means that there is no GST payable on the supply and there is no entitlement to an input tax credit for anything that is acquired to make the supply.

Based on the submitted information, the premises to be supplied by way of lease are residential premises and are not commercial residential premises. In addition, the residential premises have not been used for residential accommodation before 2 December 1998, because they were constructed after this date.

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

a) have not previously been sold as residential premises (other than commercial 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.

If any of the provisions in subsection 40-75 (1) of the GST Act apply, the supply will, (subject to subsection 40-75 (2) of the GST Act) be new residential premises and will therefore be a taxable supply under section 9-5 of the GST Act.

The question to be determined is whether the residential premises that are supplied to purchasers have ever been the subject of a long term lease.

The definition of long term lease in section 195-1 of the GST Act refers to a supply by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) for at least 50 years if:

· at the time of the lease, hire or licence, or the renewal or extension of the lease, hire or licence, it was reasonable to expect that it would continue for at least 50 years, and

· unless the supplier is an Australian government agency - the terms of the lease, hire or licence, or the renewal or extension of the lease, hire or licence, as they apply to the recipient are substantially the same as those under which the supplier held the premises.

You acquired a share in a Crown Lease over land situated in the ACT ("the Land"). The specimen Crown Lease, which was attached to the Contract for Sale when the Land was acquired, was for a term of ninety-nine years and is therefore considered a long term lease under section 195-1 of the GST Act.

You, through a joint venture arrangement in conjunction with another party, undertook a residential development on the Land.

The development comprised residential buildings. You intended to make supplies of residential premises (by way of short term lease) upon finalisation of the development. The development was finalised before 27 January 2011 and an application was made to register a units plan (ie strata plan). The units plan was registered by ACT Planning and Land Authority ("ACTPLA"). Upon registration of the units plan the provisions of the Crown Lease (purpose, clause, term etc) were carried over in Form 4 of the Units Plan. Accordingly, the unit title leases were granted to the taxpayer in respect of registered units plan had a term of approximately 97 years.

Upon finalisation of the development and subsequent to the issue of the unit title leases, the bare trust arrangement was collapsed and each joint venture party retained their share of the developed stock. In your case, you retained xy buildings.

Since that time, you have sold x of the buildings. The remaining xx buildings are unsold.

The Federal Court decision Commissioner of Taxation v Gloxinia Investments (Trustee) [2010] FCAFC 46 (Gloxinia) handed down on 24 May 2010, held that a developer's sales of newly constructed residential premises, constructed under a particular arrangement with a land owner (sometimes referred to as a 'development lease' arrangement) are input taxed supplies of residential premises.

On the facts provided, the arrangement between you and ACTPLA is similar to the development lease arrangement that was the subject of the Gloxinia decision. Therefore, your subsequent supply of residential premises would be input taxed as they have previously been subject to a long term lease.

However, on 21 March 2012, Tax Laws Amendment (2011 Measures No.9) Bill 2012 ("the Bill") received Royal Assent. The Bill contains amendments to Division 40 of the GST Act that aim to overcome the issues identified in Gloxinia. In particular, a new subsection (subsection 40-75(2C)) has been inserted into the GST Act to provide that any supply of residential premises by a government body as a result of the lodgement of a property subdivision plan, for example, the grant of strata-lot leases in relation to residential premises (such as that Registered with ACTPLA), is disregarded for the purposes of determining whether a subsequent supply of the premises is a supply of new residential premises.

Whilst the new subsection 40-75(2C) applies in relation to supplies of residential premises occurring on or after 27 January 2011, there is an exception whereby certain arrangements which were entered into before 27 January 2011 will not be subject to subsection 40-75(2C). The exception is contained at item 13 of Schedule 4 to Tax Laws Amendment (2011 Measures No. 9) Act 2012 and reads as follows:

13 Exception - property subdivision plans lodged for registration before 27January 2011.

Subsection 40-75(2C) of the A New Tax System (Goods and Services Tax) Act 1999 (as inserted by this Schedule) does not apply to a supply of residential premises on or after 27 January 2011 if the supply is made because a property subdivision plan relating to the premises was lodged for registration (however described) before 27 January 2011 by the recipient of the supply or the recipient's associate.

The term 'property subdivision plan is defined in Section 195-1 of the GST Act as follows:

property subdivision plan means a plan:

(a) for the division of *real property; and
(b) that is registered (however described) under an *Australian law.

Note: Examples are strata title plans and plans to subdivide land.

In your case, the units plan was registered by ACTPLA on ddmmyyyy .This was prior to 27 January 2011 and consequently your supplies of residential premises that occur subsequent to the registration of the strata plan will retain their status as input taxed supplies of residential premises.