Edited version of your written advice

Authorisation Number: 1012934598304

Date of advice: 12 January 2016

Ruling

Subject: GST: property and renovations

Question 1

Do the planned renovations to the Strata Titled Apartments under Stage 'A' of the Renovation Project constitute 'substantial renovations to a building', such that the Strata Titled Apartments therefore constitute 'new residential premises' within the meaning of paragraph 40-75(1)(b) of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Advice/Answers

Yes

Although the works do not affect the structure of the Strata Titled Apartments, they constitute a removal or replacement of a substantial part of the non-structural components of the building. The works undertaken are more than mere cosmetic works and are substantial in nature. In effect, the renovations undertaken under Stage 'A' have resulted in the replacement and removal of a substantial part of each of the Strata Titled Apartments.

Accordingly, the renovations carried out to the Strata Titled Apartments under Stage 'A' of the Renovation Project constitute 'substantial renovations to a building'

Therefore, the newly renovated Strata Titled Apartments constitute 'new residential premises' within the meaning of paragraph 40-75(1)(b) of the GST Act.

Further, the cosmetic work undertaken (painting, sanding floors, removing and replacing worn out light fittings or replacing curtains and carpets) will form part of the new residential premises.

Question 2

Do the planned renovations to the remaining Strata Titled Apartments under Stage 'B' of the Renovation Project constitute 'substantial renovations to a building', such that the remaining Strata Titled Apartments therefore constitute 'new residential premises' within the meaning of paragraph 40-75(1)(b) of the GST Act?

Advice/Answers

Yes

The extent and nature of the renovations to be carried out to each Strata Titled Apartment under Stage 'B' will be the same as the works undertaken to the Strata Titled Apartments under Stage 'A'.

For the reasons outlined in Question 1 above, the renovations to be carried out under Stage 'B' to the remaining Strata Titled Apartments will also constitute substantial renovations to a building.

Therefore, upon completion of the Stage 'B' renovations, the remaining Strata Titled Apartments will constitute 'new residential premises' within the meaning of paragraph 40-75(l)(b) of the GST Act.

Relevant facts and circumstances

You acquired the property (the Property Complex) in 19yy.

The Property Complex was originally designed and constructed in 19yy as residential apartments.

Each apartment has a bathroom and separately identifiable lounge, kitchen, dining and bedroom areas.

In 20yy, you started the Renovation Project, intending to:

• Strata Title the apartments so the apartments could be owned by multiple owners; and

• undertake some renovations to the apartments.

Originally, the renovation plans included closing down and redeveloping the entire Property Complex as one large project. However, as a result of financial constraints, the Renovation Project had to be conducted over three consecutive stages (outlined below). The relevant Authority's consent to stage the Renovation Project was obtained in 20yy.

Stage 1.-.creation of Strata Titles

Under Stage 1 of the Renovation Project, in order to obtain separate Strata Titles for the residential apartments, you were required to:

• upgrade the fire system by installing sprinklers into each residential apartment, and

• demolish and replace part of a car park to increase the number of car parks in the car park.

Stage 1 was completed in late 20yy and Strata Titles for the residential apartments (Strata Titled Apartment(s)) were issued on ddmmyyyy.

The approximate construction costs of Stage 1 were $xxx, or $xx per Strata Titled Apartment.

Stage 2 - External renovations

Stage 2 of the Renovation Project involved the demolition and replacement of the supporting infrastructure for the Property Complex, such as a new swimming pool, new access pathways to each Strata Titled Apartment, a new entertainment area and new landscaping to create a new modern and marketable look.

Stage 2 works were completed in mmyyyy at an approximate cost of $xxx, or $xx per Strata Titled Apartment.

Stage 3 - Internal renovations

When you obtained the relevant Authority's consent to stage the project in 20yy, you anticipated that the internal renovations would be mostly insubstantial and cosmetic in nature.

However, during mmyyyy, you reviewed your plans and made a commercial decision to further break up the works into sub-stages, rather than renovating all Strata Titled Apartments at the same time.

Stage 'A' - Initial renovation works

Under Stage 'A', xx Strata Titled Apartments were renovated.

You initially anticipated that the renovations would involve the following:

• Installation of a new kitchen and kitchen tiles, demolition of the kitchen sink, taps and waste pipes and installation of new sink, mixer tap and waste pipes. This required cutting a rectangular hole in the existing gyprock wall so the in-wall copper water pipes could be modified for the installation of the new kitchen mixer tap wall mounted connections

• Replacement of the bathroom fittings (such as toilet pans, hand basins, shower roses, taps and curtains, flexi-pipes, shower breeches, etc) and repainting the bathroom. Some of these works required removal and replacement of a small number of bathroom tiles (between 6 to 9 tiles) so that new parts could be installed

• Replacement of the existing apartment power switchboards with new switchboards which have residual current device (RCD) circuit detectors to enhance safety

• Installation of a new 32amp stove circuit so that a new stove could be installed in the new kitchen, and

• Replacement of the old room air conditioners with new split system air conditioners.

