Edited version of private advice

Authorisation Number: 1052197474272

Date of advice: 30 November 2023

Ruling

Subject: Taxable supply

Question

Will the sale of the property the Partnership be a taxable supply in accordance with section 9-5?

Answer

Yes, the sale of the property will be a taxable supply made by the Partnership in accordance with section 9-5.

This ruling applies for the following periods:

Financial year ending 30 June 2024 to

Financial year ending 30 June 2029

The scheme commences on:

The date the ruling decision is issued.

Relevant facts and circumstances

The partnership holds an Australian Business Number (ABN) and is registered for goods and services tax (GST).

The Partnership purchased the property in XXXX.

At the time of purchase the property was zoned PUZ1 - Public use and was a vacant premises.

The property had previously been used as a commercial premises.

The Partnership leased the property on a commercial basis since purchase.

The property was re-zoned low density residential in keeping with the local area.

The decision to rezone was made by the local council.

The Partnership is now renovating the property to make it suitable for residential use. The renovation work is more cosmetic in nature with no major structural changes being made.

Once renovated, the Partnership intends to sell the property as a residential premises.

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

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 40-75(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 40-75(2)(a)

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

Reasons for decision

All legislative references are to A New Tax System (Goods and Services Tax) Act 1999 unless stated otherwise.

Section 9-5 provides that an entity makes a taxable supply if all of the following requirements are satisfied:

a)    the supply is made for consideration,

b)    the supply is made in the course or furtherance of an enterprise being carried on,

c)    the supply is connected with the indirect tax zone, 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.

In this case, the sale of the residential premises, once renovated by the Partnership, will satisfy all of the requirements of section 9-5. Accordingly, the sale of this property will be a taxable supply unless the supply is GST-free or input taxed.

Section 40-65 provides that, in relation to the sale of residential premises:

1)    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).

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 term 'real property' is defined in section 195-1 to include:

a)    any interest in or right over land; or

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

c)    a licence to occupy land or any other contractual right exercisable over or in relation to land.

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.

The term 'long term lease' is defined in section 195-1 to mean a supply by way of lease, hire or licence (including renewal or extension of a lease, hire or licence) for at least 50 years if:

a)    at the time of the lease, hire or licence, or the renewal or extension of the lease, hire or licence, it was reasonable to expect that it would continue for at least 50 years.

b)    ...

Section 40-75 provides the meaning of new residential premises:

When premises are new residential premises

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 of 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).

Subsection 40-75(2) provides:

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 last built;

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

Goods and Services Tax Ruling GSTR 2003/3 Goods and services tax: when is a sale of real property a sale of new residential premises? (GSTR 2003/3) states at paragraph 41:

Residential premises previously sold as commercial property

41. Residential premises have not been sold as residential premises where the real property was previously sold only as commercial property. For example, where land had only been sold with a warehouse constructed on it, and the building converted to residential premises, the residential premises would be new residential premises. Where a warehouse is converted to residential premises it is unnecessary to look beyond paragraph 40-75(1)(a). The resulting residential premises have not been previously sold as residential premises, or been the subject of a long-term lease.

In this case, the property was purchased by the Partnership as a commercial property which was zoned accordingly. The Partnership leased the property on a commercial basis since purchase due to the zoning of the property.

Although the zoning has now been changed to low density residential, and the property is being renovated to make it more suited to residential use rather than commercial use, the fact remains that, based on the information available, the property has never been used as a residential premises or sold as a residential premises and has been leased as a commercial premises before and after the Partnership purchased the property.

The extent of the renovations being done to the property will not qualify as substantial renovations and the property has not been the subject of a long-term lease.

Conclusion

We consider the supply of the property when sold will not be an input taxed sale of a residential premises as the property does not meet the requirements under subsection 40-65(1). As provided above, sale of the property meets the requirements under paragraph 40-75(1)(a) and, therefore, will be a taxable supply in accordance with section 9-5.