ATO ID 2008/81: GST and sale by an Owners Corporation of a new residential lot created out of common property
Date of decision: 31 January 2008
Business line: Indirect Tax

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
Summary: 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: 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.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 section 40-65 Paragraph 40-75(1)(a)
Case references: Houghton v. Immer (No 155) Pty Ltd (1997) 44 NSWLR 46
Related ATO interpretative decisions: ATO ID 2004/694 | ATO ID 2008/82
Subject references: Goods and services tax GST body corporates GST supply GST sale of real property