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Edited version of private advice
Authorisation Number: 1012658962548
Ruling
Subject: Sale of residential premises
Question
Is the sale of the property subject to goods and services tax (GST)?
Answer
No, the sale of the property is not subject to GST
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
The taxpayers jointly own a property which they purchased before 2000 and have been using as a private residence since then.
The taxpayers carry on an enterprise (the first enterprise). However the property has never been used in this enterprise and do not form part of their business assets. The taxpayers do not conduct any activities related to the first enterprise on the property.
In the last five years the property has been rented out as a residential home to a third party.
No substantial renovations have taken place on the property since its acquisition.
The taxpayers are now in the process of selling the property.
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 Paragraph 9-20(1)(c)
A New Tax System (Goods and Services Tax) Act 1999 Section 40-65
Reasons for decision
GST is payable on taxable supplies that you make.
A taxable supply is defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) as follows:
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)
The sale of the property meets the requirements of paragraphs 9-5 (a), 9-5(c) and 9-5(d) of the GST Act as the sale will be made for consideration, the property is located in Australia and the taxpayers are registered for GST. Therefore it remains to be determined if paragraph 9-5(b) of the GST Act is met; that is will the sale of the property be made in the course of furtherance of the taxpayers' first enterprise.
The property is used solely as a residential home and no activity in relation to their first enterprise has been undertaken. Accordingly the property does not form part of the taxpayer's first enterprise and as such its sale will not constitute a supply made in the course of furtherance of the first enterprise the taxpayers carry on.
However in the last five years, the property has been rented out. Paragraph 9-20(1)(c) of the GST Act provides that activities done on a regular basis in the form of a lease amount to an enterprise. The sale of a capital asset used in a leasing enterprise is considered to be made in the course of that enterprise. Therefore, the sale meets paragraph 9-5(b) of the GST Act. Accordingly, all the positive limbs of section 9-5 of the GST Act are met.
Section 9-5 of the GST Act further states that a supply is not a taxable supply if it is GST-free or input taxed.
There are no provisions in the GST Act that will make the sale of the property a GST-free supply.
The relevant provision regarding input taxed supplies to consider is section 40-65 of the GST Act which states:
40-65 Sale of residential premises
(1) 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).
(2) 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.
In this case, the property is a residential premise and has been used predominantly for residential accommodation. It is not commercial residential premises or new residential premises.
Accordingly, the sale of the property meets the requirements of subsection 40-65(1) of the GST Act and it is therefore an input taxed supply.
Accordingly, sale of the property is not a taxable supply and therefore is not subject to GST.