Edited version of private advice

Authorisation Number: 1051643058758

Date of advice: 10 March 2020

Ruling

Subject: GST and residential premises

Question

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

Answer

No. The supply of the Property was an input taxed supply of residential premises.

Relevant facts and circumstances

You are registered for GST.

In 19XX you acquired the Property.

You used the Property for an enterprise from approximately 19XX until 20XX.

On XX, at a meeting of its members it was resolved that you would be wound-up and that the Liquidator be appointed as Joint and Several Liquidators.

The enterprise ceased operating on XX/XX/XXXX.

You sold the Property on XX as a residential property using a residential contract of sale. The Property was not sold as a going concern as the enterprise had ceased operating.

Description of Property

The Property title was created on XX.

The Property was used as a dwelling until approximately 19XX.

At time of sale the Property was zoned Character Housing - Mixed Density.

The Property consists of:

• bedrooms
• bathrooms:
• open plan living
• dining
• family
• sunroom/rumpus
• laundry:
  • laundry tub, vanity and separate toilet
• kitchen:
  • double bowl sink, laminated benchtops and cabinets, electric upright range and a dishwasher
• verandah
• patio.

The Property generally has timber vinyl flooring, tiles, carpet, four split system air conditioning, ceiling fans, sky lights, window and wall mounted louvres, high ceilings and solar panels.

You have provided the photographs of the Property.

The photos show:

·   Several exit signs and fire extinguishers.

·   Fixed child safety gates for many rooms.

·   Large glass openings in many walls.

·   Bathroom with cubicles, fixed wall change table and viewing window.

·   Commercial playgrounds.

You have provided a copy of the Contract for Houses and Residential Land.

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 40-35

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 section 40-70

A New Tax System (Goods and Services Tax) Act 1999 section 58-5

A New Tax System (Goods and Services Tax) Act 1999 section 58-10

A New Tax System (Goods and Services Tax) Act 1999 section 58-20

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

Reasons for decision

In this reasoning, please note:

·   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

·   all reference materials referred to are available on the Australian Taxation Office (ATO) website ato.gov.au

Representatives of incapacitated entities

Section 58-5 provides that any supply by an entity in the capacity of a representative of another entity that is an incapacitated entity is a supply by the other entity and when making supplies in that capacity the supplies are taken to be a made by the other entity.

The terms 'representative' and 'incapacitated entity' are defined in section 195-1.

An 'incapacitated entity' includes an entity that is in liquidation. A representative includes a liquidator.

You were appointed Liquidator. Accordingly, you meet the definition of representative and the entity meets the definition of incapacitated entity.

Section 58-20 provides that a representative of an incapacitated entity is required to be registered in that capacity if the incapacitated entity is registered or required to be registered for GST. Section 58-10 provides that a representative is liable to pay any GST that the incapacitated entity would, but for this section, be liable to pay on a taxable supply, to the extent that the making of the supply to which the GST relates is within the scope of the representative's responsibility or authority for managing the incapacitated entity's affairs.

As the Property was sold during the period of your appointment, you will be liable to pay any GST that the entity would have, if it had not been an incapacitated entity.

Taxable Supply

You are liable for GST on any taxable supplies that you make.

Section 9-5 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 connected with the indirect tax zone (Australia), and

(d) you are 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.

You supplied a freehold interest in land in Australia (which included a building) for consideration. The supply was made in the course or furtherance of your enterprise and you are registered for GST. Therefore, your supply will be taxable, unless it is GST-free or input taxed to any extent.

In your circumstances, there is no provision in the GST Act whereby any portion of the Property supplied would be GST-free. Therefore, it is only necessary to determine if the Property was input taxed to any extent.

Residential premises to be used predominantly for residential accommodation

Under subsection 40-65(1), a sale of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation. There are two exclusions to this provision which relate to commercial residential premises and new residential premises.

In your case, these two exclusions do not apply as the premises are neither commercial residential premises nor new residential premises.

Section 195-1 of the GST Act provides that residential premises mean land or a building that:

·   is occupied as a residence or for residential accommodation; or

·   is intended to be occupied and is capable of being occupied, as a residence or for residential accommodation.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises, provides guidance on what is considered to be residential premises to be used predominantly for residential accommodation for the purposes of subsection 40-65(1).

Paragraphs 9 and 10 of GSTR 2012/5 discuss the meaning of 'residential premises to be used predominantly for residential accommodation' for the purposes of the GST Act. They state:

9. The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.

10. 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 (for example, where the premises are used as a business office).

Paragraph 15 of GSTR 2012/5 states:

15. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

The Property, a building with chamferboard and corrugated metal and was used as a dwelling until approximately 19XX and satisfies the definition of residential premises.

In order to operate an enterprise at the Property, changes were made to the Property including glass openings in walls, child safety gates, and bathroom cubicles.

Example 9 at paragraphs 44 and 45 considers where changes to a house so that office activities can be conducted from the house are not sufficient to transform the physical character of the house from residential to commercial:

Example 9 - the addition of furniture and minor fittings is not sufficient to modify physical characteristics

44. Rebecca is a solicitor. She lives in a terrace house that is not new residential premises, and decides to convert a room at the front of the house into an office for her practice. Rebecca arranges the installation of an electricity point and telephone line for the place in the room where she intends to set-up a printer and facsimile machine. She fits the room out with book shelves, filing cabinets, desk, office chairs, a table for the printer and facsimile machine, and suitable floor coverings. She also has an advertising sign placed outside the front door of her house. Rebecca does not modify any of the other rooms in the house.

45. These changes are not sufficient to modify the physical characteristics of the terrace house into premises other than residential premises to be used predominantly for residential accommodation. The furniture and fittings that Rebecca has brought into the room do not change the physical characteristics of the house itself. Also, the installation of an electricity point and telephone line, and the placement of a sign outside the house, are not sufficient modifications to alter the physical characteristics of the premises so that they are no longer residential premises to be used predominantly for residential accommodation. If Rebecca sells or leases the premises she will be making a wholly input taxed supply under section 40-65 or section 40-35 respectively.

Similar, to example 9 in GSTR 2012/5 the changes made were not sufficient to alter the physical characteristics of the house so that they are no longer residential premises to be used predominantly for residential accommodation.

Hence, the Property is 'residential premises to be used predominantly for residential accommodation', for the purposes of subsection 40-65(1). Therefore you made an input taxed supply when you sold the Property.

Given the above, your supply of the Property does not meet all the requirements of a taxable supply pursuant to section 9-5 and therefore is not subject to GST.