Private ruling: GST - property
Date of advice: 20 January 2023
Published: 6 March 2023
Ruling period: XX January 20XX - 30 June 20XX
Date scheme commenced: XX XXX 20XX

Ruling: Q1: Will the sale of the apartments in the indirect tax zone be an input taxed supply of residential premises pursuant to section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes | Q2: Does the Commissioner consider that you are carrying on a GST enterprise in accordance with section 9-20 of the GST Act of leasing lots in the indirect tax zone? | A2: Yes | Q3: Will the sale of lots in the indirect tax zone, be GST-free supply of a going concern pursuant to section 38-325 of the GST Act? | A3: Yes | Q4: Will you be entitled to the input tax credits under section 11-20 of the GST Act for acquisitions incurred in relation to the supply of lots in the indirect tax zone? | A4: Yes

Relevant facts and circumstances: You are registered for GST. The Premises consists of a block of self-contained apartments with X strata titled lots. The Common Areas, including the pool, tennis court, car park and barbeque areas, have been owned by since the resort was built. The Premises have X timeshare ownership rights which are held by X stakeholders. The Company is one of the timeshare right owners (Owners). The Premises consists of X apartments. Each apartment includes a kitchen, bathroom, living area and bedroom. The titles of the Premises show the fractional ownership of each Owner for the relevant lot. The titles to the Premises show that the Premises are subject to leases made by the Owners to the Company. A copy of a sample of a title has been provided. The Company manages the timeshare scheme (the Scheme) and rents the lots to public holiday makers. The Owners hold all the shares in the Company. You and the Company are proposing to sell the Premises and the Common Areas. The sale will occur via the execution of two contracts, being one for the Common Areas and one for the Premises. The parties to the contract will agree in writing that the supply is of a going concern. You have continued to lease the available lots to the Company The arrangement between you and the Company will remain in place and the rights and obligations will be assigned to a prospective purchaser. The Premises will continue to be leased to the Company and made available to Right Owners until the date of settlement and that any future public bookings at that time will be transferred to the purchaser intact by you. Documents provided to support this application: • A copy of a sample rental pool agreement • Court Order • Lease/title document.

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 9-20 | A New Tax System (Goods and Services Tax) Act 1999 Section11-15 | A New Tax System (Goods and Services Tax) Act 1999 Section 11-20 | A New Tax System (Goods and Services Tax) Act 1999 Section 38-325 | A New Tax System (Goods and Services Tax) Act 1999 Division 40 | A New Tax System (Goods and Services Tax) Act 1999 Section 40-65 | A New Tax System (Goods and Services Tax) Act 1999 Division 129 | A New Tax System (Goods and Services Tax) Act 1999 Division 135 | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1 | Income Tax Assessment Act 1936 Section 318 | Income Tax Assessment Act 1936 Subsection 318(1)

