Edited version of private advice

Authorisation Number: 1052249109899

Date of advice: 9 May 2024

Ruling

Subject: GST - residential premises

Question 1

Will the Trust be making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when it sells the property together with the business and furniture?

Answer

The sale of the property, business and furniture is a partly taxable (to the extent that it relates to the sale of the business and furniture) and partly input taxed (to the extent that it relates to the sale of the residential premises) supply.

Question 2

Is the Trust entitled to input tax credits under section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999 for its purchase of the property?

Answer

The trust is entitled to input tax credits in relation to the acquisition of the business and the furniture only.

This ruling applies for the following periods:

All tax periods ending on or after XXXX January 2024.

The scheme commenced on:

XXXX January 2024.

Relevant facts and circumstances

The relevant facts and circumstances include all documents and materials provided in the private ruling application including the sale of land contract.

XXXX is the trustee of the Trust.

The Trust was registered for GST on XXXX. The Trust operates a business in an unrelated industry.

The Trust purchased real property, located at XXXX. The purchase price for the property was XXXX which included an amount for GST.

The contract of sale includes the sale of a business named XXXX. Specifically, the sale included the business name, email addresses, website and licenses required to operate the business. The business provides short term holiday accommodation as well as corporate retreat services.

The property contains three buildings. The buildings have been used to provide residential accommodation for more than 5 years.

The buildings contains bedrooms, bathrooms, a lounge and living area, a kitchen, a bar, a foyer, offices, a large room that was used as a meeting room, and a garage. It also contains outdoor terraces and a balcony.

Included in the purchase of the property was a number of chattels. Annexure B to the contract of sale provides that all indoor and outdoor furniture; soft furnishings; kitchenware; decorative items; garden machinery and equipment; and gym equipment; are included in the sale.

The beneficiaries of the trust do not intend to live in the property. The Trust intends to operate the accommodation business and continue to offer the accommodation service.

Assumptions

The GST on the purchase of the property was determined by the seller as reflecting the sale of the business, including the chattels.

The sale of the property by the Trust will be on the same terms as it was purchased. That is, the Trust will continue to operate the business and will sell the same chattels with the property as was purchased.

Relevant legislative provisions

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999

Section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999

Section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999

Section 11-15 of the A New Tax System (Goods and Services Tax) Act 1999

Section 11-20 of the A New Tax System (Goods and Services Tax) Act 1999

Section 11-25 of the A New Tax System (Goods and Services Tax) Act 1999

Section 38-325 of the A New Tax System (Goods and Services Tax) Act 1999

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

Does IVA apply to this private ruling?

No.

Reasons for decision

Question 1

Generally, you make a taxable supply (and are therefore liable to GST) under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if:

•         you make a supply for consideration (payment); and

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

•         the supply is connected with the indirect tax zone (Australia); and

•         you are registered, or are required to be registered, for GST; and

•         the supply is neither GST-free, nor input taxed.

However, a supply may be partly a taxable supply.

The sale of the property will be for consideration as it will be sold in return for payment. The sale will be connected with the indirect tax zone as the property is located in Australia. Also, the Trust is registered for GST. Therefore, the sale will be a taxable supply if it is made in the course or furtherance of an enterprise being carried on by the Trust; and the sale is neither GST-free, nor input taxed. The sale will be a partly taxable supply if it is partly input taxed.

An enterprise is defined widely by section 9-20 of the GST Act to include (amongst other things) an activity or series of activities done 'in the form of a business' or 'in the form of an adventure or concern in the nature of trade'. The phrase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides our view on the meaning of 'enterprise'. Paragraphs 170 to 179 discuss the factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1, with reference to Taxation Ruling 97/11 Income tax: am I carrying on a business of primary production lists the following indicators of carrying on a business:

•         a significant commercial activity;

•         an intention of the taxpayer to engage in commercial activity;

•         an intention to make a profit from the activity;

•         the activity will be profitable;

•         the recurrent or regular nature of the activity;

•         the activity is systematic, organised and carried on in a business-like manner and records kept;

•         the activities are of a reasonable size and scale;

•         a business of product; and

•         the entity has relevant knowledge or skill.

Paragraph 179 of MT 2006/1 states that there is no single test to determine whether a business is being carried on. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators.

