Edited version of private advice

Authorisation Number: 1051906968724

Date of advice: 11 October 2021

Ruling

Subject: GST and the supply of residential premises

Question 1

Is the supply of Property 1 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 Property 1 is input taxed under subsection 40-65(1) of the GST Act.

Question 2

Is the supply of Property 2 a taxable supply pursuant to section 9-5 of the GST Act?

Answer

No. We consider that Property 2 remains a capital asset. Its sale is excluded from the calculation of your projected GST turnover. Therefore, you are not required to be registered for GST.

Relevant facts and circumstances

Entity A is not registered for goods and services tax (GST). A small amount of tax services income was derived in Entity A between 20XX and 20XY. Thereafter Entity A was dormant.

However, in 20XX you acquired Property 1. Property 1 was the first and only property purchased by you. The purpose of purchasing Property 1 was to provide income for your beneficiaries by renting out the existing house. In addition, you intended to subdivide the property and build a house on Property 2. Property 2 was meant to be rented out in order to provide income for your beneficiaries. You intended to hold both properties for the long term. You did not intend to sell the properties pursuant to a profit making undertaking or scheme.

Ms Y is the appointer, director and shareholder of your trustee. Ms Y wanted to provide for her XXX children via the trust. The children and Ms Y are your beneficiaries.

The house on Property 1 was recarpeted, painted, decorated and the kitchen updated. It was subsequently rented out to the one tenant from 20XX until 20XY. No structural work was carried out on Property 1.

In around XX - XY 20XX you submitted building plans in respect to Property 2 for approval.

Ms Y was seriously ill in XX 20XX and was hospitalised. She had a relapse in XX 20XX and was hospitalised again.

Approval to build a house on Property 2 was granted around XX - XY 20XX.

At that time, Ms Y was still employed to provide tax training services. She was working from home, since XX 20XX, due to Covid 19 restrictions. She provided training via Zoom.

Ms Y employment income and the rental income would service the loan repayments in respect to the two properties.

In the second half of 20XX, Ms Y was financially committed to building the house on Property 2.

In September 20XX, Ms Y had another serious health scare.

In early 20XX the State A tenancy laws were amended to give tenants extremely generous rights. Landlords were exposed and had difficulty evicting bad tenants. This adversely affected your plans to hold the properties for long term rental.

In around XX - YY 20XX Ms Y's employer wanted her to travel and conduct face to face training. Ms Y poor state of health meant that she was vulnerable to catching the Covid 19 virus from contact with the general public.

In XX 20XX Ms Y fell sick again.

If healthy then Ms Y planned to retire in 20XX. Her income derived up to 20XX would allow the loans to be paid down. Ms Y intended to continue holding on to the properties after 20XX due to the rental income stream.

However, Ms Y decided in around XX - XY 20XX that she needed to retire. Her poor state of health precipitated her decision to retire. She gave notice to her employer in XX 20XX.

Ms Y was not able to sustain the loan repayments in the absence of Ms Y's employment income. Therefore, in XX 202X Ms Y decided to sell both houses.

The construction of the house on Property 2 was completed in XX 20XX.

Property 2 was sold to Ms Y's child at market value. It settled in XX 20XX.

The sale of Property 1 settled in August 20XX.

The houses are built for residential accommodation with physical characteristics including bedroom(s), bathroom(s), toilet(s) and kitchen. They provide basic living facilities and shelter.

You do not carry on any other enterprises.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 23-5

Paragraph 23-5(a)

Paragraph 23-5(b)

Subsection 40-65(1)

Section 72-5

Subsection 188-10(1)

Section 188-25