Edited version of private advice

Authorisation Number: 1052350725872

Date of advice: 15 January 2025

Ruling

Subject: GST - residential premises

Question 1

Will the sale of the property be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer 1

No.

Question 2

Will the acquisitions that have been wholly 'applied and consumed' be disregarded from the calculation of any increasing adjustment under Division 129 of the GST Act?

Answer 2

Yes.

This ruling applies for the following period:

XX XXX 20XX to XX XXX 20XX

Relevant facts and circumstances

You are currently registered for GST and have been since 1 July XXXX.

You own property from where you operated a residential aged care facility for a number of years until XXXX, when the accommodation was vacated pending sale.

The property was accredited by the Australian Aged Care Quality and Safety Commission and you treated the accommodation and services you provided in as GST-free supplies.

The property includes buildings which were constructed prior to 1998 and were occupied following completion.

XXXX of those buildings have a number of bedrooms, each with their own ensuites, along with a communal domestic kitchen, laundry, dining, living facilities and carports. These buildings were occupied by the residents of the facility.

There are a further number of smaller, attached self-contained one-bedroom units which catered to social housing residents, each having its own kitchen, bathroom, laundry, and living/dining rooms. These units were opened in XXXX as a social housing scheme under the XXX Housing Commission

An additional building was used as administration offices and housed the reception and administration services, training/meeting rooms, private staff room and facilities, nursing station and medical facilities as well as facilities for attending medical and allied health services. The building also contains a 'staff suite' as well as a kitchen, laundry and bathroom facilities.

There are a number of small sheds on the property used for storage and property maintenance.

A site plan confirms that any improvements made to the property were in existence at that date.

Since construction, the property has been used have been used to provide the residents with varying levels of care.

Each individual was assessed by the Aged Care Assessment Team (ACAT) before they began their residency at the facility.

You provided registered nurses to support the residents of the facility.

The property also provided other facilities as well as the option for residents to participate in daily activities.

Residents were provided with all their meals which were delivered to be enjoyed in the communal dining rooms or within their own room.

The bedrooms were supplied to the residents fully furnished with a TV, individual and self-controlled air conditioning and public WIFI access.

The buildings have not been fitted out in a manner that their only use could be as a residential aged care facility

There is no medical equipment installed in each bedroom that would ordinarily not be found within a bedroom of residential premises (for example, medical gas systems etc.).

There are no communal facilities such as a library, dining room, recreation room, chapel, equipped gymnasium or outdoor recreational and leisure facilities such as a tennis court, swimming pool or barbeque area provided.

You entered into a contract to sell the property to XXXX on XXXX.

The contract includes special conditions including that at the time of settlement, you will supply the property to XXXX with 'vacant possession' thereby having procured 'each resident of the aged care facility located on the property to vacate the facility on terms acceptable to the Seller (acting reasonably)'. The property is purchased in an 'as is where is' condition, with all loose fixtures, fittings, equipment and personal effects removed.

Accordingly, the premises have been fully vacated since XXXX.

You applied for a 'material change of use' from the council in XXXX seeking approval to develop the property, together with the neighbouring XXXX, to a housing complex. The council approved this application on XXXX and has a currency period of XX years from that date. You have not begun or undertaken any material changes or modifications to this end.

The buyer is seeking 'material change of use' and development approval for conversion of the existing facility into multiple dwellings on the land. The facility will be repurposed as 'medium density residential', with a preference for maintaining the existing built form on the site. It intends to retain the existing residences and lease the dwellings to tenants. The Town Planning Report dated XXXX, reflects plans to, largely, retain the ensuite bedrooms, kitchens and living areas of each block, with modifications to add extra kitchens and laundries to divide each block into two residences. The report notes that the conversion of the existing buildings into multiple dwellings is proposed to be completed by minor buildings works to the existing buildings.

The buildings that housed the residents are currently classified under Class 9a in accordance with the National Construction Code (NCC), with the office building being classified as Class 5. These structures were approved and assessed under the Building Act 1975.