The Trust purchased the property along with the business assets and furniture. The Trust intended to continue to operate the business. That is, the Trust purchased a business and intends to continue to operate that business in the same manner. The beneficiaries of the trust do not intend to live on the property. The subsequent sale of the property along with the business is also an activity carried out in the course of carrying on that same business.

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

The sale of residential premises is input taxed under subsection 40-65(1) of the GST Act to the extent that it is residential premises to be used predominantly for residential accommodation and the property is neither commercial residential premises, nor new residential premises. Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) explains that the physical characteristics of a property need to be considered to determine the whether the premises is suitable and capable of being used for residential accommodation. Paragraph 10 of GSTR 2012/5 states:

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).

The property located at XXXX contains buildings that clearly have the characteristics of residential premises. The main building provides shelter and contains basic living facilities such as a kitchen and bathroom. The other buildings are used in conjunction with that building. Furthermore, it is our view that the other items on the property would be enjoyed in conjunction with this residential premises. Therefore, we would consider this all to be part of the residential premises.

The property is residential premises and is neither new residential premises, nor commercial residential premises. Consequently, the sale is input taxed to the extent that it relates to the sale of the residential premises.

Section 38-325 of the GST Act provides that the sale of a going concern (such as an operating business) may be GST-free if:

•         the supplier supplies all of the things that are necessary for the continued operation of an enterprise; and

•         the supplier carries on that enterprise until the day of the supply; and

•         supply is made for consideration to a recipient that is registered or required to be registered for GST; and

•         the supplier and recipient have agreed in writing that the supply is of a going concern.

Because there is no agreement between the Trust and the purchaser, the supply is not GST-free.

Despite being included in the same contract of sale, the sale of the chattels such as furniture is separate to the residential premises. Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) explains that a taxable supply consisting of multiple items may be a 'composite' or a 'mixed' supply. At paragraph 19B, it states:

19B. Having regard to the essential character and with regard to the statutory provision in issue, you can then determine whether the transaction is a mixed supply because it has separately identifiable parts that the GST Act treats as taxable and non-taxable, or whether it is a composite supply because one part of the supply should be regarded as being the dominant part, with the other parts being integral, ancillary or incidental to that dominant part.

In this case, the furniture is not integral to the sale of the residential premises, nor does it form a dominant part of it. The supply of the property, business assets and furniture is a mixed supply. That is, it is a single supply made up of separately identifiable parts, where one or more of the parts is taxable and one or more of the parts is non-taxable, and these parts are not integral, ancillary or incidental in relation to a dominant part of the supply.

Consequently, the sale of the property is partly a taxable supply (to the extent that the sale is for the business assets and chattels) and partly input taxed (the residential premises). As explained in GSTR 2001/8, it will be necessary to apportion the sale on a fair and reasonable basis.

Question 2

Section 11-20 of the GST Act provides that you are entitled to the input tax credits on any creditable acquisition you make. Section 11-5 of the GST Act provides that you make a creditable acquisition if:

•         you acquire anything solely or partly for a creditable purpose; and

•         the supply of the thing to you is a taxable supply; and

•         you provide, or are liable to provide, consideration for the supply; and

•         you are registered or required to be registered.

When the Trust purchased the property together with the business and furniture, the supply to it was a partly taxable supply for the reasons discussed above. The Trust provided consideration as it paid XXXX for the property, business and furniture and the Trust is registered for GST. Therefore, it will have made a creditable acquisition if it purchased the property, business and furniture for a creditable purpose.

Section 11-15 of the GST Act provides that an entity acquires a thing for a creditable purpose to the extent that it is acquired in carrying on its enterprise.

However, under subsection 11-15(2) of the GST Act an entity does not acquire the thing for a creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed (such as supplies of residential premises) or the acquisition is of a private or domestic nature. As you purchased the property, business and furniture in order to continue to operate the XXXX business, the acquisition is made for a creditable purpose.

As discussed above, the sale was a partly taxable (to the extent that it relates to the sale of the business and furniture) and partly input taxed (to the extent that it relates to the sale of the residential premises) supply. The acquisition by the Trust is a creditable acquisition under section 11-5 of the GST Act. The Trust is entitled to input tax credits under section 11-20 of the GST Act. The amount of the input tax credits is equal to the GST paid on the acquisition as explained by section 11-25 of the GST Act.