Edited version of your written advice

Authorisation Number: 1051183054927

Date of advice: 23 January 2017

Ruling

Subject: GST and the supply of real property

Question 1 (a)

Was your sale of Apartment 1 a taxable supply of "new residential premises" pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act)?

Answer

Yes

Question 1 (b)

Was your sale of Apartment 2 a taxable supply of "new residential premises" pursuant to section 9-5 of the GST Act?

Answer

Yes

Question 1 (c)

Was your sale of Apartment 3 a taxable supply of "new residential premises" pursuant to section 9-5 of the GST Act?

Answer

Yes

Question 2

Are you able to amend your GST return for the tax period ending ddmmyyyy to repay the input tax credits you claimed on your acquisition of architectural and communications services for the Development, so as to avail yourself of transitional arrangements for section 40-75(2B) of the GST Act?

Answer

No

Question 3

If you paid the purchasers of the three Apartments a refund equal to the GST that you remitted on the sale of each Apartment, would you be entitled to an equivalent refund from the ATO of the GST that you remitted on each of the sales?

Answer

No

Relevant facts and circumstances

You are registered for GST. You acquired the land on which the Development was constructed on ddmmyyyy as an input taxed supply. At that time the land was the subject of a Crown Lease issued on ddmmyyyy ("Original Crown Lease").

You sought development approval for the residential developments in late yyyy. The development was approved by the Relevant Authority on ddmmyyyy. The Development involved the construction of several buildings.

The land was subdivided into several blocks. The new Crown Leases (one for each block) were registered on ddmmyyyy ("New Crown Leases").

Under clauses 3(a) and (b) in each of the New Crown Leases, you agreed that you would both commence and complete construction of an approved development within a specified timeframe. The timeframes vary in each of the three leases, as the development was completed in stages.

Pursuant to clause 3(c) in each of the New Crown Leases, the permitted use of the land included multi-unit housing (with the number of permitted dwellings varying for each block).

Construction was completed in stages. Certificates of Occupancy and Use were issued on different dates for each block.

Application for unit titling were lodged, and the Units Plans registered on various dates.

In accordance with the relevant legislation, the New Crown Lease ended upon registration of the relevant Units Plan. You were then taken to hold a leasehold interest for each unit listed in the Units Plan, with the owners corporation taken to hold a leasehold interest in the common property. Under the relevant legislation, the Relevant Authority was taken to have granted a lease to you in respect of each unit once the Units Plans were registered.

When you sold the apartments, you transferred ownership of each leasehold interest in the relevant unit to the purchaser.

You engaged various suppliers in respect of the Development, including an architectural firm and a communication (advertising) firm. Both suppliers provided services to you in the mmyyyy tax period. You claimed full input tax credits for those services in your GST return for that tax period.

You have at all times claimed full input tax credits (GST credits) for GST incurred on acquisitions associated with the Development.

The contracts for each unit included the standard printed clauses of the Contract for Sale published by the Law Society.

The GST boxes for each Contract for Sale were marked to indicate: "Buyer and Seller agree to apply margin scheme".

Apartment 1 was sold to a purchaser on ddmmyyyy. The apartment was sold "off-the-plan". Settlements (completions) did not occur until after construction was completed and the Units Plan was registered in mmyyyy.

Apartment 2 was sold to a purchaser on ddmmyyyy. The apartment was sold "off-the-plan". Settlements (completions) did not occur until after construction was completed and the Units Plan was registered in mmyyyy.

Apartment 3 was sold to a purchaser on ddmmyyyy.

You accounted for GST on the sale of all of the apartments (including the three listed above) that you sold in the Development. The margin scheme was applied to all sales.

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 section 40-75

A New Tax System (Goods and Services Tax) Act 1999 paragraph (40-75)(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-75(2B)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-75(2C)

Reasons for decision

In this reasoning,

● unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

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

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

● you make the supply for consideration

● the supply is made in the course or furtherance of an enterprise that you carry on

● the supply is connected with Australia and

● 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.

You are registered for GST and sold the Apartments for consideration in the course of your enterprise of property development. The property is connected with Australia, as it is located in Australia. Therefore, paragraphs 9-5(a) to (d) are satisfied. Further, the supply of the units will not be GST-free. Therefore your supplies of the units will be taxable supplies unless they are input taxed.

Input taxed

Relevantly subdivision 40-C provides that a supply of residential premises will be input taxed to the extent that they are not commercial residential premises or new residential premises. In your case the sale of the individual units will not be supplies of commercial residential premises.

The meaning of new residential premises

The term 'new residential premises' has the meaning given by section 40-75, which states at paragraph 40-75(1)(a) that residential premises are new residential premises if they 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.

Consistent with the majority of the Full Federal Court's decision in Federal Commissioner of Taxation v. Gloxinia Investments Ltd [2010] FCAFC 46, the granting of a strata lot lease over residential premises is a supply of residential premises and, without more, the granting of a 99 year strata lot lease over newly constructed residential premises will mean that they are no longer new residential premises. This is because under paragraph 40-75(1)(a), the grant of the strata lot lease will mean that they are residential premises that have previously been the subject of a long-term lease.

However, section 40-75 contains further provisions which provide that certain supplies of residential premises are disregarded for the purposes of determining whether the premises have previously been sold as residential premises or have been the subject of a long term lease, for the purposes of paragraph 40-75(1)(a).

