Edited version of your written advice

Authorisation Number: 1012936629271

Date of advice: 15 January 2016

Ruling

Subject: GST and supply of property by a representative of an incapacitated entity

Question

Are you liable for GST in regard to the sale of property at a specified location?

Answer

No.

As a representative of an incapacitated entity (IE), you may be liable for GST for taxable supplies where the IE would have been liable (if not incapacitated). In this case the sale of the property is an input taxed supply of residential premises to be used predominately for residential accommodation pursuant to section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999. Furthermore the property is neither 'commercial residential premises' nor 'new residential premises'.

Relevant facts and circumstances

ABC Pty Ltd (the Company) is registered for GST.

You were appointed as Official Liquidator of the Company.

As at the date of your appointment, the Company was the registered proprietor of residential property (the Property).

The Company purchased the Property as residential premises.

The Property is a X bedroom,Y bathroom residential apartment containing basic living facilities including kitchen, dining room, living areas and laundry.

During your appointment as Official Liquidator, the Property was sold as part of the process of liquidation.

Settlement date was during your period of appointment.

Substantial renovations were not undertaken by the Company during its period of ownership of the Property.

The Company was registered for GST at the time the Property was sold.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 40-65

Section 40-75

Section 58-5

Section 58-10

Section 195-1

Reasons for decision

Note: In this reasoning, unless otherwise stated,

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au

Section 58-5 provides that any supply by an entity in their capacity of a representative of another entity (an incapacitated entity (IE)), is taken to be a supply by the IE.

Section 58-10 of the GST Act provides that a representative of an IE is liable to pay the GST that the IE would have been liable to pay on a taxable supply, to the extent the supply made is within the scope of the representative's responsibility or authority for managing the IE's affairs.

The definition of a 'representative' is contained in section 195-1 of the GST Act and includes a receiver. An 'incapacitated entity' is also defined in section 195-1 and includes 'an entity that has a representative'.

In this case you were appointed as Official Liquidator of the Company.

The issue in this case is whether the sale of the property in question was a taxable supply.

Section 9-5 provides you make a taxable supply if: 

• you make the supply for consideration; and

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

• the supply is connected with the indirect tax zone (Australia); and

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

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

Subsection 40-65(1) provides that 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).

However, subsection 40-65(2) provides that 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 used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

Residential premises

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 the occupation or intended occupation) and includes a floating home.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) contains the ATO view on the application of Subdivisions 40-B and 40-C to supplies of residential premises.

Paragraph 9 of GSTR 2012/5 provides that the test of whether premises are 'residential premises' is a single test that looks at the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. Paragraph 15 of GSTR 2012/15 continues stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. This may include bedrooms, bathroom, kitchen, living areas, etc.

In this case the dwelling on the Property contains X bedrooms, Y bathrooms, kitchen, dining room, living areas and laundry together with X garages and is considered to satisfy the definition or 'residential premises' for the purposes of section 195-1.

Commercial residential premises

Commercial residential premises are defined in section 195-1 to include, amongst other things: 

(a)   a hotel, motel, inn, hostel or boarding house, or

(b)   …

…

(f)     anything similar to residential premises described in paragraphs (a) to (e).

However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an *education institution that is not a *school.

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the ATO view on how the GST applies to supplies of commercial residential premises and supplies of accommodation in commercial residential premises.

Paragraph 12 of GSTR 2012/6 lists a number of common characteristics of operating hotels, motels, inns, hostels. boarding houses or similar premises including that the premises have the capacity to provide accommodation to multiple, unrelated guests at once in separate rooms (multiple occupancy).

On the issue of multiple occupancy, paragraph 156 states the following:

156. Hotels have the capacity to supply accommodation for multiple occupancies. In South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation (South Steyne), Stone J considered whether a supply of an apartment in a complex was a supply of 'anything similar to' a hotel, motel, inn, hostel or boarding house under paragraph (f) of the definition. Her Honour commented:

The definitions of motels, inns, hostels and boarding houses indicate that, in common with hotels, they provide accommodation, although of varying types. In addition to providing accommodation they also have in common that, large or small, they provide for multiple occupancies. The terms are not used where only one apartment, room or other space is provided.

Paragraph 157 continues stating that on appeal to the Full Federal Court, Emmett J noted in South Steyne Hotel Pty Ltd v. Federal Commissioner of Taxation (South Steyne FFC) that 'the term hotel or motel would not be used, as a matter of ordinary English, where a single apartment, room or other space is supplied' and also that it is 'not an ordinary use of English to describe a single or individual apartment as being similar to a hotel or motel'.

In this case, the supply is of a single apartment and given the above is not considered to fall within the definition of commercial residential premises.

New residential premises

Section 40-75 provided that residential premises are 'new residential premises' if they:

(a) have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or

(b) have been created through substantial renovations of a building; or

(c) have been built, or contain a building that has been built, to replace demolished premises on the same land.

In this case you purchased the property as residential premises.

Paragraph 28 of Goods and Services Tax Ruling GSTR 2003/3 Goods and services tax: when is a sale of real property a sale of new residential premises? (GSTR 2003/3) explains that points (b) and (c) above raise the question of what has been done to the building or the activity of building by the current owner and that this will determine whether the residential premises are new residential premises. In this case the Company did not undertake substantial renovations during its period of ownership of the Property.

Paragraph explains this point further stating that only renovations by the current owner which are reflected in the building at the time of sale are considered in determining whether new residential premises have been created through substantial renovations. Renovations undertaken by previous owners are disregarded in determining whether new residential premises have been created through substantial renovations by the current owner.

Furthermore, the Company did not build the Property to replace demolished premises.

As the circumstances above do not apply in this case, the Property does not fall within the definition of 'new residential premises'.

Conclusion

The supply of the Property is input taxed pursuant to section 40-65 as the Property is residential premises and is neither 'commercial residential premises' nor 'new residential premises'. The supply is not a taxable supply and as such GST is not applicable to the sale.