Edited version of private advice

Authorisation Number: 1051980430258

Date of advice: 6 May 2022

Ruling

Subject: GST - property

Question

Is the sale of the property located at <address> (the Property) a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The Property is input taxed pursuant to subsection 40-65(1) of the GST Act.

Relevant facts and circumstances

On <date>, <individual A >and his spouse <individual B > (the couple) purchased a residential property located at <address> a (the Property).

The Property is formally known as Lot <number> on Plan of Subdivision <number> being the whole of the land in Certificate of Title Volume <number> Folio <number>.

The Property is approximately <number>m² in size, is zoned residential and contains a modest three-bedroom, two-bathroom house with a large veranda, kitchen with dining area, living areas, carport, and shedding.

Since acquiring the Property in <year>, the couple completed minor renovations which include stone cladding the exterior of the house and adding an ensuite bathroom to the master bedroom.

When purchased, the Property was intended as the couple's alternative retirement home. In the meantime, the couple leased the property, on and off, for a period of approximately 8 to 10 years.

The rental income generated from the property has been recorded under the accounts of the partnership, < individual A > and <individual B > ABN:<number> (You), which was registered on <date>.

You registered for Goods and Services Tax (GST) effective from <date> and have since reported GST on a quarterly basis.

Your partnership returns list your main business activity as non-residential property operators.

<Individual A > and <individual B > own the following additional properties as joint tenants:

Neither <individual A > nor <individual B) have been registered for GST as individuals.

On <date> your partners signed a contract of sale accepting an offer of $<amount> from <Company> (ACN<number>) to purchase the Property. You expect settlement to take place on <date>.

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 section 40-65

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

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

Reasons for decision

In this reasoning, please note:

•         unless otherwise stated, 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, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO's website ato.gov.au.

Taxable supplies

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

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which provides:

You make a taxable supply if:

a)    the entity makes the supply for consideration

b)    the supply is made in the course or furtherance of an enterprise that the entity carries on

c)    the supply is connected with Australia, and

d)    the entity is 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.

All of the requirements of section 9-5 must be satisfied in order for your supply of the Property to be a taxable supply.

As you will be supplying the Property, which is located in Australia for consideration in the course of your leasing enterprise, and you are registered for GST the supply of the Property will be a taxable supply unless it is GST free or input taxed.

There is no provision in the GST Act that makes your supply GST-free and therefore we need to consider whether the supply of the property will be input taxed.

Input taxed supplies

Input taxed means that there is no GST payable on the supply and there is no entitlement to an input tax credit for anything that is acquired to make the supply.

Relevantly subsection 40-65(1) provides a supply 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).

However, subsection 40-65(2) states that the sale of real property is not input taxed to the extent that the residential 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

Based on the information supplied, the characteristics of the Property and how the premises have been used, the Property does not meet the requirements to be commercial residential premises as defined in section 195-1 and was not used for residential accommodation before 2 December 1998. In addition, the property does not meet the definition of new residential premises as defined in section 40-75.

Residential premises

The term 'residential premises' is defined in section 195-1 to mean 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.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) contains the ATO view on the application of Subdivisions 40-B and 40-C to supplies of residential premises.

Paragraph 9 of GSTR 2012/5 provides that the test of whether premises are 'residential premises' is a single test that looks at the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. Paragraph 15 of GSTR 2012/15 continues stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. This may include bedrooms, bathroom, kitchen, living areas, etc.

In this case the dwelling on the Property contains three bedrooms, two bathrooms, kitchen with dining area, living areas, carport and shedding and is considered to satisfy the definition of 'residential premises' for the purposes of section 195-1.

Conclusion

Therefore the supply of the Property is an input taxed supply of residential premises pursuant to section 40-65 and is neither 'commercial residential premises' nor 'new residential premises'. The supply is not a taxably supply and as such GST is not applicable to the sale.