The Building Code of Australia (BCA) sets out the minimum technical requirements for new buildings or building work, and in doing so, it groups buildings by their use:

•                    Class 5 - an office building used for professional or commercial purposes. It includes professional chambers or suites, lawyers' offices, government offices, advertising agencies and accountants' offices.

•                    Class 9a -are generally hospitals, referred to as health-care buildings. They are buildings in which occupants or patients undergo medical treatment and may need physical assistance to evacuate in the case of an emergency. This includes a clinic (or day surgery) where the effects of the treatment administered involve patients becoming unconscious or unable to move. This in turn requires supervised medical care (on the premises) for some time after treatment has been administered.

•                    Class 9c - are residential care buildings that may contain residents who have various care level need. They are a place of residence where 10% or more persons who reside there need physical assistance in conducting their daily activities and to evacuate the building during an emergency. An aged care building, where residents are provided with personal care services, is a Class 9c building.

Explanatory information in the BCA informs that a residential care building includes any aged care building or residential aged care building, but does not include a hospital, and can also be a Class 9a building.

It further explains that an aged care building is a Class 9c building for residential accommodation of aged persons who, due to varying degrees of incapacity associated with the ageing process, are provided with personal care servicesand 24 hour staff assistance to evacuate the building during an emergency

A residential aged care building can include a Class 9a building whose residents, due to their incapacity associated with the ageing process, are provided with physical assistance in conducting their daily activities and to evacuate the building during an emergency.

The contract of sale includes a clause that should the supply of the property be found to be an input taxed supply of residential premises, an adjustment under Division 129 will need to be made in relation to previously claimed input tax credits on creditable acquisitions. Such creditable acquisitions include the following:

•                     Electricity

•                     Tree loping

•                     Annual termite treatment

•                     Pest control

•                     Gutter cleaning

•                     Leak repairs

•                     Building insurance fire maintenance

•                     Air conditioning maintenance

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 section 40-65

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

A New Tax System (Goods and Services Tax) Act 1999 Division 129

Reasons for decision

Question 1

Goods and services tax (GST) is payable on taxable supplies. Section 9-5 sets out the criteria that must be satisfied for a supply to be a taxable supply. A supply is not a taxable supply to the extent that it is GST-free or input taxed.

There are no provisions in the GST Act under which your supply of the Property will be GST-free. Therefore, what remains to be determined is whether your supply of the Property will be input taxed.

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).

However, subsection 40-65(2) provides that the sale will not be input taxed to the extent the residential premises are commercial residential premises or new residential premises.

The property cannot be considered as new residential premises as it was completed prior to 1998 and occupied immediately thereafter. As such, they would have been used for residential accommodation prior before 2 December 1998.

The term 'residential premises' is defined in section 195-1, which provides that the term 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.

In this case, at the time of sale, the premises will be vacant possession. Therefore, the section 195-1(b) definition of residential premises applies.

The Commissioner's view on whether premises are considered residential premises is provided in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5).

Relevant points are discussed as outlined in the paragraphs below -

•                     Paragraph 7 - to satisfy paragraph (b) of the term 'residential premises', the premises are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation.

•                     Paragraph 9 - sets out the requirements for the test under section 40-65 that the phrase '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.

•                     Paragraph 10 - 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 - premises must provide shelter and basic living facilities.

•                     Paragraph 16 - the supply of residential premises may include car-parking space or storage area that is ancillary or incidental to the dominant component of the supply being residential premises.

•                     Paragraph 20 - the premises must be fit for human habitation in order to be suitable for, or capable of, being occupied as a residence or for residential accommodation.

The physical features of the vacant buildings attest to the fact that they are not fitted out in a manner that would give rise to the proposition that their only use could be as a hospital, clinic, nursing or similar facility. For instance, the installation of medical equipment in each bedroom that would ordinarily not be found within a bedroom of residential premises (for example, medical gas systems etc) is not evident.

