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Edited version of your written advice
Authorisation Number: 1051440625768
Date of advice: 16 October 2018
Ruling
Subject: GST and substantial renovations
Question
Will your supply of all or any of the Units at the property be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999?
Answer
No, your supply will be input taxed.
Relevant facts and circumstances
You are not registered for GST.
You acquired the property in mmyyyy.
The property is a complex of x residential units.
You intention was to renovate the units and hold the property for long term rental.
The renovations were completed and the units were rented or available for rent from ddmmyyyy.
Due to changed financial circumstances, you are now required to sell the property.
The following work was undertaken on the units:
Internal:
● Kitchen – new cupboards and benchtops; plumbing replaced.
● Bathroom – reconfigured; new or replacement tiles - floor to ceiling tiles; replaced plumbing and sanitary ware
● Bedrooms – new built in robes
● New ducted air-conditioning
● Electrical – replaced throughout.
● Interior painted throughout
● Floorboards – sanded and polished
● Floor tiling – replaced in wet areas
External
● New decking - unit x only
● Electrical - A master board has been installed with new wiring to connect the master board to each of the units and to the community power; new metre boxes and RCDs installed.
● Rainwater Tanks - new
● Painting
● Plumbing - stormwater drainage and sewer works replaced; gutters replaced; gas connected to the property with separate metering changes; gas hot water systems installed
● Paving - new pavers and exposed aggregate concrete
● Fencing - new colorbond
● Roof – tiled roof replaced by colorbond roof
● New carport installed
Relevant legislative provisions
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999
Section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999
Section 40-75 of the A New Tax System (Goods and Services Tax) Act 1999
Section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999
Reasons for decision
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, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website www.ato.gov.au
Under section 40-65, a sale of residential premises is input taxed. However, the sale is not input taxed if the residential premises are new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.
‘New residential premises’, as defined in subsection 40-75(1), includes residential premises that have been created through * substantial renovations of a building.
‘Substantial renovations of a building’ is defined in section 195 of the GST Act as:
“substantial renovations of a building are renovations in which all, or substantially all, of a building is removed or replaced. However, the renovations need not involve removal or replacement of foundations, external walls, interior supporting walls, floors, roof or staircases.”
Essentially, the definition requires that ‘all, or substantially all, of a building is removed or replaced’ for substantial renovations to have occurred within the meaning of the GST Act. Thus, whether substantial renovations had been made to a building in the ordinary sense may not mean that the definition of substantial renovations is satisfied within the meaning of the GST Act, unless ‘all, or substantially all’ of the building is ‘removed or replaced’.
The Commissioner’s view about residential premises and new residential premises are contained in 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’ Specifically, this public ruling contains the Commissioner’s view on the definition of substantial renovations. Of relevance to your situation, paragraph 67 provides that:
Additions
67. Additions that are undertaken with renovations are not included in determining whether a building has been substantially renovated. However, once it is determined that a building has been substantially renovated and new residential premises created, all additions to the building form part of the new residential premises…
While the work undertaken on the property was significant, it did not amount to all, or substantially all, of the property being removed or replaced within the meaning of the Act. New work (additions) aside, the only replacement externally was the roof. Similarly, will there were renovations to the bathroom and kitchen, most of the interior has been retained with only cosmetic work done to the floors and walls.
As the intended works did not amount to substantial renovations for the purpose of the GST Act, new residential premises were not created under paragraph 40-75(1)(b) of the GST Act.
Therefore, pursuant to section 40-65, your supply of all or any of the units at the property will be an input taxed supply.