Edited version of private advice

Authorisation Number: 1052235881984

Date of advice: 27 March 2024

Ruling

Subject: GST and residential premises

Question

Are you entitled to claim an input tax credit under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the purchase of the Property?

Answer

No. Based on the information provided the supply of the Property to you was an input taxed supply of residential premises under subsection 40-65(1) of the GST Act.

This ruling applies for the following period:

DD MM 20YY to DD MM 20YY

The scheme commences on:

DD MM 20YY

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You purchased the Property on MM YYYY (date of settlement).

The Contract of Sale - Contract for Commercial Land and Buildings states:

In the reference Schedule:

•         Page number X of the Contract states the Purchase Price is $ X plus GST.

•         Page number X which deals with GST has not been completed. Under GST3 Inclusive or Exclusive Purchase Price, no box is marked to indicate if clause number X (Purchase Price Includes GST) or clause number X (Purchase Price Does Not Include GST) applies.

•         GST1 Going Concern - the yes box to the question Is this a sale of a Going Concern? is not marked.

•         Page number X of the Contract headed 'Lease Schedule'is blank.

Copies of a Draft Settlement Statement and Settlement Statement were provided.

The Vendor considers the supply of the Property to you to is subject to GST. You consider the supply of the Property to be an input taxed supply of residential premises.

An addition to the Contract was agreed upon by the parties whereby an amount of X dollars) (being the amount of GST) is held in a Trust account pending the outcome of this GST private ruling.

You provided photographs of the property taken after the sale taken from the same position as those in the Information Memorandum. They match those in the Information Memorandum (less furniture etc).

The photos show a kitchen, living and dining area. The floor plan in the Information Memorandum shows two offices, a tearoom and a storage area. The rooms that are labelled offices are likely bedrooms and the floor plan also details a laundry, separate toilets, bathrooms and at least one shower.

Original purchase of property by the vendor

Records indicate the Vendor purchased the Property under a contract signed on DD MM YYYY.

The Australian Business Register records that Vendor has been registered for GST since 1 July 2000.

You provided an 'Information Memorandum' from a real estate agent prepared for the previous sale of the Property on DD MM YYYY. The Information Memorandum contains the following description of the Property:

General description

•        The Property comprises a large, early dwelling converted for another use.

•        Accommodation incorporates a lounge, dining, commercial kitchen, two offices, staff room, storeroom, electrical cupboard, laundry and toilets.

•        Externally, the Property is further improved with access ramps, a double car port and awning for vehicles, a timber gazebo and garden sheds.

•        The building has character features such as a large front verandah, french doors, VJs walls, polished timber floors and stained-glass windows.

•        The building is air-conditioned throughout by split system air-conditioners.

Construction of the dwelling

•        Footings - Concrete steps

•        Floor - Timber

•        External Walls - Timber Chamfer Board

•        Internal Walls - Plasterboard and Timber VJs

•        Windows - Timber

•        Ceilings - Plasterboard and Timer VJs

•        Roof - Corrugated Steel

Fixtures & Fittings

•        Kitchen: Double sink, laminate floor and wall cupboards with stainless steel and

manufactured stone bench tops, 6 burner commercial grade gas upright range

with commercial extraction unit. Dishwasher and vinyl floor covering.

•        Bathroom 1 Toilet, vanity with single sink and vinyl floor covering.

•        Bathroom 2 Toilet, wash basin and shower recess, vinyl floor covering.

•        Laundry Single sink, washing machine connections, vinyl floor covering.

•        Other - 5 x Split system air conditioners, ceiling fans, gas hot water system, 2 x whirlybird roof vents.

The photographs from the Information Memorandum shows that the Property from the outside retains the appearance of a timber residence.

The floor plan from the Information Memorandum was supplied.

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 11-5

A New Tax System (Goods and Services Tax) Act 1999 section 11-15

A New Tax System (Goods and Services Tax) Act 1999 section 11-20

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 section 195-1

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.

Section 11-20 provides that you can claim an input tax credit for any creditable acquisition that you make.

Section 11-5 states that you make a creditable acquisition if:

(a) you acquire anything solely or partly for a *creditable purpose; and

(b) the supply of the thing to you is a *taxable supply, and

(c) you provide, or a liable to provide, *consideration for the supply, and

(d) you are *registered or *required to be registered for GST.

In your case, subsections 11-5(c) and (d) are satisfied as you provided consideration for the Property of X dollars and you are registered for GST.

