Edited version of private advice

Authorisation Number: 1052282141780

Date of advice: 29 July 2024

Ruling

Subject: GST - deed of assignment fee on residential property purchase

Question

Is the supply of rights to purchase residential premises located at <property address> (the Property) by <client name> (you) to a third-party substitute purchaser under a Deed of Assignment an input-taxed supply?

Answer

Yes, your supply of the rights to purchase the Property under the Deed of Assignment is an input-taxed supply under paragraph 30(2)(b) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Therefore, the supply is not a taxable supply.

This ruling applies for the following period:

<relevant period>

The scheme commenced on:

<relevant date>

Relevant facts and circumstances

<client name> (you) (ABN <number>) is registered for goods and services tax (GST) effective from <the relevant date>. You engage in residential property investment activities.

Your trustee, <name>, is a residential property developer but has never developed property for their own benefit and has done so only for clients and in joint venture.

You previously held 2 residential investment properties which were each subject to a modest capital gain when sold.

On <the relevant date> you contracted to purchase the Property with the intention of holding it as a long-term investment for capital gain.

Prior to settlement you had misgivings about the purchase, and you subsequently found a substitute purchaser to settle in your place via a Deed of Assignment (the Deed) dated <the relevant date>.

At settlement on <the relevant date>, you received a fee of <amount> from the substitute purchaser, in exchange for your rights to purchase the Property that were assigned to that purchaser under the terms of the Deed.

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 9-30

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9.30(2)(b)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(2)

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

Reasons for decision

For 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.
• all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au.

Summary

GST - Deed of Assignment fee on residential property purchase

Detailed reasoning

Taxable supply

You make a taxable supply when you satisfy the requirements of section 9-5, which 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.

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

For your supply of the assignment of rights to purchase the Property to be taxable, all the requirements under section 9-5 must be satisfied and the supply must not be GST-free or input taxed.

In your case, the assignment of rights to purchase the Property via the Deed to a substitute purchaser, was made for consideration when you received a fee of <amount>. It was also made in the course or furtherance of an investment *enterprise that you *carry on, it was connected with the indirect tax zone (the Property is located in Australia), and you are registered for GST. Therefore, all 4 paragraphs of section 9-5 are satisfied.

There are no provisions under which the supply might be GST-free.

However, the underlying asset (the Property) was residential premises, to which special rules apply.

Sales of residential premises

Subsection 40-65(1) provides:

(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).

It is common ground that the premises were not commercial residential premises, nor were they new residential premises, both of which are excluded from being input taxed under subsection 40-65(2).

Publicly available information from an online real estate listing, states that, '...<property address> [the Property] has a land size of <area>. It is a house that was built in <year> with <description of property>.'

Therefore, the assignment of your purchase rights under the Deed is a supply of a right to receive a supply of residential premises which would be input taxed under subsection 40-65(1) of the GST Act. Had you completed your purchase of the Property, as originally intended, no GST would have applied when you eventually sold it, (provided it was not substantially renovated), as it would have been an input taxed supply of residential premises.

Supplies that are input taxed

Section 9-30 discusses supplies that are input taxed, providing:

Input taxed

(2) A supply is input taxed if:

(a) it is input taxed under Division 40 or under a provision of another Act; or

(b) it is a supply of a right to receive a supply that would be input taxed under paragraph (a).

In your case, for a specific amount you assigned to the substitute purchaser under the Deed your right to purchase input taxed residential premises. The substitute purchaser paid you consideration in the amount of <amount> for the assignment of those rights under the Deed.

Therefore, the assignment of your right to purchase residential premises to the substitute purchaser under the Deed is also a supply of a right to receive a supply of which would be input taxed under paragraph 9-30(2)(b).

Conclusion

The assignment of your rights under the Deed was made for consideration, in the course or furtherance of your enterprise and was connected with the indirect tax zone. You are registered for GST, and you assigned your rights to an input taxed supply under the Deed.

The fee that you received in exchange for the purchase rights to the underlying asset (the Property) was an input taxed financial supply under paragraph 30(2)(b) of the GST Act.