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Edited version of private advice
Authorisation Number: 1012621767719
Ruling
Subject: Goods and services tax (GST) and the sale of property
Question
Will GST be payable on your sale of the property?
Answer
No.
Relevant facts and circumstances
Entity 1 and Entity 2 (you) purchased a property located in Australia (the property) a number of years ago.
Entity 1 acquired a certain percentage share of the property. Entity 2 acquired a certain percentage share of the property.
You purchased the property as an investment.
Each owner is registered for GST. The owners are not registered for GST as a partnership.
The property is a certain number of acres block of land.
The property is zoned Residential.
The property has a house situated on it. You stated that the physical characteristics of the house are residential in nature.
You have been renting out the house since you purchased the property. The people you have leased the house to have been living in the house.
The rental income has been shared between the owners.
You have not carried out any renovations to the house.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)
A New Tax System (Goods and Services Tax) Act 1999 section 9-5
A New Tax System (Goods and Services Tax) Act 1999 section 9-40
A New Tax System (Goods and Services Tax) Act 1999 section 40-65
A New Tax System (Goods and Services Tax) Act 1999 section 40-75
Reasons for decision
Summary
GST will not be payable on your sale of the property because it will be an input taxed sale of residential premises.
Detailed reasoning
GST is payable by you on your taxable supplies.
You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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.
(*Denotes a term defined in section 195-1 of the GST Act)
Sales of residential premises
A sale of residential premises can be input taxed under subsection 40-65(1) of the GST Act.
Subsection 40-65(1) of the GST Act states:
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.
Subsection 40-65(2) of the GST Act states:
However, the sale is not input taxed to the extent that the *residential
premises are:
(a) *commercial residential premises; or
(b) *new residential premises other than those used for residential
accommodation (regardless of the term of occupation) before
2 December 1998.
Section 40-75 of the GST Act defines new residential premises.
Subsection 40-75(1) of the GST Act states:
*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
(c) have been created through *substantial renovations of a
building; or
(d) have been built, or contain a building that has been built, to
replace demolished premises on the same land.
Paragraphs 9, 10 and 15 of Goods and Services Tax Ruling GSTR 2012/5 provide the Australian Taxation Office view on the meaning of residential premises to be used predominantly for residential accommodation. They state:
9. The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of 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.
10. The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display 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, where the premises are used as a business office).
15. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.
Paragraph 28 of Goods and Services Tax Ruling GSTR 2003/3 provides that paragraphs 40-75(1)(b) and 40-75(1)(c) of the GST Act raise the question of what has been done to the building or the activity of building by the current owner and this will determine whether the residential premises are new residential premises.
The building on the property in question is a house that you have been leasing out to tenants who have been living in the house. You stated that the physical characteristics of the house are residential in nature. Therefore, the building provides shelter and basic living facilities.
As the property in question has the physical characteristic of residential premises, it is residential premises to be used predominantly for residential accommodation. The intention of the purchaser is not relevant in determining whether the requirements of subsection 40-65(1) of the GST Act are met.
The property including the house has been sold previously. That sale was not a sale of commercial residential premises. You have not substantially renovated the house. The house was not built by you, and does not contain a building that was built by you, to replace premises you demolished on the same land.
Therefore, your sale of the property will not be a sale of new residential premises.
Your sale of the property will not be a sale of commercial residential premises.
Therefore, you will make an input taxed sale of residential premises under subsection 40-65(1) of the GST Act. Hence, your sale of the property will not be a taxable supply. Therefore, GST will not be payable on your sale of the property.