ATO Interpretative Decision
ATO ID 2008/81
Goods and Services Tax
GST and sale by an Owners Corporation of a new residential lot created out of common propertyFOI status: may be released
-
With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the entity, an Owners Corporation for a registered strata scheme in New South Wales, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it sells a new residential lot created out of the common property of a strata scheme?
Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it sells a new residential lot created out of the common property of a strata scheme.
Facts
The entity is an Owners Corporation for a strata scheme that is registered in New South Wales. The Owners Corporation carries on an enterprise of managing and maintaining the buildings and common property of the strata scheme and is registered for goods and services tax (GST).
The lot proprietors passed a special resolution at a general meeting of the Owners Corporation, authorising the Owners Corporation to subdivide the common property pursuant to subsection 9(1) of the Strata Schemes (Freehold Development) Act 1973 (NSW) (SSFDA 1973) to create a new residential lot. Under the arrangement, it was further agreed that a new residential apartment would be constructed by the Owners Corporation on the common property that was to be subdivided into the new residential lot.
Pursuant to statute, the newly created lot vests in the Owners Corporation upon registration of the strata plan of subdivision.
The Owners Corporation sells the newly created lot which is vested in it to a third party for consideration.
Reasons for Decision
For an entity to make a taxable supply under section 9-5 of the GST Act it must first make a supply.
The Owners Corporation makes a supply of the new lot to the third party. Section 20 of the SSFDA 1973 provides that the estate or interest of an Owners Corporation in common property vested in it or acquired by it shall be held by the Owners Corporation as agent for the lot proprietors as tenants in common in proportions equal to their lot entitlements. However, the common property may be subdivided by registration of a strata plan of subdivision so as to create one or more new lots (subsections 9(1) and 5(7) of the SSFDA 1973). The registration of the strata plan of subdivision containing a lot made up in whole or in part from the common property changes the nature of that property. Since common property is the land in a parcel that is not comprised in a lot, lots and common property are mutually exclusive (Houghton v. Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 at 51 per Handley JA). Therefore, on registration of the strata plan of subdivision the subdivided property ceases to be common property and becomes a new lot. The legal and beneficial interests in the new lot are vested in the Owners Corporation. Further, under subsection 110(2) of the Strata Schemes Management Act 1996 (NSW) an Owners Corporation may dispose of or otherwise deal with any lot vested in it as a result of a subdivision of the common property. Consequently, the sale of the newly created lot is a supply made by the Owners Corporation.
For this supply to be a taxable supply, the requirements in section 9-5 of the GST Act must be met. Section 9-5 provides that an entity makes a taxable supply if:
- •
- it makes the supply for consideration
- •
- the supply is made in the course or furtherance of an enterprise that it carries on
- •
- the supply is connected with Australia, and
- •
- the entity is 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 the Owners Corporation receives consideration from the third party to which it makes the supply of the newly created lot.
The Owners Corporation carries on an enterprise of managing and maintaining the buildings and common property. The subdivision of the common property and the construction of a new apartment on the new lot are part of the activities carried on by the Owners Corporation in managing the common property and the strata scheme. Furthermore, the supply of the newly created lot is in the course or furtherance of the Owners Corporation's enterprise.
The supply is connected with Australia and the Owners Corporation is registered for GST.
The residential apartment located on the new lot has not previously been sold as residential premises (see paragraph 40-75(1)(a) of the GST Act). As stated above, the registration of the strata plan of subdivision results in the legal and beneficial interests in the new lot being vested in the Owners Corporation. As the interests in the new lot are created and vested in the Owners Corporation by the operation of the law, the new residential apartment was not sold as residential premises to the Owners Corporation. Accordingly, the supply of the residential premises by the Owners Corporation to the third party is a supply of new residential premises and therefore it is not an input taxed sale of residential premises under section 40-65 of the GST Act.
As all of the requirements for a taxable supply under section 9-5 of the GST Act are satisfied, the supply made by the Owners Corporation of the newly created lot to a third party is a taxable supply.
Date of decision: 31 January 2008
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
section 40-65
Paragraph 40-75(1)(a)
subsection 5(7)
subsection 9(1) Strata Schemes Management Act 1996 (NSW)
subsection 110(2)
Case References:
Houghton v. Immer (No 155) Pty Ltd
(1997) 44 NSWLR 46
ATO ID 2004/694
ATO ID 2008/82
Keywords
Goods and services tax
GST body corporates
GST supply
GST sale of real property
ISSN: 1445-2782