Edited version of private advice

Authorisation Number: 1052188057903

Date of advice: 6 November 2023

Ruling

Subject: GST and the sale of real property

Question 1

Will the sale of the property be a taxable supply by the Client pursuant to Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Question 2

Will the grant of the call option under the Put and Call Option Deed (the Deed) by the Client be a taxable supply by the Client under section 9-5 of the GST Act?

Answer

No.

This ruling applies for the following period:

1 July 2021 to 30 June 2025

The scheme commences on:

The date of issue of this private ruling

Relevant facts and circumstances

The Client is registered as a charity under the Australian Charities and Not-for-profits Commission and has been registered for GST effective from 1 January XXXX.

The Client is a body corporate.

The land was acquired by the Client with the eight buildings constructed on the Property compromising XX units and a common room.

The Client entered the Deed in relation to a call option and put option over the Property on the terms and conditions set out in the Deed.

Under the Deed, the Client granted a call option and was granted a put option.

A copy of the Deed was provided as Enclosure 1 to the private ruling application.

The call option fee set out in the Deed payable is exclusive of GST and the put option fee payable by the Client is exclusive of GST.

The proposed sale price of the Property is exclusive of GST.

It is anticipated that either the call option or put option will be exercised, that a contract (in a form like the contract appended to the Deed) will be executed and that the Property will be sold with vacant possession.

There is a lease (the Lease) over the Property between the Client and the lessee. A copy of the Lease was provided as part of the private ruling application.

Under the Lease the lessee had to pay rent every year to the Client.

The Lease was entered into by the Client for administrative purposes so that the lessee could easily deal with and enter into licences/occupancy agreements with the occupants (due to the different geographic locations of the various trustees comprising the Client and the inconvenience to bring them together to execute documents and carry out functions).

The occupation fees were recorded as income.

Various accommodation units on the Property were licenced by the lessee to individuals, however the Client and the lessee did not provide any additional services to the former residents apart from their right to use their accommodation unit, nor did they contract out the provision of such services to a third party (associated or otherwise).

The Lease will be terminated prior to settlement.

Of the units constructed on the Property, some were leased by the lessee under residential tenancy agreements (RTA) for at least 5 years. Four of the units were vacant.

Unit 1 had been occupied by a resident for no charge as a benevolent/charitable act by the Client.

The remaining 4 units unaccounted for were being used as follows.

a. Unit X for storage of archives etc.

b. Unit Y for casual accommodation from time to time

c. Unit Z for storage of books

d. Unit XX for casual accommodation from time to time

The units have ceased being actively marketed for leasing when the option deed was entered into. Prior to that, these units were marketed for leasing through a real estate agency.

The original basis of occupation for the units (as between the occupant and the lessee) - apart from Unit 1 - was by 'Equity Participation' (EP) via a long-term occupation arrangement to over 55-year-olds with a large upfront payment with "Occupation Fees" being payable by occupants for occupancy fees and maintenance expenses.

This basis of occupation changed some years ago when a change in the Local Environmental Plans (the LEP) regime were commenced.

As a result of the introduction of the LEP, the terms of occupancy of the units (as between the occupant and the lessee) were gradually altered from the EP to the current RTA model and resulted in the management of the Property being undertaken through a local real estate agent.

A copy of the site plan for the Property was provided as Enclosure 2 to the private ruling application.

Based on the site plan attached to the private ruling application, we note that the following physical characteristics of the Property are present, or alternatively, can be identified:

I. The unit(s) all have a kitchen in which the resident can prepare their own meals and refreshments throughout the day, so they are not reliant upon others to provide meals to them (unless they contract with third party providers to provide them with meals);

II. There is no evidence or existence of a commercial kitchen on the Property, which while not conclusive, does suggest that the accommodation is suited to those that can feed themselves independently through utilising the facilities in their own accommodation unit (unless they contract with third party providers to provide them with meals);

III. The buildings do not have a reception area which is usually found in both aged care and/or graduated care facilities and commercial residential accommodation facilities such as hotels, motels;

IV. There is no dedicated room that can be used for the provision of nursing care or for onsite staff to use as an office while they are on shift;

V. Each unit has its own laundry facilities; and

VI. The site plan states that the property was to be developed as a 'retirement community'.

Relevant legislative provisions

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

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

Reasons for decision

Question 1

Section 40-65 states that a supply of residential premises is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation).

