Edited version of private advice

Authorisation Number: 1052141753882

Date of advice: 14 July 2023

Ruling

Subject: Taxable supply

Question

Will the newly constructed residential property (the property) which is to be used as a main residence, be a taxable supply in accordance with section 9-5 when sold?

Answer

No. The sale of the property would not be a taxable supply in accordance with section 9-5.

This ruling applies for the following periods:

Financial year ending 30 June 2023; to

Financial year ending 30 June 2028

The scheme commences on:

The date this notice of decision is issued

Relevant facts and circumstances

You and another party own the property as tenants in common.

The property is currently your main residence.

You are considering demolishing the existing residence and building a new residential premises.

You and your spouse will then reside in the newly constructed property once completed.

You may sell the property in the future less than 5 years after it is constructed.

You do not hold an Australian Business Number (ABN) and are not registered for goods and services tax (GST)

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 40-75

Reasons for decision

Under section 40-75, a new residential premises is defined as:

1.    Residential premises are new residential premises if they:

a)    Have not previously been sold as residential premises (other than commercial residential premises) and have not previously been the subject to 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.

Paragraphs (b) and (c) have effect subject to paragraph (a).

2.    However, the residential premises are not new residential premises if, for the period of at least 5 years since:

a)    If paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies) - the premises first became residential premises; or

b)    If paragraph (1)(b) applies - the premises were last substantially renovated; or

c)    If paragraph (1)(c) applies - the premises were last built;

The premises have only been used for making supplies that are input taxed because of paragraph 40-35(1)(a).

In the scenario you have presented, the newly developed property will be a new residential premises in accordance with paragraph 40-75(1)(c).

However, next we have to determine whether the sale of the property would be a taxable supply under section 9-5.

Under section 9-5, an entity makes a taxable supply where the supply:

1.    is made for consideration; and

2.    is made in the course or furtherance of an enterprise being carried on; and

3.    is connected with the indirect tax zone; and

4.    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.

All of the elements in section 9-5 have to be met for a supply to be a taxable supply. If you were to sell the property, it would be for consideration and it would be connected with the indirect tax zone. Therefore, the sale would satisfy two elements outlined above (1&3). Accordingly, we need to determine whether the other two elements would be satisfied. If this were the case the sale of the property would satisfy all of the requirements under section 9-5.

In the scenario presented, you intend to demolish the existing residential premises, which is currently your main residence and then construct a new residential premises in which you and your spouse will reside as your main residence until such a time as you decide to sell the property, possibly in less than 5 years.

We do not consider that the activity of selling the newly constructed residential premises would indicate that you are carrying on an enterprise of property development. The selling of a family home is for a private purpose and GST would not apply.

You do not hold an ABN and are not registered for GST, and you are not carrying on an enterprise of property development. Therefore, the other two elements outlined above (2 & 4) are not satisfied.

Conclusion

The future sale of the property would not meet the requirements under section 9-5 and would not be a taxable supply.