Edited version of your written advice

Authorisation Number: 1051196278180

Date of advice: 27 February 2017

Ruling

Subject: Sale of property and GST

Question 1

Is the sale of a property a taxable supply?

Answer

Yes

Relevant facts and circumstances

An entity is a private company and is registered for Goods and Services tax (GST).

The entity purchased a property which had a 3 bedroom house (the dwelling) at the time of purchase.

The dwelling was later demolished and the property now has a shed (the shed) situated on the land. The shed has a a metal roof and a toilet only. The shed does not have any other facilities such as a bath, shower, kitchen or access to power.

The property (including the shed) is currently on the market to be sold.

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 40-65

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision

According to section 9-5 of the A New Tax System (Goods and Services Tax Act 1999) (GST Act), 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.

*an asterisk denotes a defined term in the GST Act.

Residential premises

Section 40-65 of the GST Act provides that the sale of real property to the extent that the property is residential premises to be used predominately for residential accommodation is input taxed.

Residential premises are defined in s 195-1 of the GST Act as '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.

The Commissioner's view on residential premises is explained in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5).

To satisfy the definition of residential premises, premises must provide shelter and basic living facilities to enable it to be used predominantly for residential accommodation purposes. Paragraphs 9 and 15 of GSTR 2012/5 explain that a single test looking at the physical characteristics will determine the premises' suitability and capability for residential accommodation.

In the context of the definition of residential premises and section 40-65 of the GST Act, suitability refers to the suitability of the premises by reference to their physical characteristics. Premises are suitable for, and capable of, occupation as a residence or for residential accommodation if they possess the necessary features to provide residential accommodation and are able to be occupied as residential premises.

The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. 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.

In Sunchen Pty Ltd v FC of T and Anor [2010] FCAFC 138 the full Federal Court held that the phrase 'to be used predominantly for residential accommodation' in subsection 40-65(1) of the GST Act is only concerned with the attributes of the property at the time it is supplied, and to what use those attributes or characteristics are suited. Physical characteristics of premises may be altered after the premises are first designed and built. It is necessary to determine the suitability of the premises at the time the relevant supply is made. In this case, the relevant supply at the time of sale is the property that includes the shed, not the dwelling that was demolished.

In South Steyne Hotel Pty Ltd v. FC of T [2009] FCA 13, Stone J held that only the elements of shelter and basic living facilities such as are provided by a bedroom and bathroom are necessary for premises to satisfy the definition of residential premises. That conclusion was accepted by the Full Court in South Steyne Hotel Pty Ltd v Commissioner of Taxation 2009 ATC 5068.

In Vidler v FC of T (2009) 74 ATR 520 Stone J, at [12], reinforced that “only the element of shelter and basic living facilities such as are provided by a bedroom and bathroom” were necessary.

“The reference to bedroom and bathroom in the above comment was given as an example only; it does not limit the concept of shelter and basic living facilities. Indeed it may well be that shelter and living facilities could exist without there being, in any conventional sense, a bedroom or a bathroom”.

Stone J went further to conclude that subparagraph (b) of the definition of 'residential premises' is focused on the capacity of the land to be used at the relevant time for nominated purposes; it is not concerned with the potential for the land to be developed to have that capacity.

In the current case, a steel shed is currently situated on the property. The shed has a toilet, but no other facilities commonly expected of a residential premises, such as a shower or bath, bedrooms and kitchen.

The shed does not have the physical characteristics to provide shelter and basic living facilities that are suitable to be used predominantly for residential accommodation.

Therefore, the property is not residential premises for the purposes of section 40-65 of the GST Act and therefore not input taxed. The sale of the property will be subject to the normal GST rules outlined in section 9-5 of the GST Act. Accordingly, if all requirements of section 9-5 are met, GST will apply to the sale of the property.