Private ruling: Goods and services tax (GST) and sales of new residential premises
Date of advice: 15 December 2016
Published: May 2017
Ruling period: 1/07/2016 to 30/06/2017

Ruling: Q1: Are the sales of new residential premises taxable supplies for GST purposes? | A1: Yes, the sales of new residential premises are taxable supplies for GST purposes.

Relevant facts and circumstances: You are registered for GST. You purchase old residential properties and renovate them for sale or demolish the old residential properties and construct new ones for sale. You demolished one of your old properties, subdivided the block into two and built two new residential premises. You engaged a real estate agent to advertise the premises for sale before the actual completion of the building. Based on the feedback from your real estate agent, you anticipated that they will sell either just before, or shortly after, the actual completion of the building.

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 subsection 40-65(1) | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(2) | A New Tax System (Goods and Services Tax) Act 1999 subparagraph 40-75(1) | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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. | Detailed Reasoning - Residential premises: Subsection 40-65(1) of the GST Act provides that a sale of real property is input taxed to the extent that it is residential premises to be used predominantly for residential accommodation. However, subsection 40-65(2) of the GST Act provides that the sale of real property is not input taxed to the extent that it is commercial residential premises; or new residential premises other than those used for residential accommodation before 2 December 1998. The new premises are not going to be commercial residential premises and as they are recently built they cannot be used for residential accommodation before 2 December 1998. | Detailed Reasoning - New residential premises: Subsection 40-75(1) of the GST Act provides that residential premises are 'new residential premises' 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. As the premises are currently being constructed, they have not previously been sold as residential premises or been subject to long-term lease. In addition, the premises are being built to replace the demolished house on the same land. Thus, the premises are new residential premises according to subsection 40-75(1) of the GST Act. This means the sales of your new premises are not input taxed supplies. | Detailed Reasoning - Taxable supplies: You are selling your new premises for monetary amounts so there are considerations for these supplies. Section 195-1 defines indirect tax zone to mean Australia and as the sales of your premises occur in Australia, the supplies are connected with the indirect tax zone. You are registered for GST. As you purchase old residential properties and renovate them for sale or demolish the old residential properties and construct new ones for sale, you are carrying on an enterprise of selling residential properties. Thus, the sales of your new premises are made in course or furtherance of an enterprise that you carry on. Therefore, the sales of your premises satisfy all the criteria of section 9-5 of the GST Act, and are taxable supplies to the extent they are not GST-free or input taxed. There are no provisions that would result in your supplies of the premises being GST-free or input taxed as such they are taxable.