The estimated construction costs for Stage 'A' were $xxx, or $xx per apartment.

However, during the early part of the internal renovations, the condition of some elements of the existing Strata Titled Apartments was found to be poorer than originally thought. The main problems found were:

• When the original kitchens were demolished, it was found that the common wall with the bathroom had water damage in the lower sections (in most apartments). In some of the kitchens, the damage was so extensive that it had caused part of the bottom rail of the non-structural metal framed wall to rust away. As a result, that part of the wall was not properly anchored to the floor

• The shower breeches were in much worse condition than originally assessed. Instead of the breeches needing replacement, more than five shower breeches required replacement and the remaining breeches required new seat inserts to be installed to extend their lives, and

• A close detailed inspection of the bathroom floor and wall tiles indicated most bathrooms had 'drummy' tiles. Drummy tiles indicated that the tiles were no longer glued to the substrate but were only held in-place by the tile grout. The floor tiles had partially lifted in a number of bathrooms and bathroom walls were bulging indicating that there had been water damage to the plasterboard next to the shower wall tiles.

Given the scale of issues and problems identified in the early stage of the renovations, you decided to commit to expanded renovations to each Strata Titled Apartment.

Stage 'A' - expanded renovation works

Due to the problems identified in the Stage 'A' initial renovation works, in addition to the planned works under the initial scope, the Stage 'A' scope of work was expanded to include:

• Kitchen renovations

Repair of rusted metal wall frames, which required the bottom section of the kitchen wall to be removed

Demolition of the existing kitchen and all kitchen floor tiles

Installation of a new kitchen including new kitchen floor and splashback
tiles, and

Replacement of new gyprock to all internal walls for the kitchen.

• Bathroom renovations

Demolition of the existing shower roses, taps and in-wall breeches and part of the in-wall plumbing

Demolition of all bathroom wall and floor tiles and grinding back all glues and grouts to form a smooth concrete finish for retiling

Demolition of all plasterboard wall sheets in the shower enclosure

Repair of any damage to the metal frame walls and brick walls

Re-levelling floors where required to ensure water flows to shower enclosure

Removal of all hand basin items from the wall

Replacement of plasterboards with new aquachek plaster board sheets in the shower recess

Installation of new plumbing

Installation of a new puddle waste in the shower for each bathroom

Installation of a new waterproof membrane in the shower recess, bathroom floor and hand basin splash back to the manufacturers recommendations

Installation of new floor and wall tiles

Final waterproofing of the bathroom tiles with new silicone seals

Installation of a new shower screen to ensure the shower would be fully enclosed

Replacement of the bathroom door, and

Installation of new bathroom fittings and parts (as outlined above), including toilet pans, cisterns, stop taps, flexi-pipes, hand basins, taps, exhaust fan, general power outlet, lights and light switches.

• Bedroom

Demolition of the old bedroom cupboard

Installation of a new larger built-in wardrobe in a new location

Installation of lights, general power outlet and light switches, and

Installation of new plasterboard wall sheets to all existing internal concrete block walls, new ceiling cornices and skirting boards.

• Living Area

Installation of new carpet, new front doors, new screen doors, and

Installation of new plasterboard wall sheets to all existing internal concrete block walls, new ceiling cornices and skirting boards.

• Electrical works

Replacement of the old power switchboards with new switchboards which have RCD circuit detectors to enhance safety

Replacement of all light switches, general power outlets and lights

Replacement of the old room air conditioners with new split system air conditioners. Run new piping and cables in the common roof space to the outside air conditioner Stratas, which were grouped together on end walls, and

Installation of a new 32amp stove circuit so that a new stove could be installed in the new kitchen. Installation of new 32amp normal sized stoves and installation of new wiring for the new range hood in the kitchen.

• Plumbing 'works

Installation of a new toilet pan, cistern, stop cock, flexi-pipe, hand basin, hand basin mixer, shower mixer, rose, and puddle drain, kitchen mixer, in-wall copper pipes, kitchen sink and drain pipe, all of which resulted in changes in plumbing and extensive plumbing works.

The approximate construction costs of the expanded scope for Stage 'A' were $xxx, or $xx per Strata Titled Apartment.

Stage 'B' - renovation works for the remaining Strata Titled Apartments

Upon completion of Stage 'A', you will proceed with renovating the remaining Strata Titled Apartments to the same standard as specified for Stage 'A'. To complete the Renovation Project, you will:

• Renovate some of the remaining Strata Titled Apartments as one large project

• Sell these newly renovated Strata Titled Apartments upon completion of the renovations, and

• Commence and complete the renovations for the rest of the remaining Strata Titled Apartments as the final stage of the Renovation Project.

Relevant legislative provisions

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