Reasons for decision: Summary: Goods and services tax (GST) is payable on taxable supplies. Section 9-5 provides that you make a taxable supply if: (a) you make the supply for consideration; and (b) the supply is made in the course or furtherance of an enterprise that you carry on; and (c) the supply is connected with the indirect tax zone; and (d) you are 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. Based on the facts in this case, with respect to the Premises: Therefore, your supply of the Premises will be a taxable supply unless it is GST-free or input taxed. Therefore, what remains to be determined is whether your sale of the Premises will be input taxed. The circumstances in which a supply is input taxed are found in Division 40. | Detailed Reasoning - Input taxed supplies: If a supply is input taxed, then: 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 predominately for residential accommodation (regardless of the term of occupation). However, subsection 40-65(2) states that the sale of real property 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. Based on the information supplied, the characteristics of the Premises without the common areas do not meet the requirements of commercial residential premises as defined in section 195-1, or the requirements of new residential premises as defined in section 40-75. | Detailed Reasoning - 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 the 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) outlines the characteristics of residential premises. Paragraph 9 of GSTR 2012/5 explains the requirement that the residential premises are to be used predominately for residential accommodation in section 40-65 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 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Paragraph 20 of GSTR 2012/5 provides that premises must be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. An objective consideration of the relevant facts and circumstances determines whether residential premises are fit for human habitation. In your case, the Premises have the physical characteristics of a residential dwelling consisting of self-contained apartments. The Premises has a lease agreement in place for each apartment and each apartment is capable of being occupied as a residence. Therefore, the Premises satisfies the definition of 'residential premises' for the purposes of section 195-1. The sale of the Premises will be an input taxed supply of residential premises under section 40-65. | Detailed Reasoning - Question 2: Subsection 9-20(1) provides, amongst other things, that an enterprise is an activity, or series of activities, done: (a) in the form of a business; or (b) in the form of an adventure or concern in the nature of trade; or (c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. Of particular relevance is paragraph 9-20(1)(c) as it establishes that a leasing activity or activities are an enterprise in their own right. Each of the lots in the Premises are subject to a lease. We consider you are conducting an enterprise of leasing the Premises in accordance subsection 9-20(1). | Detailed Reasoning - Supply of a going concern: A supply will be a GST-free supply of a going concern where the requirements of section 38-325 of the GST Act are met. This section 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 a part of a larger enterprise carried on by the supplier). Based on the facts of this case, the three requirements in subsection 38-325(1) will be satisfied at the time of supply. That is, the supply of the Premises will be for consideration, the Purchaser of the property will be registered for GST and both you and the Purchaser will agree in writing that the supply of the property is of a going concern. Next, consideration needs to be given as to whether the requirements of subsection 38-325(2) are satisfied. 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. The term 'enterprise' is defined in section 9-20 and includes an activity, or series of activities, done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. As per Question 2, we are satisfied that you are conducting an enterprise of leasing. Paragraphs 72 and 73 of GSTR 2002/5 explain that the things that are 'necessary' for the continued operation of an enterprise will depend on the nature of the enterprise carried on and the core attributes of that enterprise. A 'thing' is necessary for the continued operation of an 'identified enterprise' if the enterprise could not be operated by the recipient in the absence of the thing. Paragraph 80 of GSTR 2002/5 provides that the supplier supplies all of the things that are necessary for the continued operation of an enterprise when the supplier supplies those things which will put the recipient in a position to carry on the enterprise, if it chooses. Paragraph 107A of GSTR 2002/5 also provides that an identified enterprise may consist solely of the leasing of a property to a tenant or tenants. Such an activity is an enterprise under paragraph 9-20(1)(c). This is the case even though the leasing of the property may be carried on as part of the supplier's broader enterprise. Where the identified enterprise is one of leasing, the supply of the property subject to the existing leases to the tenants is all that is required to satisfy paragraph 38-325(2)(a). Based on the facts in this case: On this basis, you will satisfy the requirements of subsection 38-325(2). Consequently, as all the requirements of section 38-325 will be satisfied, the sale will be a GST-free supply of a going concern. | Detailed Reasoning - Question 4: It remains to be determined whether the costs incurred to facilitate the supply of premises will be for a creditable purpose. Creditable purpose is defined in Section 11-15. Subsection 11-15(1) provides that you acquire a thing for a creditable purpose to the extent that you acquire it in carrying on your enterprise. However, subsection 11-15(2) provides that you do not acquire a thing for a creditable purpose to the extent that: (a) the acquisition relates to making supplies that would be input taxed; or (b) the acquisition is of a private or domestic nature. We have determined that your supply of the Premises will not be an input taxed supply of residential premises. It will be a GST-free supply of a going concern. Also, the acquisition is not of a private or domestic nature. You are conducting a leasing enterprise and, although your supplies of residential accommodation are input taxed, the supply is of a going concern and is GST free. Acquisitions made to facilitate that supply will be made for a creditable purpose. Therefore, input tax credits relating the costs to make the sale of the Premises will be available to you.

unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act. | all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au | the supply will be for consideration | the supply will be in the course or furtherance of your leasing enterprise | the property is in the indirect tax zone | you will be registered for GST at the time of the supply. | no GST is payable on the supply; | there is no entitlement to an input tax credit for anything acquired or imported to make the supply. | the identified enterprise is the leasing of residential premises | you will supply to the Purchaser all of the things that are necessary for the continued operation of the enterprise. This includes the Premises located in the indirect tax zone and the existing lease agreement you have in place | you will carry on the leasing enterprise up to and including the settlement date.