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Edited version of private advice
Authorisation Number: 1051598922270
Date of advice: 25 October 2019
Ruling
Subject: GST and the sale of residential premises
Question
Is the sale of either one or all of the residential premises by you subject to GST under section 7 of the A New Tax System (Goods and Services Tax) Act 1999?
Answer
No, the sale of either one or all of the properties by you is not subject to GST.
Relevant facts and circumstances
· You purchased a residential premises (property) in a particular year and rented it out to a third party at arm's length.
· You are not registered for GST.
· After a few years of renting the property you demolished the house, subdivided the property into a number of lots and built residences on each newly created lot (residences).
· You have been renting the residences to third parties at arm's length since completing construction of the residences.
· To develop the property you took an interest only loan for a few years. Due to changes in Banking Regulations, your financial institution has refused to extend the interest only loans.
· Due to the immense financial and personal strain and stress that this has caused, you may be forced to sell one or all of the residences which you would not have otherwise sold.
· You have not carried out any properties development activities in any capacity other than the one described in this Ruling application.
Relevant legislative provisions
Section 7 of the A New Tax System (Goods and Services Tax) Act 1999
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999
Reasons for decision
Pursuant to Section 7 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), GST is payable on taxable supplies
Section 9-5 of the GST Act defines a taxable supply as follows:
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 the indirect tax zone; 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.
(terms marked with asterisks (*) are defined in section 195-1 of the GST Act)
Generally under subsection 40-65(1) of the GST Act sale of residential premises is an input taxed supply and therefore not a taxable supply. However, sale of residential premises that are new residential premises as provided in Section 40-75 of the GST Act is not an input taxed supply.
Where the sale of any of the residences is a new residential premises it will not be an input taxed supply. Accordingly we are required to determine whether the sale of any of the residences meets the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act.
New residential premises
The sale of any of the residences that is a new residential premises will meet paragraphs 9-5(a) to 9-5(c) of the GST Act as you have been carrying on a leasing enterprise using the residences. However the sale will not meet paragraph 9-5(d) (the registration requirement) because of the following reasons.
An entity is required to be registered for GST where the GST turnover of that entity meets the registration turnover threshold (which is currently $75,000). However, despite what the current GST turnover is, where an entity's projected turnover is below the GST registration turnover threshold, that entity does not meet the registration turnover threshold and therefore is not required to be registered for GST.
Sale proceeds of capital assets of an enterprise are not included in the calculation of an entity's projected turnover. Accordingly, as the residences are the capital assets of the leasing enterprise that you have been carrying on, the sale proceeds of these premises are disregarded from the calculation of the projected GST turnover. According you will not be required to be registered for GST.
Consequently the sale of any of the residences which you have been leasing for a few years will not be taxable supplies and as such are not subject to GST.
Note: if you conduct property development activities of this nature in the future we will be required to reconsider the characterisation of your enterprise.
Additional information
If any of the premises are not considered as new residential premises under section 40-75 of the GST Act the sale of such premises will be an input taxed supply and therefore will also not be subject to GST.