Edited version of private advice

Authorisation Number: 1051770422304

Date of advice: 23 October 2020

Ruling

Subject: GST and lease of residential premises

Question 1

Are you carrying on an enterprise by renting out your residential apartment?

Answer

Yes, you are carrying on an enterpriseby renting out your residential apartment.

Question 2

If the answer to question 1 is yes, are you required to be registered for Goods and Services Tax (GST)?

Answer

No, you are not required to be registered for GST.

Relevant facts and circumstances

You and another two persons co-own an investment property which is a residential apartment within an apartment building.

You have leased the apartment out since XXXXX after purchasing it in the same year.

Each of you has included your own share of rental, expenses and profit and loss in your own individual tax returns since XXXXX.

In XXXXX, at the incoming tenant's request, you entered a general lease with the tenant which allowed the tenant, with the necessary council etc approvals, to use part or all of the apartment as a professional office.

You have attached a copy of the lease agreement.

The annual rent for the lease was $X in the first year which was below the GST threshold.

The annual rent from this tenant under the renewed lease was estimated to be more than $Y in XXXXX. Consequently, you were under the impression that you needed to include GST in the rent. In order to do that, you therefore applied for, and was granted, an Australian Business Number (ABN), GST registration and a tax file number that year.

You state that at no stage did you intended to carry on, or have considered yourselves as carrying on, a business activity by merely renting out your residential apartment. The renting out of the residential apartment is the only activity you have been carrying on. This was reflected in your application for the ABN registration (to enable the GST registration) as a 'family partnership' where you put down 'renting and leasing of a residential property' as the activity being carried on.

You requested the GST registration because you were under the impression that you were required to include GST in the rent.

After having been GST registered, you have collected GST, lodged quarterly activity statements and made payments to the ATO. You have also been claiming the GST credits on your activity statements.

You believe the tenant is registered for GST and has obtained your GST registration details.

You have also continued to include our own share of rental, expenses and profit and loss in your individual annual tax returns.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

A New Tax System (Goods and Services Tax) Act 1999 Section 40-35

A New Tax System (Goods and Services Tax) Act 1999 Section 188-10

Reasons for decision

Are you carrying on an enterprise?

The definition of an enterprise in section 9-20 of the GST Act includes (amongst other things) an activity or series of activities, done:

·         in the form of a business

·         in the form of an adventure or concern in the nature of trade, or on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

The meaning of enterprise is considered in Miscellaneous Taxation Ruling MT 2006/1 and Goods and Services Tax Determination GSTD 2006/6 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act. The principles outlined in these rulings have been applied in your circumstances.

You advised us that you have been renting out a residential property. Therefore, we consider that your leasing activities constitute an enterprise for the purposes of section 9-20 of the GST Act.

Whether you are required to be registered for GST

Section 23-5 of the GST Act states:

You are required to be registered under this Act if:

(a)  you are *carrying on an *enterprise; and

(b)  your *annual turnover meets the *registration turnover threshold.

The registration turnover threshold for an entity (other than a non-profit entity) is $75,000.

As already determined above, your leasing activities constitute an enterprise for the purposes of section 9-20 of the GST Act. Therefore, you meet the requirement in paragraph 23-5(a) of the GST Act.

You meet the registration turnover threshold if either:

·         your 'current GST turnover' (your turnover for the current month and the previous 11 months) totals $75,000 or more and the Commissioner is not satisfied that your 'projected GST turnover' (your total turnover for the current month and the next 11 months) is below the turnover threshold; or

·         your 'projected GST turnover' is at or above the turnover threshold.

In your case, in working out your current GST turnover and projected GST turnover, you do not include amounts received for supplies that are input taxed.

Is your supply of the apartment an input taxed supply?

Section 40-35 of the GST Act identifies the circumstances in which a supply of premises will be input taxed. Relevantly, sub paragraph 40-35 (1) (a) provides that:

(1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if:

(a) the supply is of residential premises (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises); or

(b)....

The expression 'residential premises' is defined in s 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.

In your case, the apartment is a residential property that partly or wholly is being used by the tenant as a professional office. This raises the issue whether the supply of the property still constitutes a supply of residential premises for the purpose of section 40-35 of the GST Act.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the Commissioner's view on this issue. In paragraphs 10 and 11 of GSTR 2012/5, it states:

10. 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.

11. 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).

Applying the principles in GSTR 2012/5 to your case, it is considered that your supply of the residential apartment is a supply of residential premises for the purpose of section 40-35 of the GST Act therefore an input taxed supply.

Conclusion

It follows that the amounts you received from your supply of the residential premises are excluded from calculating your GST turnover. As such, you will not meet the registration turnover threshold as these amounts are the only amounts you received for your enterprise. It is therefore concluded that you are not required to be registered for GST.