Edited version of private advice

Authorisation Number: 1052188606573

Date of advice: 2 November 2023

Ruling

Subject: GST - input taxed supply

Question 1

When you, make a supply by way of a hire agreement of a portable house which is delivered to the customer's property for the duration of the hire agreement, are you making an input taxed supply pursuant to section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Question 2

When you make a supply by way of hire of a portable house that has been installed on land that you own, are you making an input taxed supply pursuant to section 40-35 of the GST Act?

Answer

Yes.

Question 3

When you make a supply by way of sale of a pre-built portable house that you have acquired from another entity, are you making a taxable supply pursuant to section 9-5 of the GST Act?

Answer

Yes.

Question 4

When you make a supply by way of sale of a portable house that you have built, are you making a taxable supply pursuant to section 9-5 of the GST Act?

Answer

Yes.

Question 5

When you make a supply of a portable house, by a hire purchase arrangement, are you making a taxable supply pursuant to section 9-5 of the GST Act?

Yes.

This ruling applies for the following period(s)

DD/MM/YYYY TO DD/MM/YYYY

The scheme commences on

DD/MM/YYYY

Relevant facts and circumstances

You are registered for GST.

You are a portable housing company. You are not an endorsed charity or a gift deductible entity.

Up until now, you were offering the below:

1.    You lease portable houses, under a 'Portable Unit Hire Agreement'. The Portable houses are delivered to the customer's property for the duration of a rental agreement.

The sample document titled 'Portable Unit Hire Agreement' has been provided.

2.    Sale of third party built portable houses. That is, another company would build the portable houses and you would on-sell these either after the houses have been rented out by you for a period of time or straight after build.

You have purchased all portable houses from GST registered entities. You have on-sold them inclusive of GST, regardless of how long you have leased the houses prior to your sale.

Your sale of the portable house is specifically for the house itself and not the land on which the house is sitting on prior to the sale.

As of a specified month and year, you are looking to implement the following additional strategies:

3.    You will now build your own portable houses.

•      The portable houses will be different configurations

•      The portable houses will all contain a kitchen, bathroom, toilet and living area.

•      You will then either sell or rent them to your customers.

•      You are not supplying the land. The portable houses will be installed on your customer's land.

•      You will also be supplying some portable houses by way of lease, to be installed on land that you own.

4.    Regardless of whether the portable houses are built by you or by a third party you are looking to implement a hire purchase arrangement.

This type of arrangement would be in accordance with the guidance provided on the ATO website in relation to hire purchase.

The hire purchase agreement (the Agreement) will offer the portable houses for a period of # to # years, with an option to purchase the portable house or a mandatory purchase clause at the end of the lease term.

In no circumstances will the portable unit be deemed to be a fixture.

The sample document titled 'Portable Unit Hire Purchase Agreement' was provided.

Hire Purchase means the credit arrangement the subject of this Agreement, under which the Hire Purchaser agrees to hire the Portable Unit from the Supplier for the Instalment Term, with the obligation to purchase the Portable Unit at the end of the term.

During the term of the agreement the Hire Purchaser agrees to maintain and secure the unit. The hire purchaser cannot modify the portable unit.

The Hire Purchaser acknowledges that the Supplier owns the Portable Unit and in all circumstances the Supplier retains title to the Portable Unit until the end of the Instalment Term (and when the Hire Purchaser has paid the Final Instalment and all other Instalment Amounts, charges and fees incurred by the Hire Purchaser to the Supplier).

The Supplier will, subject to the terms and conditions of this Agreement, at the end of the Instalment Term, do all things reasonable or necessary to transfer the legal title in the Portable Unit to the Hire Purchaser, but only if the Hire Purchaser has paid the Final Instalment and all other Instalment Amounts, charges and fees incurred by the Hire Purchaser during the Instalment Term to the Supplier.

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 40-5

A New Tax System (Goods and Services Tax) Act 1999 Section 40-35

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

A New Tax System (Goods and Services Tax) Act 1999 Section 156-23

A New Tax System (Goods and Services Tax) Act 1999 Division 38

A New Tax System (Goods and Services Tax) Act 1999 Division 40

A New Tax System (Goods and Services Tax) Act 1999 Regulation 40-5.12

Reasons for decision

In this ruling, 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 website ato.gov.au

Question 1

When you, make a supply by way of a hire agreement of a portable house which is delivered to the customer's property for the duration of the hire agreement, are you making an input taxed supply pursuant to section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Taxable supply

GST is payable on taxable supplies. You make a taxable supply if you meet the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

(a)  you make the supply for *consideration; and

(b)  the supply is made in the course or furtherance of an enterprise that you carry on; and

(c)   the supply is *connected with indirect tax zone; and

(d)  You are registered or required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

In this case, you are making a supply by way of hire of a portable house which is delivered to the customer's property for the duration of the hire agreement.

