Edited version of private advice

Authorisation Number: 1051962411126

Date of advice: 22 March 2022

Ruling

Subject: Input taxed supply of residential premises

Question

Was the sale of the property an input taxed supply of residential premises in accordance with section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The sale of the property was an input taxed supply of residential premises in accordance with section 40-65 of the GST Act.

This ruling applies for the following period:

Financial year ending 30 June 20XX

Relevant facts and circumstances

•                    The Trust owned a property.

•                    The property is a house which was leased as an office since it was purchased by the Trust.

•                    The property was not new residential premises and is located in a mixed zone area.

•                    When the property was advertised for sale, it was listed as a residential premise which included a lounge, bathroom, additional water closets, kitchenette, bedrooms and laundry and was able to be occupied immediately as a residential premise.

Relevant legislative provisions

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

Reasons for decision

Under subsection 40-65(1) of the GST Act, a sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used predominately for residential accommodation (regardless of the term of occupation).

Section 195-1 of the GST Act defines residential premises as land or 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.

Goods and Services Tax Ruling GSTR 2012/5 - Goods and Services Tax: residential premises provide the Tax Office view in relation to Subdivision 40-C and how this applies to the supply of residential premises.

Paragraph 7 of GSTR 2012/5 states that premises, comprising land or a building, are also residential under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, nd capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises.

Paragraphs 9-10 of GSTR 2012/5 state that:

9. The requirement in sections, 40-35, 40-65 and 40-70 that the premises be residential premises to be used predominately 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 predominately for residential accommodation does not require an examination of the subjective intention of, or use by, any person. Premises that display 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).

In this case, the property although previously leased as an office, has the characteristics of residential premises. It is a property that consists of bedrooms, several bathrooms, a living area, a laundry and kitchen and the property can be occupied and used for providing residential accommodation.

The property could continue to be used as an office however, even if the purchaser of the property is not intending to use the property to provide residential accommodation the property will still maintain the characteristics of a residential premises.

Example 1 and paragraphs 12 and 13 in GSTR 2012/5 state:

12. John carries on an enterprise which involves leasing a house on property which he owns. Based on the physical characteristics of the house it is residential premises to be used predominately for residential accommodation. The area in which the house is located has recently been rezoned by the local Council to permit higher density residential apartments. Following the rezoning, a developer, Knock Them Down Co, approaches John and offers to purchase his property. Knock Them Down Co intends to demolish the house, redevelop the property into a new apartment building, and sell the apartments.

13. The fact that Knock Them Down Co does not intend to use the house to provide residential accommodation does not mean that the house is not residential premises to be used predominately for residential accommodation. Knock Them Down Co's intention is not a relevant factor in determining the character of the premises. Based on its physical characteristics, the house is residential premises to be used predominately for residential accommodation. The sale of the house by John to Knock Them Down Co is an input taxed supply under section 40-65.

Based on the facts of this case, the sale of the property was an input taxed supply of residential premises in accordance with subsection 40-65(1) of the GST Act.