However, the sale is not input taxed to the extent that the residential premises are either commercial residential premises or new residential premises.

Based on the facts, the Property is not new residential premises.

The term 'commercial residential premises' is defined in section 195-1 to include:

a)    a hotel, motel, inn, hostel or boarding house;

b)    premises used to provide accommodation in connection with a school;

c)    a ship that is mainly let out in the ordinary course of a business of letting ships out on hire;

d)    a ship that is mainly used for entertainment or transport in the ordinary course of a business of providing ships for entertainment or transport;

da) a marina at which one or more of the berths are occupied, or are to be occupied, by ships used as residences;

e)    a caravan park or a camping ground; or

f)     anything similar to residential premises described in paragraphs (a) to (e).

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) sets out the ATO view on how GST applies to supplies of commercial residential premises and supplies of accommodation in commercial residential premises.

The terms 'hotel', 'motel', 'inn', 'hostel' and 'boarding house' are not defined in the GST Act and take their ordinary meaning. The Macquarie Dictionary 5^th Edition provides the following definitions:

Hotel: a building in which accommodation and food, and alcoholic drinks are available

Motel: a roadside hotel which provides accommodation for travellers in self-contained, serviced units, with parking for their vehicles.

Inn: a small hotel that provides lodging, food etc., for travellers and others

Hostel: a supervised place of accommodation, usually supplying board and lodging provided at a comparatively low cost, as one for students, nurses, etc.

Boarding house: 1. a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc.

2. a dwelling, usually a private house, in which board and lodging are provided for payment

In their ordinary meanings, these terms share the common attribute of providing accommodation to guests. Paragraph (f) of the definition of commercial residential premises extends the scope of the definition to premises that are 'similar' to the class of establishment described in paragraphs (a) to (e).

Premises that are 'similar' to establishments that are commercial residential premises must have sufficient characteristics in common with the class of premises described.

Paragraph 12 of GSTR 2012/6 contains a number of characteristics common to hotels, motels, inns, hostels and boarding houses:

• Commercial intention

The premises are operated on a commercial basis or in a business-like manner even if they are operated by a non-profit body.

• Multiple occupancy

The premises have the capacity to provide accommodation to multiple, unrelated guests or residents at once in separate rooms, or in a dormitory.

• Holding out to the public

The premises offer accommodation to the public or a segment of the public.

• Accommodation is the main purpose

Providing accommodation is the main purpose of the premises.

• Central management

The premises have central management to accept reservations, allocate rooms, receive payments and perform or arrange services. This can be provided through facilities on-site or off-site.

• Management offers accommodation in its own right.

The entity operating the premises supplies accommodation in its own right rather than as an agent.

• Provision of, or arrangement for, services

Management provides guests and residents with some services and facilities, or arranges for third parties to provide them.

• Occupants have status as guests

Predominantly, the occupants are travellers who have their principal place of residence elsewhere. The occupants do not usually enjoy an exclusive right to occupy any particular part of the premises in the same way as a tenant.

In this case, the Client does not provide central management, does not provide or arrange services and the occupants did not have the status of guests. The occupants used the units as their primary place of residence.

Therefore, the Property does not have the characteristics of commercial residential premises.

Similarly, the Property lacks the characteristics to meet the requirements of either a residential care facility or a retirement village. In particular, the fact that no services were provided to the occupants and the lack of communal facilities, sets the Property apart from activities of that nature.

Conclusion

The sale of the Property will be a supply of residential premises and, as such, it will be an input taxed supply.

Question 2

Essentially, an option contract (regardless of whether it is a financial supply) will share the GST treatment of the underlying asset. An option to receive a taxable supply of property will be taxable while an option to receive an input taxed supply of property will be input taxed.

The supply of the call option is a supply of a right to receive a supply of residential premises which would be input taxed under subsection 40-65(1) of the GST Act.

The granting of the call option is the supply of a right to receive a supply of the Property which would be input taxed under Division 40 of the GST Act.

Accordingly, when the Client grants a Call Option which entitles the purchaser to purchase the Property which would be an input taxed supply, the supply of the Call Option by the client, under the Deed, would be an input taxed supply financial supply pursuant to subsection 40-5(1), and an input taxed supply under paragraph 9-30(2)(b) of the GST Act.

Conclusion

Given the supply of the Property is an input taxed supply of residential premises, it follows that the options granted under the Deed will also be input taxed supplies.