Private ruling: GST and substantial renovations
Date of advice: 1 July 2022
Published: October 2022
Ruling period: xx
Date scheme commenced: x

Ruling: Q1: Will the Works constitute "substantial renovations" such that Apartment xx will constitute "new residential premises" under section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? immediately following completion of the Works? | A1: No, the Works does not constitute substantial renovations.

Relevant facts and circumstances: You are a trust and is GST registered. You are part of a Property Group. You acquired a lot in a building subdivided by stratum lots at from an unrelated vendor. The Lot consists of various residential apartments (and associated car parks) that are currently let by the Trust to different long-term residential tenants (Apartments). The supply of the Lot to the Trust was a taxable supply of new residential premises on which GST was calculated using the margin scheme. You determined to seek permission for a strata title subdivision of the Lot creating a separate strata for each Apartment. You, in connection with the strata titling, propose to extend one of the Apartments and convert it from a one bedroom to a two bedroom apartment by building over a void in the adjacent fire stairs. No works will be done to the kitchen, living room, bathroom or internal courtyard, other than for installation of an island bench in the kitchen.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 38-325 | A New Tax System (Goods and Services Tax) Act 1999 section 38-325(1)

Reasons for decision: Summary: Section 40-75 of the GST Act defines the term 'new residential premises' and includes residential premises that have been created through substantial renovation of a building (paragraph 40-75(1)(b) of the GST Act). The term 'substantial renovations' is defined in section 195-1 of the GST Act as: substantial renovations of a building are renovations in which all, or substantially all, of a building is removed, replaced. However, the renovations need not involve removal or replacement of foundations, external walls, interior supporting walls, floors, roof or staircases. The definition of 'substantial renovations' requires consideration of what work has been done to the building since it was acquired by the current owner. Goods and Services Tax Ruling GSTR 2003/3 provides guidance on when substantial renovations apply in practice. Paragraph 61 of GSTR 2003/3 provides that, for the purposes of the GST Act, if substantial renovations to a building are to occur then the renovations must satisfy the two following criteria: • the renovations need to affect the building as a whole; and • the renovations need to result in the removal or replacement of all or substantially all of the building. Where one of the above criteria is not satisfied substantial renovations have not occurred and no further inquiry needs to be made. | Detailed Reasoning - Building in its entirety: 64. Whether substantial renovations have occurred should be based on consideration of the building in its entirety, that is, the building as a whole and not by reference to specific or individual rooms. For renovations to be substantial they must directly affect most rooms in a building. The renovation of only one part of a building, without any work on the remaining parts of the building, would not constitute substantial renovations. In your case, we consider the addition of the bedroom with an ensuite does not affect the apartment has a whole. Therefore as it does not satisfy this requirement, we do not need to consider the other criteria as outlined in Paragraph 61 of the GSTR.