Edited version of your private ruling

Authorisation Number: 1012539899217

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Ruling

Subject: Supply of property by lease

Question

Will your supplies of the following properties be input taxed supplies of residential premises?

Property 1

Property 2

Property 3

Property 4

Property 5

Property 6

Property 7

Property 8

Property 9

Property 10

Property 11

Property 12

Property 13

Property 14

Property 15

Property 16

Property 17(a)

Property 17(b)

Property 18

Property 19

Property 20

Answer

Your supply of Property 19 will be an input taxed supply of residential premises.

Your supplies of the other properties will not be input taxed supplies of residential premises.

Relevant facts and circumstances

You are a government authority established by the State government to manage a specific Property area. You operate as a division of the relevant state department.

As part of carrying out these functions, you lease out a number of premises to a variety of corporate entities and individuals.

The premises which are the subjects of this ruling were formerly used for residential purposes.

Each of the premises has been renovated with fit outs and configured to accommodate the present commercial requirements of you and your tenants. All of these tenants are commercial tenants who carry on a business in these premises.

Group 1

You advised that the following properties to not have bathroom or kitchen or laundry facilities at all. Further, although they have external taps, they do not have any internal plumbing. Tenants of these buildings use the public toilets that are located nearby:

Property 1

Property 2

Property 3

Property 4

Property 5

Property 6

Property 7

Property 8

Property 9

Property 10

Property 11

Property 12

Group 2

These properties all have toilet, bathroom and kitchen facilities to varying degrees.

Although they are zoned commercial, residential use is permitted. However, you only let them for commercial use. You do not permit residential use.

You provided detailed descriptions and photos of the properties.

Property 13

Property 14

Property 18

These premises have fixtures and fittings appropriate for the particular enterprises. They premises have kitchen facilities that, while basic in nature, are consistent with the characteristics of a domestic kitchen. They do not have showering or bathing facilities.

Property 15

Property 16

Both of these premises have bathroom facilities. The kitchens have been modified to commercial kitchens which include stainless steel walls, sinks, benches and shelving. Other rooms have been modified to accommodate fixed counters and display cabinets.

Property 17(a) - Ground floor

Property 17(b) - Level 1

The ground floor has a kitchen and toilet, but no bathing facilities. Level 1 has bathing facilities, but no kitchen. The ground floor and level 1 are leased separately. As currently configured, there is no access to level 1 from the ground floor, or to the ground floor from level 1.

Property 19

These premises have bathroom and kitchen facilities that are consistent with domestic standards. Rooms 1 and 2 have a counter that is affixed to the floor. Other rooms contain furniture relevant to the particular commercial use of the premises ie free standing shelving cabinets, tables and chairs.

Property 20

These premises have been extensively modified. The kitchen has been upgraded to commercial standards, including commercial exhaust fans and a commercial cool room. Room 1 has been modified to accommodate a counter, pizza oven and signage. Toilets have been upgraded to meet commercial standards. There are no bathing or shower facilities.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 40-35

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

Reasons for decision

In this ruling,

· unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

· all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website www.ato.gov.au

Will your supplies of the following properties be input taxed supplies of residential premises?

The premises leased by you and which are the subjects of this ruling were formerly used for residential purposes.

However, each of the premises has been renovated with fit outs and configured to accommodate the present commercial requirements of you and your tenants. All of these tenants are commercial tenants who carry on a business in these premises.

Section 40-35 states:

(1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if:

(a) the supply is of *residential premises (other than a supply of *commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or

(b) the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87-25.

Residential premises is defined in section 195-1 as land or a building that:

(a) is occupied as a residence or for residential accommodation; or

(b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;

(regardless of the term of the occupation or intended occupation) and includes a floating home.

Note: Asterisked terms are defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the Tax Office view of the characteristics of residential premises.

Paragraph 6 of GSTR 2012/5 explains that premises, comprising land or a building are residential premises where they are occupied as a residence or for residential accommodation, regardless of the term of occupation. In this instance you have advised that none of the premises listed are currently occupied or used as a residential premises.

However, paragraph 7 of GSTR 2012/5 explains that under paragraph (b) of the definition of residential premises, premises, comprising land or a building are also residential premises if they are intended to be occupied, and are capable of, being occupied, as a residence or for residential accommodation.

Paragraphs 9 and10 of GSTR 2012/5 further explain that 'residential premises to be used predominantly for residential accommodation (regardless of the term of the intended occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.

Premises that display the physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation. For example, premises may be used as a business office, however may still be considered to be a residential premises based on the fact that it displays the physical characteristics common to 'residential premises'.

As stated in paragraph 15 of GSTR 2012/5, to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Further, as explained in paragraph 20 of GSTR 2012/5, the premises must be fit for human habitation, which is determined through an objective consideration of the relevant facts and circumstances.

