Private ruling: Supply of Input Taxed Residential Premises
Date of advice: 19 December 2016
Published: August 2017

Ruling: Q1: Was the purchase of residential premises by A from B an acquisition of an input taxed supply? | A1: Yes

Relevant facts and circumstances: A and B are unrelated parties. Both are registered for GST. B was the registered proprietor of two residential premises at X (“the Properties”). As registered proprietor of the Properties, B engaged in a number of activities in respect of the Properties, including the lease of the residential premises upon the land. One was subject to a residential lease from X to Y and the other was subject to a residential lease scheduled to run from Y to W. Apart from being the Landlord for the above two leases, B conducted the following activities in respect of the potential development of the Properties, which involved the engagement of the following consultants with a view to obtaining a Planning Permit: ● Town planners; ● Architects; ● Consulting and traffic engineers; ● Waste management consultants; and ● Land surveyors. On X A and B entered into a Contract of Sale for the Properties (“the Contract”). Pursuant to the Contract, B transferred title to the Properties to A. Settlement occurred on X 20YY. Pursuant to the Contract, A agreed to provide the Purchase Price of $Z in consideration. Under the Particulars of Sale, the transfer is described as going concern for GST purposes. Special Clause X is titled “Potential Development of the Property” and provides that the Properties are sold with the benefit of the Planning Permit and its assigns its rights to the Plans, Application documents and any intellectual property in relation to the development. In addition, B makes no representations as to the potential development of the Properties. A Planning Permit was issued on X 20YY (“the Permit”) with the following conditions: ● Cl 1 “Before the use and development starts, amended plans to the satisfaction of the Responsible Authority must be submitted to and approved by the Responsible Authority…” ● Cl 21 “Before the development starts, and before any trees or vegetation are removed, landscape plan to the satisfaction of the Responsible Authority must be submitted and approved by the Responsible Authority…” ● Cl 23 “Before the development starts, an amended Waste Management plan to the satisfaction of the Responsible Authority must be submitted to and approved by the Responsible Authority…” (“the Conditions”)

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Division 40; Subdivision 38J.

Reasons for decision: Summary: In this reasoning, unless otherwise stated, all legislative references are to A New Tax System (Goods and Services Tax) Act 1999 (the GST Act). Subsection 40-65(1) states: | Detailed Reasoning - 40-65 Sales of residential premises: (1) A sale of *real property is input taxed to the extent that the property is *residential premises to be used predominantly for residential accommodation (regardless of the term of the occupation). The term *residential premises is defined in section 195 as follows: residential premises means 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 occupation; (regardless of the term of the occupation or intended occupation) and includes a *floating home. As you have advised that the Properties were subject to residential leases until settlement, we are satisfied they met the definition of residential premises because they were capable of human habitation. | Detailed Reasoning - Supply of a Going Concern: Subsection 38-325(1) states: 38-325 Supply of a going concern (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. A supply of a going concern is defined in subsection 38-325(2) as 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 the 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). | Detailed Reasoning - Enterprise: Paragraph 29 of Goods and Services Tax Ruling GSTR 2002/5 when is a 'supply of a going concern' GST-free?, provides that it is necessary to identify the relevant enterprise in order to determine if all things necessary for the continued operation of the enterprise are transferred to the recipient of the supply. The term 'enterprise' is defined in part of section 9-20 as an activity, or series of activities, done: ● in the form of a business; or ● in the form of an adventure or concern in the nature of trade; or ● on a regular or continuous basis, in the form of a lease, licence, or other grant of an interest in property; …. On the information you have provided, we consider that the enterprise carried on by B prior to transfer of the Properties was residential leasing. Paragraph 150 of GSTR 2002/5 states: A supplier is unable to supply all of the things necessary for the continued operation of an enterprise unless the enterprise is not only being 'carried on', but is also operating. As both residential leases were terminated prior to settlement, we are of the view that there was no supply of a going concern of the leasing enterprise. It is therefore necessary to turn to the purported property development enterprise. The definition of 'carrying on an enterprise' in section 195 states: Carrying on an enterprise includes doing anything in the course of the commencement or termination of an enterprise. The activities done by B in the commencement of the development enterprise were: ● acquisition of the Properties; ● acquisition of the Permit; ● engage with Town Planners; ● engage Architects; ● engage with Consulting and traffic engineers; ● engage with Waste management consultants; and ● engage with Land surveyors. We concur with your view that those activities were only done in the course of commencing a property development enterprise and that the primary enterprise conducted by B prior to transfer of the Properties was residential leasing. The Conditions on the Permit require the recipient to obtain a number of approvals from the Responsible Authority. Whether or not those approvals are granted are contingencies. As such, it cannot be said that B transferred everything necessary for A to continue any property development enterprise after settlement. Therefore, there was no supply of a going concern under subsection 38-325(1). As the Properties were residential premises at the time of settlement, the supply is an input taxed supply of residential premises under subsection 40-65(1).