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Ruling

Subject: GST: sale of residential property - supply of residential property

Question

Will your supplies of residential premises in Australia be input taxed supplies?

Answer

Yes

Relevant facts and circumstances

You are a partnership that is registered for GST.

You acquired a crown lease over land situated in Australia.

A development agreement ("the Agreement") was entered between you and a developer on ddmmyyyy to construct a development on the land. The terms of the Agreement provide that the developer is responsible for all facets of the development and will incur all costs in relation to the development. Furthermore, the agreement provides that upon settlement of sales of units in the development, the developer makes a supply of development services to you. The development fee is calculated and charged on a unit by unit basis, such that you are clearly able to demonstrate the development fee that is applicable to any individual unit.

The residential component of development was comprised of residential units of varying profiles.

Upon completion of the development, applications to register a units plan were lodged with the relevant authority as follows:

1. Stage 1 (various units) - pre 27 January 2011; and

2. Stage 2 (various units) - pre 27 January 2011.

Upon registration of the units plan, the provisions of the Crown Lease (purpose clause, term etc.) were carried over in the Units Plan. Accordingly the unit title leases that were granted to you in respect of the registered units plan had a term expiring on ddmmyyyy (more than 50 years).

As at the date of this private ruling application, you have settled and reported sales of some of the residential units in development on your business activity statements. Accordingly, as at the date of this private ruling application, sales of the remaining residential units have either not yet occurred, or have not yet been reported on your business activity statements.

This private ruling application relates only to the remaining residential units.

Input tax credits claimed prior to engagement of the developer.

During the preliminary phase of the residential development (prior to entering the Development Deed), you acted in accordance with the prevailing ATO view at the time, as outlined in Goods and Services Tax Ruling Goods and Services Tax Ruling GSTR 2003/3 - when is a sale of real property a sale of new residential premises? Accordingly, during the preliminary phase of the development (prior to entering the Development Deed), you claimed all input tax credits due to the acquisitions being viewed as creditable acquisitions at the time.

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)

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:

(a) 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

(b) 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 Crown Lease over land situated in Australia. You undertook a residential development on the Land. The development comprised xx residential units.

Upon completion of the development, applications to register a units plan were lodged with the relevant authority as follows:

1. Stage 1 (various units) - pre 27 January 2011; and

2. Stage 2 (various units) - pre 27 January 2011.

Upon registration of the units plan, the provisions of the Crown Lease (purpose clause, term etc.) were carried over in the Units Plan. Accordingly the unit title leases that were granted to you in respect of the registered units plan had a term expiring on ddmmyyyy (more than 50 years).

As at the date of this private ruling application, you have settled and reported sales of xx of the residential units in development on your business activity statements. Accordingly, as at the date of this private ruling application, sales of the remaining yy residential units have either not yet occurred, or have not yet been reported on your business activity statements.

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 the relevant authority 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 section (section 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 those Registered with ACTPLA in 2010 2009), is disregarded for the purposes of determining whether a subsequent supply of the premises is a supply of new residential premises.

Whilst the new section 40-75(2C) applies in relation to supplies of residential premises occurring on or after 27 January 2011, there is an exception whereby property subdivision plans that were lodged for registration before 27 January 2011 will not be subject to section 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 27 January 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.

In your case, the units plans were registered by the relevant authority prior to 27 January 2011. Consequently your supplies of residential premises that occur subsequent to the registration of the strata plan will not be new residential premises under subsection 40-75(2C) but input taxed supplies of residential premises.