On the facts provided, your hire of the portable house will meet the requirements of paragraphs 9-5(a), (b), (c) and (d) and will be a taxable supply unless it is GST-free or input taxed.

Divisions 38 and 40 provide for certain supplies to be GST-free and input taxed respectively. We consider Divisions 38 does not apply to the facts and situation outlined in your question and your supply will not be GST-free.

We will consider next whether your supply is an input taxed supply.

Input taxed supply

Section 40-35 includes that a supply of residential premises by way of lease, hire or licence (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises) is input taxed.

Under paragraph 40-35(2)(a), the supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation (regardless of the term of occupation).

'Residential premises' is defined by 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)...

Relevant guidelines are available in Goods and Services Tax RulingGSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) on the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 explains that the requirement that residential premises are to be used predominantly for residential accommodation in section 40-35 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 provides:

10. 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.

Paragraphs 49 to 51 of GSTR 2012/5 state the following:

Transportable buildings

49. A transportable building such as a demountable dwelling or moveable home⁴ that is designed as a residence, or to provide residential accommodation, is residential premises when placed on land and installed ready for occupation.

50. A supply of a transportable building before it is placed on land and installed ready for occupation is not an input taxed supply under sections 40-35, 40-65 or 40-70.5 The supply is subject to the basic rules.

51. A transportable building that is not designed as a residence or to provide residential accommodation (for example, a transportable building that lacks basic living facilities) is not residential premises to be used predominantly for residential accommodation.

In your case, when you hire a portable house to your customer that is delivered to the customer's property, you are hiring only the portable house (not including land that you own).

Accordingly, when you hire to your customer the portable house you are not supplying 'residential premises' and therefore will not satisfy the requirement of section 40-35 to be an input taxed supply - paragraphs 49 and 50, GSTR 2012/5.

As your supply of the portable house by way of a hire agreement is not GST-free or input taxed and paragraphs 9-5 (a) to (d) are satisfied, you are making a taxable supply and GST is payable.

Question 2

When you make a supply by way of hire of a portable house that has been installed on land that you own, are you making an input taxed supply pursuant to section 40-35 of the GST Act?

Please refer to the provisions of the GST Act and guidelines outlined under question 1 above.

However, in this case as you are hiring to your customer a portable house that has been installed on land that you own, the house can be occupied as a residence or for residential accommodation providing shelter and basic living facilities to your customer. Therefore, you are supplying residential premises and the requirements under section 40-35 will be satisfied. You are making an input taxed supply and GST is not payable on the supply.

Question 3

When you make a supply by way of sale of a pre-built portable house that you have acquired from another entity, are you making a taxable supply pursuant to section 9-5 of the GST Act?

In this case, you are selling a portable house you have acquired from another entity.

As stated earlier in question 1 above, section 9-5 provides the requirements for a taxable supply.

On the facts provided, your sale of a portable house will satisfy the requirements set out in paragraphs 9-5(a), (b), (c) and (d) and will be a taxable supply unless it is GST-free or input taxed.

Division 38 provides for certain supplies to be GST-free. We consider Division 38 has no application to the facts and situation outlined in your question and the sale of the portable house by you will not be GST-free.

We will consider whether your sale of the portable house is an input taxed supply.

Section 40-65 provides for 'sales of residential premises' as follows.

Sales of residential premises

(1) A sale of * 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).

(2) However, 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.

The definition of "Real property" includes

(a)  any interest in or over land; or

(b)  a personal right to call for or be granted any interest in or over land; or

(c)   a licence to occupy land or any other contractual or in relation to land.

In this instance, we first need to determine whether the sale of a portable house is a supply of real property or a supply of goods.

Paragraphs 49 to 51 in GSTR 2012/5 as stated earlier in this ruling is reproduced here for ease of reference:

Transportable buildings

49. A transportable building such as a demountable dwelling or moveable home⁴ that is designed as a residence, or to provide residential accommodation, is residential premises when placed on land and installed ready for occupation.

