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Edited version of private advice
Authorisation Number: 1051595016940
Date of advice: 16 October 2019
Ruling
Subject: GST and sale of residential premises
Question
Will the sale of a property be a taxable supply and subject to goods and services tax (GST)?
Answer
No. The sale of the property will be input taxed and not subject to GST.
This ruling applies for the following periods:
Not applicable
The scheme commences on:
Not applicable
Relevant facts and circumstances
· The entity carries on an enterprise of renting residential properties.
· The entity wishes to sell a residential property to a property developer. And the property developer wishes to use the margin scheme on the resale of the property.
· The property has a residential house on a xx hectare land in total.
· The entity was renting the residential property as an investment property and derives an income of $$$$ per annum.
· The entity obtained a Development Approval (DA) to subdivide part of the land for sale and subsequently the DA has been lapsed.
· Now the entity wishes to sell the property as a residential with the house.
· The house and the land are registered under one title. And the land was unusable and was not used for any activities such as farming or commercial.
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
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you make a taxable supply if:
(a) you make the supply for consideration;
(b) the supply is made in the course or furtherance of an enterprise that you carry on;
(c) the supply is connect with the indirect tax zone (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.
The sale of the property will be made for consideration; in the course or furtherance of the enterprise of renting residential property; and the sale is connected with the indirect tax zone.
The sale of a residential property is not GST-free under any provisions of the GST Act or any other legislation. Therefore, it should be determined whether the sale of the property will be input-taxed supply.
Under section 40-65 of the GST Act, a sale of property is an input taxed supply if the property is residential premises to be used predominantly for residential accommodation unless the premises are:
(a) commercial residential premises, or
(b) new residential premises other than those used for residential accommodation before 2 December 1998.
The term "residential premises" is defined in section 195-1 of the GST Act as follows:
Residential premises means land or a building that:
(a) is occupied as a residence or for residential accommodation; or
(b) s 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.
Based on the facts provided, the residential premises is located in a xx hectare land and was used for residential rental purposes. The entity acquired the property for investment purposes and has been deriving a rental income of $$$$ per annum.
Furthermore, the property is neither a commercial residential premises nor a new residential premises.
Accordingly, the sale of the property by the entity will be input taxed. The sale will not be a taxable supply and therefore not subject GST.