Private ruling: GST and sale of premises
Date of advice: 30 September 2021
Published: December 2021

Ruling: Q1: Is the supply of the premises an input taxed supply? | A1: Yes, the supply of the premises is an input taxed supply.

Relevant facts and circumstances: You sold premises that have the physical characteristics of residential premises. You acquired the premises before the introduction of GST. The premises have not been substantially renovated.


Reasons for decision: Summary: Section 40-65 deals with sales of residential premises and 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). (2) However, the sale is not input taxed to the extent that the residential premises are: (a) commercial residential premises; or (b) new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998. Therefore, it needs to be determined whether the premises were a supply of residential premises and if so, was it a supply of new residential premises. The term 'residential premises' is defined in section 195-1 to mean 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 occupation or intended occupation) and includes a floating home. Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the ATO view on the application of Subdivision 40-C (including sections 40-65 and 40-75) to supplies of residential premises. Paragraphs 9 to 11 of GSTR 2012/5 discuss the requirement in subsection 40-65(1) that premises are 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)'. 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). 11. Premises that do not display physical characteristics demonstrating that they are suitable for, and capable of, being occupied as a residence or for residential accommodation are not residential premises to be used predominantly for residential accommodation, even if the premises are actually occupied as a residence or for residential accommodation. For example, someone might occupy premises that lack the physical characteristics of premises suitable for, or capable of, residential accommodation (such as a squatter residing in a disused factory). Although the premises may satisfy paragraph (a) of the definition of residential premises in section 195-1, the premises are not residential premises to be used predominantly for residential accommodation. The premises have the physical characteristics of residential premises and are considered to be residential premises for the purposes of the GST Act. Therefore, it needs to be considered whether the premises were new residential premises when sold by you. Residential premises are new residential premises, as defined in subsection 40-75(1), if they: (a) have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or (b) have been created through substantial renovations of a building; or (c) have been built, or contain a building that has been built, to replace demolished premises on the same land. Goods and Services Tax Ruling GSTR 2003/3 Goods and services tax: when is a sale of real property a sale of new residential premises? (GSTR 2003/3) provides the ATO view on when real property is new residential premises for the purposes of section 40-75. You advised that you acquired the premises before the introduction of GST. Therefore, paragraph 40-75(1)(a) is not satisfied in respect of the sale of the premises. Paragraph 40-75(1)(b) will be satisfied if new residential premises have been created through substantial renovations. The term 'substantial renovations' is defined in section 195-1 as follows: substantial renovations of a building are renovations in which all, or substantially all, of a building is removed or is replaced. However, the renovations need not involve removal or replacement of foundations, external walls, interior supporting walls, floors, roof or staircases. You state that the premises have never been substantially renovated or added to throughout the ownership period. Therefore, new residential premises have not been created and paragraph 40-75(1)(b) is not satisfied in respect of the premises. Further, paragraph 40-75(1)(c) is not satisfied as premises have not been built to replace demolished premises. Therefore, the premises were not new residential premises when sold by you and was an input taxed supply.