Edited version of private advice

Authorisation Number: 1052268391482

Date of advice: 18 July 2024

Ruling

Subject: GST - sale of property

Question

Did you, name, make a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sold the property located at address (the Property) and was GST payable on the sale?

Answer

Yes, you were making a taxable supply of the Property and GST was payable on the supply.

This ruling applies for the following period

DDMMYYYY to DDMMYYYY

The scheme commences on

DDMMYYYY

Relevant facts and circumstances

You (name) are a builder and are registered for GST from DDMMYYYY in relation to the house construction enterprise that you carry on.

On DDMMYYYY, you applied to the Commissioner for a private ruling to determine if you were making a taxable supply of your property located at address (the Property).

On DDMMYYYY, you exchanged contracts for the purchase of the Property under a house and land package, which settled on DDMMYYYY. The certificate of title for the Property issued on DDMMYYYY includes the following:

•         Land: Lot X Deposited Plan X

•         Folio: XX

•         First Schedule: name

You sourced finance in relation to the purchase of the land and the construction of the house.

On DDMMYYYY, construction commenced. Your original intention was to build the house for sale. However, in MMYYYY, you decided to instead use the property as your principal place of residence.

On DDMMYYYY, the dwelling was completed and an occupation certificate was issued by Council. You moved into the Property on this date.

In MMYYYY, after residing at the Property for around X months, you decided to move back into your previous residence located at address (the A Street property). The reason for doing so related to your spouse's XXX business being operated from this address and the necessity for her to be on-site to provide after-hours XXX care following the resignation of a staff member. You moved back to the A Street property on DDMMYYYY. You are currently living at the A Street property.

The A Street property was never listed for lease or sale.

After making the decision to move back to A Street Property, you decided to sell the Property located at address. The Property was first listed for sale on DDMMYYYY pursuant to a X month engagement contract. There were no subsequent listings.

On DDMMYYYY, you entered into a 'Contract for the sale and purchase of land 20YY edition' (the Sale Contract) for the sale of the Property, at a sale price of $. The sale settled on DDMMYYYY.

You claimed the input tax credits in relation to the building costs of the Property for the period to DDMMYYYY. No input tax credit had been claimed in relation to the purchase of the land as the Property was sold to you under the margin scheme.

Besides the development at address, you have also undertaken subdivision and development activities at address. You and X other parties purchased this property in YYYY, built X residential villas, subdivided the land and sold the villas in YYYY.

You have no plans for any subdivision or property development activities in the near future.

All the properties currently owned by you are listed in the table below.

Table 1: List of properties owned by you

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 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

A New Tax System (Goods and Services Tax) Act 1999 Division 38

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

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

Reasons for decision

Question

Did you, name, make a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sold the property located at address (the Property) and was GST payable on the sale?

Summary

Yes, you made a taxable supply of the Property and GST was payable on the supply. This is because the Commissioner considers you sold the Property the course or furtherance of the enterprise that you were carrying on.

Detailed reasoning

In this ruling, unless otherwise stated,

•         all legislative provisions refer to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

•         all legislative terms marked with an asterisk are defined in section 195-1 of the GST Act

•         all reference materials referred to are available on the ATO website www.ato.gov.au

Detailed reasoning

Under section 9-40, GST is payable on taxable supplies and section 9-5 provides that 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.

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

In this case, you purchased the Property and constructed a house on the land for the purpose of sale. Prior to the sale you lived at the Property for a period of around X months.

Divisions 38 provides for certain supplies to be GST-free. Based on the facts, we consider Division 38 was not applicable to the sale of the Property and accordingly you were not making a GST-free supply.

Division 40 provides for certain supplies to be input taxed. Of relevance for consideration are section 40-65 which specifically provides for the sale of residential premises and section 40-75 which provides the meaning of new 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 predominantly for residential accommodation (regardless of the term of occupation).

Subsection 40-65(2) provides exceptions to the sale of residential premises being input taxed. That is, the sale is notinput 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.

Residential premisesis defined in section 195-1 to mean 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.

Paragraph 9 of Goods and Services Tax Ruling 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides that the requirement in section 40-65 that premises be '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.

Further, paragraph 15 of GSTR 2012/5 states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities for day to day living.

New residential premises

When defining new residential premises, section 195-1 defines the term by reference to the meaning given for the term in section 40-75.

Subsection 40-75(1) provides that residential premises are new residential premises 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.

Paragraphs (b) and (c) have effect subject to paragraph (a).

However, under subsection 40-75(2), residential premises are not new residential premises if, for the period of at least 5 years since:

(a)          if paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies) - the premises first became residential premises; or

(b)          if paragraph (1)(b) applies - the premises were last substantially renovated; or

(c)          if paragraph (1)(c) applies - the premises were last built;

the premises have only been used for making supplies that are input taxed because of paragraph 40-35(1)(a).

Generally, paragraph 40-35(1)(a) provides that a supply of premises that is by way of lease, hire or licence is input taxed if the supply is of residential premises.

In this case, the dwelling located on the Property was designed/constructed to be occupied as residential premises to be used predominantly for residential accommodation and for a period of approximately X months was used as your principal place of residence. The dwelling satisfies the definition of residential premises. As the dwelling was only built within the last X years and has not been previously sold nor leased, the premises also satisfies the definition of new residential premises under section 40-75. Accordingly, the sale of the Property was not an input taxed supply pursuant to paragraph 40-65(2)(b).

Given that the supply of the Property was not GST-free or input taxed, the supply would be a taxable supply if paragraphs 9-5(a) to (d) were satisfied.

In this case,

•         you sold the Property for $.

•         the Property is connected with the indirect tax zone as it is located within Australia.

•         you are registered for GST.

Accordingly, the requirements specified in paragraphs 9-5(a), (c) and (d) were satisfied. It remains to be determined whether the requirement in paragraph 9-5(b) would also be satisfied. That is, whether the supply of the Property was made in the course or furtherance of an enterprise that you carried on.

In this case, we have taken into account the following relevant facts and analysis:

You are a builder and registered for GST in relation to the house construction enterprise that you carry on. You acquired the land and constructed a dwelling on the Property with the intention of selling it in the course of your enterprise. You treated the Property as a business asset - trading asset, and as such you claimed input tax credits in relation to acquisitions made in constructing the new residential premises for the creditable purpose of sale. Notwithstanding that you used the premises for a short period as your principal place of residence before eventually selling it, we consider the Property continued to be an enterprise asset that was sold in the course or furtherance of the enterprise you carried on. Therefore, paragraph 9-5(b) would be satisfied.

As all the requirements of section 9-5 were satisfied, the Commissioner determines that you made a taxable supply when you sold the property located at address and GST was payable on the supply.