The definition of a taxable supply is contained in section 9-5 and 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 the indirect tax zone; and

(d) you are *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.

Of relevance, in your case, is whether the supply of the Property to you is a taxable supply and more specifically, whether the evidence supplied by you as purchaser, provides sufficient information to conclude that the supply of the Property to you was an input taxed supply of residential premises.

Residential premises

Subsection 40-65(1) provides that 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).

The definition of residential premises in section 195-1 refers to land or a building that is occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation).

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the ATO view of the factors to consider and the characteristics of residential premises.

Physical Characteristics

Paragraph 9 of GSTR 2012/5 explains that residential premises to be used predominantly for residential accommodation 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 that 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 explains to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.

However, as provided in paragraph 25 of GSTR 2012/5 not all premises that possess basic living facilities are residential premises to be used predominantly for residential accommodation. If it is clear from the physical characteristics of the premises that their suitability for living accommodation is ancillary to the premises' prevailing function, the premises are not residential premises to be used predominantly for residential accommodation.

In this case the Property will satisfy the definition of 'residential premises' as the premises provide shelter and basic living facilities. The Property was constructed as a residence and based on its physical characteristics including the alterations made over time, it is clearly residential premises to be used predominately for residential accommodation. The Property has bathrooms, rooms that can be used as bedrooms, a kitchen, living areas and laundry.

The alterations made over time have not changed the physical character of the Property from that of a residential property used predominately for residential accommodation.

However, subsection 40-65(2) provides the sale of real property 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.

Commercial residential premises:

Under section 195-1, the term 'commercial residential premises' means in part:

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

...

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

However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an education institution that is not a school.

Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the ATO view on the characteristics of commercial residential premises.

The terms hotel, motel, inn, hostel and boarding house are not defined in the GST Act and take their ordinary meaning. GSTR 2012/6 lists the ordinary meanings of the terms from a number of dictionaries in interpreting paragraph (a) of the definition. The following meanings are sourced from Macquarie Dictionary 5th edition:

•        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 - a dwelling in which lodging is provided to paying residents who share common facilities such as a kitchen, laundry, living room, etc.

Paragraphs 10 and 11 of GSTR 2012/6 explain that the objective factors relevant to characterising premises under paragraph (a) or (f) of the definition include the overall physical character of the premises and how the premises are operated. The test to apply for paragraph (a) of the definition is whether the premises are a hotel, motel, inn, hostel or boarding house and the test for applying paragraph (f) is whether the premises are similar to these, in the sense that they have sufficient likeness or resemblance to any of those types of establishments.

Paragraph 12 of GSTR 2012/6 lists the characteristics that are considered to be common to operating hotels, motels, inns, hostels, and boarding houses that are relevant, though not determinative, to characterising premises as commercial residential premises:

•        commercial intention,

•        multiple occupancy,

•        holding out to the public,

•        accommodation is the main purpose,

•        central management,

•        management offers accommodation in its own right,

•        provision of, or arrangement for, services, and

•        occupants have the status of guests.

The Property is not commercial residential premises as it does not display physical or operational features similar to a hotel, motel, inn, boarding house or hostel as outlined in GSTR 2012/6. The Property cannot satisfy the characteristics outlined in paragraph 12 of GSTR 2012/6.

New residential premises

The next issue to consider is whether the premises meets the definition of new residential premises.

Subject to subsection 40-75(2), residential premises are new residential premises, as defined in subsection 40-75(1), 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.

The Vendor purchased the Property on DD MM YYYY which contained an existing residential premises (house). Additionally, from the information and photographs supplied, the residential premises have not been substantially renovated and they were not built, and do not contain a building that was built, to replace demolished premises on the same land.

On this basis, the property is not new residential premises in accordance with the meaning of section 40-75 as it has been previously sold as residential premises, satisfying paragraph 40-75(1)(a).

As we consider the supply of the Property to you to be an input taxed supply of residential premises it cannot be a creditable acquisition under section 11-5 and there is no entitlement to input tax credits.

Summary

The Property was clearly designed as residential premises and notwithstanding the alterations made to it over time it still retains the physical characteristics of residential premises. It does not matter if the premises are being used for other purposes as it is the physical characteristics that will ultimately determine whether or not premises are residential premises. The sale of the Property was an input taxed supply of residential premises under subsection 40-65(1).