The physical characteristics common to 'residential premises' is that they provide the occupants with sleeping accommodation and at least some of the basic facilities for day to day living. These characteristics will be inherent in the design and fabrication of the premises, which typically include areas for sleeping, eating and bathing. However, these things do not need to be arranged in a manner that is similar to a conventional house or apartment.

In regards to your premises, when constructed, the premises were intended to be occupied, and were capable of being occupied, as a residence or for residential accommodation. However, they are no longer used for residential accommodation. All of these tenants are commercial tenants who carry on a business in these premises. Each of the premises has been renovated with fit outs and configured to accommodate the present commercial requirements of you and your tenants.

Therefore, it is appropriate to consider whether the renovations and fit outs are significant enough to change the character of the premises so that they are no longer residential premises to be used predominantly for residential accommodation.

Group 1 properties

You advised that these properties do not have bathroom / kitchen / laundry facilities at all. Further, although they have external taps, they do not have any internal plumbing. Tenants of these buildings use the public toilets that are located nearby.

As previously stated, residential premises must provide shelter and basic living facilities. Basic living facilities include areas for sleeping, food preparation and consumption, and bathing facilities.

As the properties in question are unable to provide the basic living facilities required of residential premises, such as kitchen and bathroom, it is considered that they do not meet the definition of residential premises. Accordingly, your supplies of these premises will not be input taxed supplies of residential premises.

Group 2 properties

Property 13

Property 14

Property 18

These premises have kitchen facilities that, while basic in nature, still display and are consistent with the characteristics of a domestic kitchen. However, on the facts provided, the properties do not have showering or bathing facilities. Therefore, whilst the properties can provide shelter, it is considered the premises are not capable of providing all of the basic living facilities required for residential accommodation.

Therefore, the supplies of these properties will not be supplies of residential premises.

Property 15

Property 16

Both of these premises have bathroom facilities. The kitchens have been modified to commercial kitchens which include stainless steel walls, sinks, benches and shelving. Other rooms have been modified to accommodate fixed counters and display cabinets.

On the facts supplied, whilst the premises were constructed as residential premises, the renovations and fit outs to the kitchen and dining areas are considered to be significant. While there are still bathroom facilities within the buildings, we consider that as a whole, the premises are no longer designed, or suitable for residential premises to be used predominantly for residential accommodation.

Therefore, the supplies of these properties will not be supplies of residential premises.

Property 17(a) - Ground floor

Property 17(b) - Level 1

As currently configured (separate leases for each level), neither level has both bathroom and kitchen facilities. Therefore, whilst either property can provide shelter, neither property is capable of providing all of the basic living facilities necessary required for residential accommodation. When considered separately, the definition of residential premises is not met. Therefore, when you separately supply each level to separate parties, the supplies will not be supplies of residential premises.

However, if the configuration of the two levels were to change, so that together the supply of both levels to the same tenant could occur, the premises would be considered to meet the definition of residential premises. Both levels combined contain the physical characteristics of the original intention of the premises, that of a residential terrace house.

Property 19

These premises have bathroom and kitchen facilities that are consistent with domestic standards. Rooms 1 and 2 have a counter that is affixed to the floor. Other rooms contain furniture relevant to the particular commercial use of the premises ie free standing shelving cabinets, tables and chairs.

Examples 8 and 9 of GSTR 2012/5 provide guidance on residential premises that have been partly converted for business use. Example 8 illustrates that where modifications result in part of the premises no longer being residential premises to be used predominantly for residential accommodation, then you need to consider if objectively, the remaining areas of the premises are still designed predominantly for residential accommodation [paragraph 42]. Example 9 states that the addition of furniture and minor fittings would not be sufficient to modify the physical characteristics a of terrace house into a premises other than residential premises to be used predominantly for residential accommodation.

As illustrated in Example 9 of GSTR 2012/5, the addition of these fixtures and furniture, whilst significant for the particular business, are not sufficient to change the physical characteristics of the buildings.

From the photos and information provided, it is considered that the premises on balance is able to provide shelter and all of the basic living facilities. The premises are fit for human habitation. Further, although not used for residential accommodation, such use is not inconsistent with the area zoning.

Therefore, the supply of this property is a supply of residential premises.

Property 20

As detailed in the facts, this property has been extensively modified. The kitchen has been upgraded to commercial standards, including commercial exhaust fans and a commercial cool room. Room 1 has been modified to accommodate a counter, pizza oven and signage. Toilets have been upgraded to meet commercial standards. There are no bathing or shower facilities.

On the facts supplied, whilst the premises were constructed as residential premises, the renovations and fit outs are significant enough to result in the premises no longer meeting the definition of residential premises to be used predominantly for residential accommodation. Therefore, the supply of the premises will not be a supply of residential premises.