50. A supply of a transportable building before it is placed on land and installed ready for occupation is not an input taxed supply under sections 40-35, 40-65 or 40-70.5 The supply is subject to the basic rules.

51. A transportable building that is not designed as a residence or to provide residential accommodation (for example, a transportable building that lacks basic living facilities) is not residential premises to be used predominantly for residential accommodation.

A building that is situated on land is not real property unless it is a fixture on the land.

Fixtures are chattels that become annexed to the land in such a way that the chattels lose their independent identity and become a part of the land. Once a chattel becomes a part of the land it belongs to the land. The fixture will pass with the land if the land is sold.

Your sale of portable houses is specifically for the house itself and not the land on which the house is sitting on prior to the sale.

We consider the portable houses you sell would not meet the definition of real property and would be a tangible personal property, hence a good for GST purposes.

Section 40-65 specifically limits the provision to real property when considering if the sale will be input taxed.

Accordingly, section 40-65 does not apply to your sale of the portable houses. (It does not matter whether the portable houses were built by you, or that you acquired them from another entity).

As your sale of a portable will satisfy all the requirements of a taxable supply under section 9-5, you are making a taxable supply and GST is payable on the supply.

Question 4

When you make a supply by way of sale of a portable house that you have built, are you making a taxable supply pursuant to section 9-5 of the GST Act?

The reasonings is the same as provided under question 3 above. You are making a taxable supply pursuant to section 9-5 and GST will be payable on the supply.

Question 5

When you make a supply of a portable house, by a hire purchase arrangement, are you making a taxable supply pursuant to section 9-5 of the GST Act?

As stated earlier in question 1 above, section 9-5 provides the requirements for a taxable supply.

On the facts provided, your supply of a portable house by hire purchase arrangement will satisfy the requirements set out in paragraphs 9-5(a), (b), (c) and (d) and will be a taxable supply unless the supply is GST-free or input taxed.

Division 38 provides for certain supplies to be GST-free. We consider Division 38 has no application to your supply for it to be GST-free.

We will consider whether your supply of a portable house by hire purchase arrangement is an input taxed supply under Division 40.

Section 40-5 provides for financial supplies.

Financial supplies

(1) A *financial supply is input taxed.

(2) Financial supply has the meaning given by the regulations.

Regulation 40-5.12 lists certain supplies that are not financial supplies including credit under a hire purchase agreement entered into on or after 1 July 2012.

Relevant guidelines are available in Goods and Services Tax Ruling GSTR 2002/2: Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2).

At paragraph 185, GSTR 2002/2 explains that section 40-5.12 of the GST regulations sets out categories of supplies that are not financial supplies regardless of whether a financial supply provider or a financial supply facilitator makes the supply. The categories, as set out in section 40-5.12 of the GST regulations, include:

•         goods supplied under a hire purchase agreement entered into on or after 1 July 2012 (table item 19 of section 40-5.12);

•         credit under a hire purchase agreement entered into on or after 1 July 2012 (table item 20 of section 40-5.12);

Hire purchase is provided in the glossary of terms in GSTR 2002/2 as follows:

Hire Purchase Agreement

A contract for the purchase of goods whereby the hirer acquires possession and use of, but not title to, the goods until all instalments have been paid.

Within the meaning of section 995-1 of the ITAA 1997, hire purchase agreement means:

(a) a contract for the hire of goods where:

(i) the hirer has the right, obligation or contingent obligation to buy the goods; and

(ii) the charge that is or may be made for the hire, together with any other amount payable under the contract (including an amount to buy the goods or to exercise an option to do so), exceeds the price of the goods; and

(iii) title in the goods does not pass to the hirer until the option referred to in subparagraph (a)(i) is exercised; or

(b) an agreement for the purchase of goods by instalments where title in the goods does not pass until the final instalment I s paid.

The Agreement provides that you retain ownership of the portable unit until the end of the instalment term. A supply of goods and credit under a hire purchase agreement entered into on or after 1 July 2012 are not financial supplies and not input taxed - table item 20 of regulation 40-5.12 and paragraph 185, GSTR 2002/2.

Therefore, as your supply of the portable units, under a hire purchase agreement, including any credit charges is not an input taxed supply and satisfies all the requirements of section 9-5, it will be a taxable supply and GST will be payable on the supply.