Subsection 40-75(2B)

Where the requirements of subsection 40-75(2B) are met, a supply (the wholesale supply) of newly constructed residential premises will be disregarded for the purposes of applying paragraph 40-75(1)(a), and a subsequent supply of those premises is a supply of new residential premises.

Firstly, paragraph 40-75(2B)(a) requires the premises from which the residential premises were created to have earlier been supplied to the recipient of the wholesale supply, or their associates. In this case paragraph 40-75(2B)(a) is satisfied because the land from which the residential premises were created has previously been supplied to you when the 99 year Crown lease was transferred to you.

Secondly, paragraph 40-75(2B)(b) requires that an arrangement (including an agreement) be made between the supplier of the earlier supply, or their associate, and the recipient of that earlier supply, or their associate.

The arrangement between you and relevant authority includes the development approval and the Crown lease, which set out the requirements for the type of development, including the specified building works. The specified building works are also governed by the statutory requirements covering the construction of residential premises under which the development approval has been given and the Crown lease granted by the government body.

The arrangement also includes the lodging of the strata leasehold plan and granting of the individual strata lot leases. This is because the intent of the parties in entering into the development was for the construction and sale of individual residential premises to home owners and investors, and the sale of the individual residential units can only occur following the lodgement of a strata leasehold plan and the subsequent grant of the individual strata lot leases.

Therefore paragraph 40-75(2B)(b) is satisfied as there is an arrangement between the supplier of the earlier supply, the relevant authority and you.

Lastly, paragraph 40-75(2B)(c) requires that under the arrangement the wholesale supply of the residential premises is conditional upon specified building or renovation work being undertaken by the recipient of the earlier supply (in this case, the entity). The wholesale supply in this case is the granting of the individual strata lot leases by the Relevant Authority to you.

In this case, subsection 40-75(2B) would apply to disregard the supply of the residential premises that occurs upon grant of the individual strata lot leases, except for the operation of the transitional provision item 12 of Schedule 4 to the Tax Laws Amendment (2011 Measures No. 9) Act 2012 (item 12).

Subject to the conditions below being met, item 12 provides that subsection 40-75(2B) does not apply to supplies of residential premises made on or after ddmmyy:

a. The premises from which the residential premises were created had earlier been supplied to the recipient of the wholesale supply or one or more of its associates; and

b. Immediately before ddmmyy, the recipient of the wholesale supply or one of more of its associates were commercially committed to an arrangement; and

c. Under the arrangement, the wholesale supply was conditional on specified building or renovation work being undertaken by the recipient of the wholesale supply or by one or more of its associates; and

d. No GST return (as amended) given to the Commissioner reports a net amount for a tax period that includes amounts equivalent to the input tax credits that the recipient of the wholesale supply would have been entitled to if its acquisitions relating to the next sale or long term lease of the residential premises were creditable acquisitions.

Application of the exception to section 40-75(2B)

The wholesale supply of the unit title leases by ACTPLA to you occurred after ddmmyy.

a) Earlier supply to you of the wholesale supply

The premises from which the residential premises was created was previously supplied to you.

b) Commercially committed

1. You were a party to an arrangement, where the arrangement is legally binding:

● You were granted a Crown Lease on ddmmyyyy. The land was subsequently subdivided and new Crown Leases (one for each block) were registered on ddmmyyyy ("New Crown Leases")

● The Crown Leases are legally binding agreements,

● The Crown Leases required that you “undertake an approved development on the land including building works.....in accordance with plans and specifications prepared by the Lessee and previously submitted to and approved by the Authority.”

● Each of the Crown Leases required you to commence and complete construction of an approved development within a specified timeframe. The timeframes vary in each of the three leases, as the development was completed in stages.

2. You have directly made (with associates) acquisitions, having a total GST exclusive value of at least $200,000, in relation to the arrangement:

These costs include Lease acquisition costs and Construction costs.

c) Wholesale supply conditional on specified building or renovation work being undertaken by the recipient of the wholesale supply.

● Under the arrangement, you were required to “erect an approved development on the land including building works” at a cost of not less than $xx

● The wholesale supply of the unit title leases could not occur without the completion of the development,

● Upon registration of the units plan, the Relevant Authority made the wholesale supply of unit title leases to you.

d) GST return details

● In your Business Activity Statement (BAS) for the period ending ddmmyyyy, you have reported acquisitions from, including an architectural firm and a communication (advertising) firm. Both suppliers provided services to you in the mmyyyy tax period. You claimed full input tax credits for those services in your GST return for that tax period.

● You have at all times claimed full input tax credits (GST credits) for GST incurred on acquisitions associated with the Development.

Further, due to the 4 year time limit stated in section 105-65 of the Taxation Administration Act (1953) (TAA), you are unable to amend this, or other BAS, in order to repay the input tax credits.

As you have given to the Commissioner GST returns that include amounts equivalent to the input tax credits that you were entitled to and you are not entitled to amend them, you do not satisfy this requirement of the exception to section 40-75(2B) of the GST Act.

As you did not satisfy all of the requirements of the Item 12 exception to section 40-75(2B), that section will apply such that your supplies of the Apartments were taxable supplies of new residential premises.

Question 2

Due to the 4 year time limit stated in section 105-65 of the TAA, you are unable to amend this, or other BAS, in order to repay the input tax credits.

Question 3

As you have correctly treated your supplies of the residential units as taxable supplies, there is no basis for the ATO to refund to you (or to anybody else) the GST that you remitted on your sales of the units.