Edited version of private advice

Authorisation Number: 1052216770257

Date of advice: 16 May 2024

Ruling

Subject: GST - commercial residential premises

Question

Did you, <entity name>, in your capacity as mortgagee in possession, make a taxable supply of the property located at <address> (the Property), pursuant to a contract of sale dated <date> (the Contract), under subsection 105-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. Had the debtor made the supply of the Property, the supply would have been an input taxed supply under section 40-65, and not a taxable supply under section 9-5.

Accordingly, your supply of the Property as the mortgagee-in-possession was not a taxable supply pursuant to subsection 105-5(1).

This ruling applies for the following period:

<date> to <date>.

The scheme commenced on:

<date>.

Relevant facts and circumstances

Mortgagee

<entity name> (you), conduct an enterprise that includes business activities as a financier. The Directors of <entity name> are <name> and <name>.

On <date> you applied for and were granted ABN <number> in respect of your enterprise, and you registered for GST the same date. Both registrations were backdated with start dates of <date>. You remit GST quarterly, accounting for GST on a cash basis.

You applied for this private ruling on <date>.

Ownership of the Property

On <date>, <entity name> purchased <address> (the Property).

At the time of that purchase, the Property was being used to provide residential accommodation.

The Australian Business Register (ABR) shows that <entity name> ABN <number> was registered on <date> and cancelled effective from the same date. The ABR also shows that <entity name> has never been registered for GST.

<entity name> ceased leasing the Property in 20xx to undertake renovation works to the Property.

On <date> you provided finance to <entity name> in connection with the Property. The finance was secured by a mortgage over the Property.

<entity name> subsequently defaulted on its mortgage repayments. On <date> you appointed <entity name> as receivers over the Property.

You took possession of the Property (as mortgagee in possession) in about <date>.

Mortgagee in possession

You obtained a valuation of the Property for sale purposes on <date>.

Prior to marketing the Property for sale, you received an offer to purchase the Property from <entity name> (the Purchaser).

On <date>, in the capacity of mortgagee exercising power of sale under mortgage number <number>, you entered into a Contract for Commercial Land and Buildings (Contract) for the sale of the Property to the Purchaser for consideration of <amount> (excluding GST).

Clause <number> of the Contract states that you and the Purchaser will jointly seek a private indirect tax ruling from the Commissioner as to whether the sale of the Property is a taxable supply.

The Contract also specifies that the sale is not of a going concern and the margin scheme does not apply.

The Property was sold with vacant possession and the settlement date for the sale was <date>.

<entity name> did not give you a written notice stating that the sale of the Property would not be a taxable supply if <entity name> had made the supply.

On settlement, the Purchaser deposited an amount equal to 10% of the sale price into your solicitors' trust account. Pursuant to special condition <number> of the Contract, the funds remain in your solicitors' trust account, awaiting the outcome of this ruling application. Depending on the outcome of the ruling application, the funds will be either released to you or refunded to the Purchaser.

Property description

The Property is located over two titles, being:

•         Certificate of Title Lot <number>; and

•         Certificate of Title Lot <number>.

The Property is a 2-storey building consisting of xx accommodation units, an open foyer, a shared laundry, a storeroom, <number> facilities rooms, a communal kitchen/dining area, and a shared outdoor covered deck on the upper level.

The building is a 'Class 3' building for the purposes of the National Construction Code (NCC). A Class 3 building under the NCC is described as follows:

... a residential building providing long-term or transient accommodation for a number of unrelated persons, including the following:

(1)  A boarding house, guest house, hostel, lodging house or backpacker accommodation.

(2)    A residential part of a hotel or motel.

(3)    A residential part of a school.

(4)    Accommodation for the aged, children, or people with disability.

(5)    A residential part of a health-care building which accommodates members of staff.

(6)    A residential part of a detention centre.

(7)    A residential care building.

The <number> accommodation units on the upper level are self-contained and include:

•         bedroom;

•         bathroom; and

•         living/dining area with a kitchenette.

These <number> units can be accessed via a staircase adjacent to the open foyer at the northern (front) elevation of the building and a set of steps at the southern (rear) elevation of the building.

The remaining <number> accommodation units on the ground floor are largely self-contained and include:

•         bedroom/living room; and

•         ambulant bathroom to accommodate disability.

One of these <number> units can be accessed via the ground floor foyer, while the other is accessed from a path adjacent to the front of the building.

Each accommodation unit is separately keyed and lockable.

The communal kitchen/dining area is located on the ground floor and contains <number> full-sized ovens with stoves, <number> dishwashers and a sink.

The communal laundry is located on the ground floor and contains <number> washing machines and <number> tubs (sinks).

There is no reception desk or concierge desk at the Property.

There is no commercial signage at the Property.

There are single meters for electricity and water.

The Property does not have any car parking spaces.

Renovations

Property renovation plans dated <the relevant date> show that prior to the renovations undertaken by <entity name>, there were no communal kitchen or dining facilities on the ground floor; however, each of the <number> upper-level accommodation units had previously contained a stove.

The renovations converted former ground floor bathrooms into a newly created communal kitchen and dining room space. A wall separating the former bathrooms was partially removed to join the new kitchen and dining areas together.

Parts of <number> former facilities rooms were converted into <number> ambulant disability bathrooms, one for each of the ground-floor accommodation units. The bathrooms were formed by adding <number> partition walls to existing facilities rooms, walling up <number> former doorways, partially removing a wall to create a new doorway, and fitting out the <number> new bathrooms with a toilet suite, handbasin and shower.

Internal partition walls were constructed to create a private bathroom within the existing living space of each of the <number> upper-level accommodation units. Each private bathroom was fitted out with a toilet suite, handbasin and shower.

New kitchenettes were installed in each of the <number> upper-level accommodation units.

Accommodation units were painted, and floors were sanded and stained.

Electrical wiring was replaced.

Repairs were made to a set of stairs and a landing situated at the back of the building (south elevation) between the ground and first floors. No other repair work on the balconies, steps, or stairs was undertaken.

Fire safety improvements were made, new fire-fighting equipment was added, and some electrical works were installed.

No renovation work was undertaken to the exterior of the Property, including to the shared outdoor covered deck adjacent to the upper-level stair landing.

None of the renovations affected the building's foundations, roof, load-bearing walls (internal or external), internal doors and windows, or external doors and windows.

At settlement, the only works to complete were the installation of the final fire safety equipment, the completion of the last electrical items and the installation of the fire hose.

Development Approvals were not required for the renovation works undertaken. The total cost of renovation works was approximately <amount>.

Plans for the renovations were provided with the private ruling application, as were photographs showing various parts of the building both before and after the renovation works undertaken by <entity name>.

Relevant legislative provisions

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

•         section 9-5

•         section 9-40

•         section 40-65

•         section 40-75

•         section 105-5

•         section 195-1