Edited version of your written advice

Authorisation Number: 1012863734916

Date of advice: 20 August 2015

Ruling

Subject: GST and purchase of property

GST and sale of property

Question

Are you entitled to an input tax credit on your purchase of the "residential component" of the Property pursuant to Division 11 of the A New Tax System (Goods and Services Tax) Act 1999?

Answer

Yes, provided you are otherwise entitled, you will be able to claim the full input tax credit on the purchase of the Property, as there is no residential component to the Property.

Relevant facts and circumstances

You are registered.

You purchased (settled) the Property on ddmmyyyy for $xxxx plus GST. The Property consists of less than 5 separate titles:

The GST general condition notes that the supply of the property was neither a supply of farmland, nor a supply of a going concern. Further, the margin scheme was not applied in calculating the GST payable.

The Property contains various rooms, an external storeroom and a separate garage.

One of the lesser rooms contains various rooms. Your agent has identified this room, plus the garage and toilets, as a residence and as the "residential component" referred to in the question that you are seeking a ruling on.

Heritage Overlay Number HOxxx contains the following information:

…

"Alterations include the painting of the brickwork, the closing in of the entrance, the addition of an unsympathetically designed, cream brick entrance block to the east and the construction of a brick planter box in front of the old building."

A Edwardian era weatherboard hall is situated at the rear of the building.

…"

Your representative provided the following history of the Property:

"The property originally consisted of a building constructed in or about yyyy.

The room was subsequently added and a garage was erected some time later.

The residence retains the features necessary to provide residential accommodation.

A large room has been adapted to be a meeting room. Photos were supplied.

The house sits on a separate title which is approximately a percentage of the total area of the property and the garage occupies a further xx square metres and added to the residence title constitutes X% of the total property. A copy of the plan was supplied.

The garage appears to have been constructed subsequently.

Since being built, the house has been modified in terms of the facade and the removal of some stud walls to increase the size of the main room, but these changes while modifying the property, do not change the essential nature of the property as a residence.

The residence was, we believe, constructed by AAA to provide residential accommodation to a specific member the team."

The property was advertised on www:/realestate.com.au

Neither the description, nor the floor plan, refers to a residential component.

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 Division 11

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

Reasons for decision

Note: 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 referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

• all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act

Section 11-20 provides that you are entitled to input tax credits for your creditable acquisitions.

Under section 11-5, you make a creditable acquisition where all of the following conditions are met:

• you acquire anything solely or partly for a creditable purpose; and

• the supply of the thing to you is a taxable supply; and

• you provide, or are liable to provide, consideration for the supply; and

• you are registered, or required to be registered for GST.

In this instance the relevant issue is whether the supply to you was a taxable supply.

Under section 9-5 an entity makes a taxable supply if:

• it makes the supply for consideration; and

• the supply is made in the course or furtherance of an enterprise that the entity carries on; and

• the supply is connected with Australia; and

• the entity is 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.

On the facts supplied, the supply to you met requirements (a) to (d) and was not a GST-free supply. Therefore, the supply to you was a taxable supply, to which you were potentially entitled to an input tax credit, unless it was input taxed.

Section 40-65 provides that a supply of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation.

The term 'residential premises' is defined in section 195-1 to mean 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 occupation or intended occupation) and includes a floating home.

Paragraph 9 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) explains that 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.2

Paragraphs 10 and 11 of GSTR 2012/5 further explain that 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). However, premises that do not display physical characteristics demonstrating that they are suitable for, and capable of, being occupied as a residence or for residential accommodation are not residential premises to be used predominantly for residential accommodation, even if the premises are actually occupied as a residence or for residential accommodation.

Premises that are capable of being occupied as a residence must provide some basic living function, such as providing some element of shelter and basic living facilities such as a bedroom and bathroom, at the time the premises are supplied. They would usually also include living areas and laundry facilities.

One of the lesser rooms contains various rooms. Your agent advised that this had previously been used as a residence. Your agent contends that, although this building has been modified in terms of the facade and the removal of some stud walls to increase the size of the main room, these changes, while modifying the property, do not change the essential nature of the property as a residence. Your agent contends that the building retains the features necessary to provide residential accommodation.

Whilst the building may once have been used as a residence, the plans show that there is no laundry and no bathing facilities or readily identifiable sleeping quarters. Further, the building does not have any attached toilet facilities, specifically for use in connection with the building. Rather, there are detached common toilets shared by the other buildings. The modifications are such that the building is no longer suitable for or intended to be used as a residence.

Whilst it is possible to sleep and eat in the building, the internal modifications and construction of the entrance block indicate that the main room and the lesser rooms are all part of one complex to be used for functions and meetings. Any suitability for the provision of living accommodation is ancillary to the prevailing function of the building - ie a meeting/function facility. Therefore, there is no residential component to the Property.

Your agent refers to the inclusion of the garage as part of the residential premises. As stated above, the Property does not contain any residential component. Further, as with the facilities, the plans show that the garage is not attached to any particular building. Rather, the garage is for shared use in connection with all of the Property facilities.

Therefore, there is no residential component to the Property. Accordingly, provided you are otherwise entitled, you will be able to claim the full input tax credit on the purchase of the Property.