Edited version of private advice

Authorisation Number: 1052357550693

Date of advice: 4 February 2025

Ruling

Subject:GST - sale of property

Question 1

Will the supply by you of the premises located in the indirect tax zone, where there is an existing lease, be a taxable supply in accordance with section 9-5 of the GST Act?

Answer

No, you are not making a taxable supply in accordance with section 9-5 of the GST Act when you sell the Premises. You are making an input taxed supply of residential premises in accordance with section 40-65 of the GST Act.

Question 2

If the sale of the property is a taxable supply, can the margin scheme apply in working out the amount of GST on the supply under Division 75 of the GST Act?

Answer

As the sale of the property will not be a taxable supply, the question regarding the margin scheme will not be applicable.

Question 3

Will the supply of the premises located in the indirect tax zone, be a GST-free supply of a going concern under section 38-325 of the GST Act?

Answer

No, for a supply to be a GST-free supply of a going concern all the requirements of section 38-325 of the GST Act must be satisfied, including that the recipient is registered or required to be registered for GST on or before the day of the supply.

This ruling applies for the following period(s)

1 July 20XX- 30 June 20XX

The scheme commenced/s on

X XXX 20XX

Relevant facts and circumstances

You are not registered for GST.

You and your spouse purchased a premises located in the indirect tax zone (the Premises) in 20XX, for $X.

The Premises is located within a XXXX building which is operated by entity A.

The Premises is a fully equipped XXXX apartment.

The building amenities include various.

Lease

Since you purchased the Premises, you have leased it to an entity, previously you leased it to another entity.

The first lease was signed on a specified date. You renewed the lease every at specified intervals thereafter in accordance with the option to renew in a clause of the lease agreement.

A second lease (the Lease) commenced on a specified date, with a terminating date of a specified date. A copy of the Lease has been provided as part of the private ruling application; the lease provides:

•                     Rent is specified as owners' percentage of XX%,

-                    Minimum rent is the amount of $XXX.00 per month.

•                     The owner (you) pays ownership costs.

•                     The owner must have acquired specified items for the apartment by the commencement date.

Sale Contract

You entered into a contract (Sale Contract) to sell the Premises on a specified date. You have provided a copy of the contract as part of this ruling application. The Sale Contract provides:

•                     Sale price.

•                     Sale is subject to existing tenancies.

•                     The sale is not a taxable supply, as the vendor is neither registered nor required to be registered for GST.

•                     The sale is GST-free because the sale is the supply of a going concern.

•                     The expected settlement date is a specified date.

The Purchaser has requested that you issue a notice of termination of the current lease. The expected date for termination of is a specified date, which is after settlement.

Documents provided as part of private ruling application:

•                     Purchase contract

•                     Lease agreement (expired)

•                     Lease agreement (current)

•                     Sale contract

•                     Land registry - Title search.

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 9-10

A New Tax System (Goods and Services Tax) Act 1999 section 38-325

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 75

Reasons for decision

Question 1

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity makes a taxable supply where the supply:

(a)          is made for consideration; and

(b)          is made in the furtherance of an enterprise being carried on; and

(c)          is connected with the indirect tax zone; and

(d)          is made by a supplier who is 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.

On the facts of this case, the supply being made is of Premises, will be made for consideration and is located in Australia, therefore connected with the indirect tax zone. However, you are not registered for GST.

There are no provisions in the GST Act to make the sale of the Premises GST-free. Therefore, we need to determine whether the sale of the premises is an input taxed supply of residential premises.

Goods and Services Tax Ruling 2012/5 Goods and services tax: residential premises (GSTR 2012/5) addresses residential premises. Paragraphs 6, 7, 9, 10 and 15 of GSTR 2012/5 state:

6. Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

7. Premises, comprising land or a building, are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that 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. This is demonstrated through the physical characteristics of the premises.

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).

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.