While the buildings that housed residents are classified under the BCA as Class 9a buildings, they have the physical characteristics of 'residential premises' as they cater to social housing residents, with each having its own kitchen, bathroom, laundry and living/dining rooms.

It is noted that the primary purpose of building code is to establish minimum standards for construction and design and to protect property and occupants during natural disasters or emergencies. The regulations and standards govern the design, construction and performance of buildings rather than determine the purpose, and do not take away from what it is capable of being used for. In the case of the buildings occupied by the residents, the coding essentially supports the fact that they were used for, or capable of being used for, residential purposes.

While the intentions of the buyer would not in itself carry weight in determining whether or not the premises were used for residential accommodation at the time of sale, the fact that the buyer intends to retain the blocks and, with minimal modification, lease as residential accommodation, would provide further evidence of their suitability and capability for residential accommodation.

Photographs indicate the property was not in a dilapidated condition to the point that occupation by a resident was impossible, and indeed, were occupied until XXXX.

The building that housed the administration holds physical characteristics similar to those of the buildings that housed the residents and contains living facilities such as bathrooms, kitchen and laundry. There are no additional amenities such as a surgery that would differentiate it from the other buildings and it is capable of being occupied as residential accommodation.

On balance, and weighing up all of the relevant factors, the Commissioner considers that the property meets the requirements of paragraph (b) of the definition of residential premises in that they are designed, built or modified so as to be suitable to be occupied, and are capable of being occupied, as a residence or for residential accommodation. The property was built and designed so as to be suitable to be occupied and capable of being occupied as a residence or for residential accommodation and this is demonstrated through the physical characteristics of the premises.

The storage sheds are ancillary or incidental to the dominant component of the supply being the premises capable of being occupied as residential accommodation.

The question then remains as to whether the premises are considered to be commercial residential premises.

Section 195-1 also contains the definition of 'commercial residential premises'. That term is relevantly defined to include a hotel, motel, inn, hostel or boarding house, or anything similar.

The ATO's view on the meaning of commercial residential premises is set out in Goods and Services Tax Ruling 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6).

Paragraphs 87 and 88 of GSTR 2012/6 discuss premises that have been specifically constructed for a different purpose, or not designed as a hotel, motel, inn, hostel, boarding house or similar premises, and provides that the supply of non-operating premises is not the supply of commercial residential premises.

As the property is neither designed in a way to be commercial residential premises nor is it operating, it is not considered to be commercial residential premises.

In conclusion, the sale of the property is a supply of residential premises capable of being used predominantly for residential accommodation and is input taxed under section 40-65.

The supply is not a taxable supply pursuant to section 9-5 and is therefore not subject to GST.

Question 2

As determined, the supply of the property is a single supply of residential premises and the supply is input taxed.

You have previously claimed input tax credits on creditable acquisitions due to them being used to make either taxable supplies or GST-free supplies and not input tax supplies. This has included specific creditable acquisitions of operating costs in recent years including electricity, tree loping, annual termite treatment, pest control, gutter cleaning, leak repairs, building insurance, fire maintenance and air conditioning maintenance.

Division 129 operates where the extent to which an acquisition is for a creditable purpose affects the amount of the resulting input tax credit where the extent of creditable purpose is changed by later events and adjustments may need to be made.

Accordingly, as a result of the supply of the property being found to be an input taxed supply of residential premises, an adjustment may be required for creditable acquisitions under Division 129.

GSTR 2000/24 Goods and services tax: Division 129 - making adjustments of changes in extent of creditable purpose (GST 2000/24) provides guidance on the application of such adjustments. In particular, paragraph 88 discusses the treatment of consumables, explaining that some acquisitions are not held for long periods of time and are typically consumed within a short period after purchases.

We consider that the consumption of electricity, tree loping, annual termite treatment, pest control, gutter cleaning, leak repairs, building insurance, fire maintenance and air conditioning maintenance would have been wholly consumed at the time you made taxable or GST-free supplies and there will be no need to make an adjustment under Division 129.