Edited version of private advice

Authorisation Number: 1052254830392

Date of advice: 24 May 2024

Ruling

Subject: GST - sale of residential premises

Question

Is the sale of the Property an input taxed supply of residential premises under section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes. The sale of the Property is an input tax supply under section 40-65 of the GST Act.

This ruling applies for the following period:

Year ending 30 June 2024

The scheme commences on:

The date this ruling is issued.

Relevant facts and circumstances

The Development has an Australian Business Number (ABN) and is registered for GST.

The Trust has an Australian Business Number and is registered for GST.

xxxx xxxx and xxxx xxxx are the directors of the Development.

xxxxx and xxxxx are the directors of the Trust.

The Development and The Trust are not related entities.

The Trust acquired the Property for $xxxxxx.

The Property contained an existing residential dwelling that was occupied by the previous owners as their primary place of residence.

The Property was zoned Urban Growth when it was acquired by the Trust.

The Trust's initial intentions was to develop the Property.

The Trust applied and received a planning permit in xxxx.

The Trust made the decision to sell the Property due to market conditions and did not want to spend more money on developing the Property.

On xx xxxx xxxx, the Trust entered into a contract with xxxx xxxx (xxxx) and or nominee for the sale of the Property for $xxxxxx.

On xx xxxx xxxx, xxxx nominated the Development as their substitute purchaser pursuant to the terms of the Contract of Sale.

The sale of the Property settled on xx xxxx xxxx and the title of the Property was transferred from the Trust to the Development.

At the time of the sale, the Property and existing residential dwelling remained largely the same from when the Trust acquired it.

You provided a Property Inspection Report that determined the Property was in an exemplary state of habitability, with no significant structural defects, timber pest damages or water-related issues that was ready to provide a safe and comfortable living environment.

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 9-5

A New Tax System (Goods and Services Tax) Act 1999 Division 40

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

A New Tax System (Goods and Services Tax) Act 1999 Section 40-70

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

Section 9-5 of the GST Act 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 (Australia), 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.

Your supply of the property meets all the requirements of paragraphs (a) to (d) of section 9-5 of the GST Act. However, you supply will not be table to the extent that it is GST-free or input taxed.

There is nothing to indicate that the Property would be GST-free, therefore, we need to consider whether the supply of the Property would be Input taxed, before considering whether all of the requirements of section 9-5 of the GST Act have been met.

GST-free

Input taxed

The sale of used residential premises is input taxed under section 40-65 of the GST Act. Section 40-65 states:

Sales 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 predominantly 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

The term 'residential premises' means 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.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises, provides guidance on what is considered to be residential premises to be used predominantly for residential accommodation for the purposes of subsection 40-65(1).

Paragraphs 9 and 10 of GSTR 2012/5 discuss the meaning of 'residential premises to be used predominantly for residential accommodation' for the purposes of the GST Act. They 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).

Paragraph 15 of GSTR 2012/5 states:

15. 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.

The fact that the Trust purchased the Property which contained an existing residential dwelling that was occupied by the previous owners as their principal place of residence. At the time of the sale, the Property was determined to be in an exemplary state of habitability. Just because there was an intention by the Trust to develop the Property and applied for a planning permit does not mean that the Property stopped being a residential premises to be used predominantly for residential accommodation. This is explained in Example 1 in paragraphs 12 and 13 of GSTR 2012/5:

Example 1 - purchaser's intention not to use premises for residential accommodation

12. John carries on an enterprise which involves leasing a house on property which he owns. Based on the physical characteristics of the house it is residential premises to be used predominantly for residential accommodation. The area in which the house is located has recently been rezoned by the local Council to permit higher density residential apartments. Following the rezoning, a developer, Knock Them Down Co, approaches John and offers to purchase his property. Knock Them Down Co intends to demolish the house, redevelop the property into a new apartment building, and sell the apartments.

13. The fact that Knock Them Down Co does not intend to use the house to provide residential accommodation does not mean that the house is not residential premises to be used predominantly for residential accommodation. Knock Them Down Co's intention is not a relevant factor in determining the character of the premises. Based on its physical characteristics, the house is residential premises to be used predominantly for residential accommodation. The sale of the house by John to Knock Them Down Co is an input taxed supply under section 40-65.

Paragraph 46 of GSTR 2012/5 states:

Land supplied with a building

46. There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises.

The property does not meet the definitions of commercial residential premises or new residential premises under the GST Act.

On the facts provided, the Property comprises of an existing residential dwelling and land that is intended to be occupied and is capable of being occupied as a residence. Consequently, the sale of the Property by the Trust to the Development is an input taxed supplies of residential premises under section 40-65 of the GST Act.