Further to this, paragraph 77 of GSTR 2012/5 provides:

The premises may be in any number of forms, including detached buildings, semi-detached buildings, strata title apartments, single rooms or suites of rooms within larger premises. Premises that lack the features of shelter and basic living facilities are not residential premises.

In this case, the Premises is a single studio apartment which is self-contained and is currently subject to a lease. The Premises satisfies the definition of residential premises as it provides shelter and basic living facilities with a bedroom, bathroom and kitchen facilities.

GSTR 2012/6, at paragraph 193, notes that there is a relationship between residential premises and some commercial residential premises in the GST Act. In some cases, there may be an overlap in that some premises which fit within the definition of residential premises also fit within the definition of commercial residential premises.

Further, GSTR 2012/6 states:

95. In addition to living accommodation areas, premises that are commercial residential premises include commercial infrastructure to support the commercial operation of the premises. This infrastructure may include (but is not limited to) reception areas, dining and bar areas, meeting/function areas, kitchens, laundry facilities, storage areas and car parks. This infrastructure is used to provide services to occupants. Premises described in paragraph (a) and similar premises under paragraph (f) of the definition contain some or all of these areas to some degree.

201. A supply by sale or lease of real property consisting of part of a building cannot be characterised by reference to another supply. For example, a hotel may be strata titled so that each hotel room and the commercial infrastructure are separate strata units. Where the strata units are individually supplied under multiple sale contracts or leases, each individual supply of a strata unit must be characterised without reference to other supplies of strata units.

230. A single strata titled hotel room cannot, by itself, exhibit the characteristics of commercial residential premises. A supply by way of sale or lease of a number of hotel rooms, without the commercial infrastructure to support the operation of the premises as commercial residential premises, is an input taxed supply of residential premises.

In your case you are supplying a single XXXX apartment, within a larger XXXX building. The lessor provides the commercial infrastructure, services and amenities. However, your supply of the Premises, cannot by itself be considered to be a commercial residential premises. Your supply is of residential premises.

Therefore, we consider your supply of the Premises to be an input taxed supply of residential premises.

No, you are not making ataxable supply in accordance with section 9-5 of the GST Act when you sell the Premises. You are makinginput taxedsupply of residential premises in accordance with section 40-65 of the GST Act when you sell the premises.

Question 2

You can apply the margin scheme if the sale of the Premises is a taxable supply, and the other requirements of Division 75 are satisfied. We have determined in Question 1 that the sale of the property will not be a taxable sale.

Therefore, the margin scheme will not apply to your sale of the Premises.

Question 3

A supply will be a GST-free supply of a going concern where all the requirements of section 38-325 of the GST Act are met.

Section 38-325 states:

(1)          The *supply of a going concern is GST-free if:

(a)         the supply is for *consideration; and

(b)         the *recipient is *registered or *required to be registered; and

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

(2)          A supply of a going concern is a supply under an arrangement under which:

(a)         the supplier supplies to the *recipient all of the things that are necessary for the continued operation of an *enterprise; and

(b)         the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as part of a larger enterprise carried on by the supplier).

Application in this case

Goods and Services Tax Ruling GSTR 2002/5 Goods and services tax: when is a 'supply of a going concern' GST free? (GSTR 2002/5) explains what a 'supply of a going concern' is for the purposes of section 38-325.

Paragraph 186 of GSTR 2002/5 states:

Recipient is registered or required to be registered

186. Paragraph 38-325(1)(b) requires that the recipient is registered or is required to be registered. A recipient that is required to be registered in respect of the enterprise on and from the date of the supply will satisfy the requirement in paragraph 38-325(1)(b). If the recipient is not required to be registered, but chooses to register to obtain the benefit of the provision, the mere lodging of an application to be registered will not satisfy the requirements of paragraph 38-325(1)(b). The effective date of registration of the recipient must be on or before the day of the supply.

The sales contract provides that the sale of the Premises is a GST-free supply of a going concern, however as the recipient is not registered for GST, the supply will be an input taxed supply of residential premises. The supply of the premises is not a taxable supply.