Edited version of private advice

Authorisation Number: 1051929751301

Date of advice: 7 December 2021

Ruling

Subject: GST and the sale of real property

Question

Was the sale of the property located in the indirect tax zone (the Property) a taxable supply under subsection 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes.

The sale of the Property satisfies the requirements of section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and was not GST-free of input taxed; therefore, the sale of the Property was a taxable supply.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 June 20XX

Relevant facts and circumstances

You formed on DD/MM/YYYY for the purpose of buying and subdividing land and building property for the purpose of sale.

You have been registered for GST since DD/MM/YYYY.

You acquired a Property to be developed and subdivided in MM/YY.

Between MM/YY and MM/YY, you constructed two units on the land and then subdivided the land into Property A (the Property) and Property B. Property B is not the subject of this private ruling.

In MM/YY, the Property was placed on the market for sale.

Failure to sell the Property led to it being rented as a residential premise from DD/MM/YY; however, you maintained the intention for it to be sold once the property market improved.

On DD/MM/YY you decided to change your loan to principal and interest and reaffirmed your earlier position that the Property will be sold at the earliest opportunity to maximise the return.

On DD/MM/YY, you made a decision to retain the Property as an investment based on the unsuccessful attempted sale of the property and the increasing rental market potential of the area.

This decision was reconsidered and on DD/MM/YY you entered into a contract for the sale of the Property. The Property settled on DD/MM/YY.

You have treated the sale of the Property as a taxable supply and it is your intention to calculate the GST payable (if any) under the margin scheme.

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 9-40

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

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

A New Tax System (Goods and Services Tax) Act 1999 Sub-section 40-75

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

Reasons for decision

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Under section 9-5, a supply will be 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 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.

You formed on DD/MM/YYYY to carry on an enterprise for the purpose of buying and subdividing land to build residential properties for sale. You registered for GST on DD/MM/YYYY and also acquired the Property at this time. During the period of ownership, you applied the Property for the purposes of sale and also for the purposes of lease, whilst maintaining the intention to sell when market conditions improved.

In your case, the supply of the Property was:

•         made for consideration, satisfying paragraph 9-5(a),

•         made in the course or furtherance of this enterprise, satisfying paragraph 9-5(b),

•         situated in Australia, satisfying paragraph 9-5(c),

•         made when you were registered for GST at the time of supply, satisfying paragraph 9-5(d).

The circumstances in which a supply is GST-free or input taxed are found in Divisions 38 and 40 respectively.

In your case, there are no provisions in the GST Act under which your sale of the Property would be GST-free.

Therefore, what remains to be determined is whether your sale of the Property will be input taxed.

Sales of residential premises

Under section 40-65, 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 (regardless of the term of occupation) before 2 December 1998.

On the basis of the facts provided, the Property is residential premises to be used predominantly for residential accommodation.

The meaning of the term commercial residential premises is explained in section 195-1. Paragraph 83 of Goods and Services Tax Ruling GSTR 2000/20 provides a list of indicators for commercial residential premises. Based on the definition and these indicators we do not consider the Property to be commercial residential premises.

New residential premises are defined in subsection 40-75(1) to mean premises that:

(a)   have not previously been sold as residential premises (other than commercial residential premises) and have not previously been the subject of a long-term lease; or

(b)   have been created through substantial renovations of a building; or

(c)   have been built, or contain a building that has been built, to replace demolished premises on the same land.

Further, subsection 40-75(2) provides that premises is not new residential premises if the premises has only been used for making input taxed supplies because of paragraph 40-35(1)(a) for a continuous period of at least 5 years since:

(a)   the premises first became residential premises; or

(b)   the premises were last substantially renovated; or

(c)   the premises were last built, as applicable.

Paragraph 40-35(1)(a) refers to supplies that you make by way of lease, hire or licence will be input taxed where the supply is of residential premises, and not 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.

In your case, you have used the Property for the following purposes:

•         from DD/MM/YYYY to DD/MM/YYYY, you maintained the intention to sell the Property whilst making supplies of residential rent in line with 40-35,

•         from DD/MM/YYYY, you made a further decision to no longer hold the Property for the purposes of sale, but retain the Property solely for the purpose of leasing, and

•         prior to MM/YYYY you reconsidered the prior use of solely making input taxed supplies (residential rent) and placed the Property on the market for sale for which settled on the DD/MM/YYYY.

On the basis of the facts provided, the Property is new residential premises as defined under subsection 40-75(1). This is because the Property has not been used solely for making input taxed supplies for a continuous period of 5 years. The sale of the Property will not satisfy the requirements to be an input taxed supply under section 40-65.

The supply of the Property is a taxable supply.