Edited version of private advice

Authorisation Number: 1052247494153

Date of advice: 8 May 2024

Ruling

Subject: GST - sale of a real property

Question

Is the sale of your property, a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The sale of your property is a taxable supply under section 9-5 of the GST Act.

Relevant facts and circumstances

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

You purchased subdivided vacant land.

Your primary intention was to sell the subdivided sections of land individually for profit.

Due to the slow realisation of rural land sales and the extended costs associated with advertising, you made a decision to generate rental income through the Airbnb platform with respect of a block of land.

You built a shed on the block of land (the Property) and you affixed a portable home to the Property with large concrete footings, transforming it into a residential property for rental purposes.

The portable home has an open living plan, with one bedroom, bathroom, built-in robes, kitchen and laundry (home). A decking with shade sails was added.

You did not claim any GST credits related to the expenses of installing the home.

The home remained vacant for a period until your associates moved in and stayed.

The Property was consistently rented out (or actively marketed for rent) on the Airbnb platform to the public, until you listed it for sale.

All income received, and expenses including running costs and holding costs related to the Property during this period were treated as input taxed.

You sold the Property, inclusive of the home and the shed. Below is relevant information from the:

•         Residential Contract Schedule:

o   the Vendor is liable for GST on the Property and that the sale is not the sale of new residential premises or potential residential land, and

o   the sale included chattels such as the built-in furniture, fixed floor coverings, dishwasher, light fittings, window treatments, rubbish bins, fridge and freestanding furniture.

•         Contract Annexure on GST:

o   that GST is not to be added to the purchase price, and

o   the parties agreed that the margin scheme is to be used.

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 40-35

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

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

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

Reasons for decision

Detailed reasoning

All legislative references in this ruling are to the GST Act, unless otherwise stated.

Section 9-40 provides that GST is payable on taxable supplies.

Section 9-5 provides that you make a taxable supply if:

(a)  you make the supply for consideration

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

(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.

For your supply of the Property to be a taxable supply, all the requirements listed in section 9-5 must be satisfied.

In this case, your supply of the Property meets the requirements listed in paragraphs 9-5(a) to 9-5(d) because your supply is for consideration and in the furtherance of your leasing enterprise. The Property is located in the indirect tax zone (Australia), and you are registered for GST. We will need to consider whether your supply is GST-free or input taxed.

The circumstances in which a supply is GST-free or input taxed are found in Divisions 38 and 40 respectively.

Based on the information you provided, there is no provision in the GST Act that will make your supply of the Property GST-free. As such, we only have to consider whether your supply of the Property will be input taxed under Division 40.

Input taxed supply

Section 40-65 provides that a sale of real property is input taxed to the extent that it is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). However, that sale is not input taxed to the extent that the residential premises are commercial residential premises or new residential premises.

Residential premises

Section 195-1 defines residential premises to mean land or a building that is occupied as a residence or for residential accommodation; or 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.

Paragraphs 9 and 10 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) state:

9. The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' 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.

10. The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. 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).

Paragraphs 14 and 15 of GSTR 2012/5 further explains that residential premises are not limited to premises suited to extended or permanent occupation. Residential premises provide 'living accommodation', which does not require any degree of permanence. It includes lodging, sleeping or overnight accommodation. In order 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.

Paragraph 49 of GSTR 2012/5 provides that a transportable building such as a demountable dwelling or moveable home that is designed as a residence, or to provide residential accommodation, is residential premises when placed on land and installed ready for occupation.

In your case, you installed a portable home onto the Property with large concrete footings for the purpose of making it available for residential accommodation. The Property provides shelter and basic living facilities and has physical characteristics evidencing suitability and capability to provide residential accommodation, including a bedroom, bathroom, built-in robes, kitchen and laundry. As such, we consider your Property is residential premises as defined under section 195-1.

Commercial residential premises

Section 195-1 provides the definition of commercial residential premises to include properties such as a hotel, motel, hostel, boarding house, or anything similar to these property types. We consider that the Property does not have the relevant features and has not been operated in such a way that will make it fall within the definition of commercial residential premises. As such, we have to consider whether or not the Property will fall within the definition of new residential premises.

New residential premises

Subsection 40-75(1) provides the definition of new residential premises. Of relevance to this case is the meaning set out in paragraph 40-75(1)(a) where it provides that residential premises are new residential premises if they 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 (which is generally a lease for a period of at least 50 years).

Subsection 40-75(2) further provides that residential premises are not new residential premises, if, for a period of at least 5 years since the premises first became residential premises, the premises have only been used for making supplies that are input taxed under paragraph 40-35(1)(a), which relates to residential rent.

Paragraph 91 of the 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) provides that:

•         the period of 5 years must be a continuous period, and

•         a continuous period is not broken by short periods between tenancies where the premises are actively marketed for rent following the departure by a previous tenant.

However, paragraph 92 of GSTR 2003/3 explains that a continuous period would not include periods when the premises are used for a private purpose or left vacant with no attempt to lease, hire or licence.

Paragraph 47 of GSTR 2012/5 explains that vacant land is not residential premises because it is not capable of being occupied as a residence or for residential accommodation as it does not provide shelter and basic living facilities.

Paragraph 40 of GSTR 2003/3 provides that where a residential building is relocated from one block of land to a different vacant block, we consider that the building and new block of land become new residential premises. The land and building, as a 'package', have not previously been sold together, or the subject of a long-term lease.

In your case, you purchased the Property as a vacant land and it became residential premises only when you installed the portable home. You advised that the home remained unoccupied until which time your associates moved in. You also made the Property available for rent via the Airbnb platform at the start of a financial year, until you listed it for sale.

The period for which the Property had been consistently rented out (or actively marketed for rent), prior to the date of the sale of the Property, is a period of less than 5 years.

In this regard, at the time you sold the Property, it is determined that the premises was new residential premises because:

•         the Property had not previously been sold as a residential premises prior to your sale

•         the Property had not previously been the subject of a long-term lease, and

•         the Property first became new residential premises from the time you installed the portable home; however, the Property was not used for making input taxed supplies for a period of at least 5 years.

Therefore, we have determined that the supply of the Property is a taxable supply as it satisfied all the requirements under section 9-5.