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Edited version of private advice
Authorisation Number: 1052100218768
Date of advice: 27 March 2023
Ruling
Subject: Property
Question
Was the supply of the property a taxable supply,in accordance with section 9-5?
Answer
No. The property was not a taxable supply in accordance with section 9-5. The sale of the property should have been treated as an input taxed supply of residential premises in accordance with section 40-65.
This ruling applies for the following period:
Financial year ending 30 June 20XX.
The scheme commences on:
The date this notice of decision is issued.
Relevant facts and circumstances
• The Trust entered into a contract of sale in relation the property, with a third party.
• The land contained an existing residential apartment complex comprising XX apartments, each with undercover parking and an associated pool and tennis court.
• The property was previously established as a time share scheme.
• The time share scheme resolved to sell the whole property owned by the Trust.
• The contract of sale between the vendor and the purchaser, was sold on the assumed basis that supply of the property was a taxable supply for GST purposes.
• At the time of settlement of the contract, each apartment had a kitchen, laundry and bathroom facilities and capable of residential use.
• The Trust holds an Australian Business Number (ABN) and is registered for goods and services tax (GST).
- The Trust reported the GST payable in the relevant activity statement.
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 40-65
Reasons for decision
Under section 9-5, an entity makes a taxable supply where the supply:
- is made for consideration; and
- is made in the course or furtherance of an enterprise being carried on; and
- is connected with the indirect tax zone; and
- is made by a supplier who 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.
Subsection 40-65(1) provides that 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.)
Subsection 40-65(2) provides that the sale 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.
Goods and services tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the ATO view on how subdivision 40-B and subdivision 40-C apply to supplies of residential premises.
Paragraph 9 of GSTR 2012/5 provides the requirement in sections 40-35, 40-65 and 40-70 that 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.
Paragraph 10 of GSTR 2012/5 states that 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 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).
Paragraph 15 of GSTR 2012/5 states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.
In this case, the property sold consisted of freehold land on which a residential apartment complex was situated. The apartment complex was constructed in the XXXX and consists of XX apartments with each apartment having undercover carparking.
It was resolved to sell the whole property comprising the land and buildings. At the time of completion and transfer of the land under the title, each of the apartments had a kitchen, laundry and bathroom facilities and was capable of residential use.
The purchase of the property included fixtures and fittings, including furniture and intellectual property as set out in the contract.
Based on the facts of this case the property satisfies subsection 40-65(1) and, as a result, the sale of the property should have treated as an input taxed supply of residential premises.