Edited version of your written advice

Authorisation Number: 1051488284727

Date of advice: 27 February 2019

Ruling

Subject: GST and the sale of residential property

Question 1

Will your supply of Property 1 be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, it will be an input taxed supply pursuant to section 40-65 of the GST Act.

Question 2

Will your supply of Property 2 be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, it will be an input taxed supply pursuant to section 40-65 of the GST Act.

Relevant facts and circumstances

You are registered for GST.

You acquired the properties with a view to a potential expansion (by way of construction of independent living units) of the retirement village you operate on adjoining land.

You have determined you will not proceed with the expansion and will now divest of the properties. Your reasons for not proceeding are related to ever increasing budgeted project building costs which prevented financing being secured through the banks.

There are no council orders requiring demolition or rectification works, or prohibiting occupation of either of the properties.

Both properties are suitable for occupation as evidenced by the photos you supplied. Further, there are no council work orders or prohibitions on the properties.

Situated on Property 1 are:

● a two-story brick residence;

● a swimming pool; and

● shed

You purchased the property from the vendor under a contract entered into in MMYYYY with settlement occurring in MMYYYY. The vendor was not registered for GST at settlement and no GST was applied at settlement.

You rented the property out from DDMMYYYY to DDMMYYYY. The property has remained vacant since that date.

Situated on Property 2 are a timber single level residence and a shed;

You acquired the property from the vendor with settlement occurring in MMYYYY. No GST was applied at settlement as the property was treated as input taxed residential premises.

You rented the property out from DDMMYYYY to DDMMYYYY. The property has remained vacant since that date.

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

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

Under section 9-5, an entity makes a taxable supply if:

● it makes a supply for consideration,

● the supply is in the course or furtherance of an enterprise that it carries on,

● the supply is connected with the indirect tax zone, and

● the entity is 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.

The sale of the two properties meets the criteria for a taxable supply and will not be a GST free supply. Therefore the sale of the properties will be taxable supplies unless they are input taxed supplies or residential premises.

Under section 40-65:

(1) 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).

(2) However, 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 those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

In turn, the term “residential premises” is defined in section 195-1 as follows:

residential premises means 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.

On the facts provided, both properties are “residential premises” as defined for GST purposes. The properties and the houses there-on are “intended to be occupied, and capable of being occupied, as a residence” for the purposes of the definition at section 195-1.

Further, the properties are neither:

● commercial residential premises – the buildings do not fit within any of premises in the definition of “commercial residential premises” under section 195-1; nor

● new residential premises – the buildings have been used for residential accommodation since before 2 December 1998 and have previously been sold (in YYYY and YYYY respectively).

Accordingly, your supplies of both properties will be input taxed supplies of residential premises pursuant to section 40-65.