Private ruling: GST and sale of Australian properties
Date of advice: 3 June 2020
Published: July 2020

Ruling: Q1: Will the sales of the two Australian properties to be made by the Australian company be wholly input taxed supplies under section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes,the sales of the two Australian properties to be made by the Australian company will be wholly input taxed supplies under section 40-65 of the GST Act | Q2: If the answer to question 1 is no, are the sale of the two properties whole taxable supplies? | A2: Not applicable as the sales of the two properties are input taxed supplies under section 40-65 of the GST Act.


Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 40-65 Reasons for decision | Note : Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in section 195-1 of the GST Act. Detailed reasoning | Subdivision 40-C of the GST Act is about residential premises. Subsection 40-65(1) of the GST Act 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, the sale is not input taxed to the extent the residential premises are commercial residential premises or new residential premises. | In your case, the properties are neither commercial residential premises nor new residential premises . | The term 'residential premises' is defined in section 195-1 of the GST Act as land or a building that is occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation) and includes a floating home. | Goods and Services Tax Ruling GSTR 2012/5 considers how Subdivision 40-C of the GST Act applies to supplies of residential premises and provides the following amongst other paragraphs: 6. Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition. | 7. Premises, comprising land or a building, are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises. | 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). | 14. 'Residential premises' are not limited to premises suited to extended or permanent occupation. Residential premises provide 'living accommodation', which does not require any degree of permanence. It includes lodging, sleeping or overnight accommodation. | 15. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation. | 16. A supply of a residential apartment in a building may include a garage, car-parking space, or storage area located within the building complex. The garage, car-parking space, or storage area is ancillary or incidental to the dominant component of the supply being the residential apartment. It can be reasonably concluded that the garage, car-parking space, or storage area are to be used for the better enjoyment of the residential apartment. They do not form a dominant part of the supply. The supply is therefore a composite supply of residential premises to be used predominantly for residential accommodation. This is still the outcome where the garage, car-parking space, or storage space is separately titled from the residential apartment, but is physically located within the same building complex | 20. 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. Residential premises are not fit for human habitation when they are in a dilapidated condition which prevents them being occupied for residential accommodation. | 21. Residential premises that are either: | · in a minor state of disrepair; or | · subject to a temporary legal prohibition for occupation pending minor repairs; | are still suitable for, and capable of, being occupied as a residence or for residential accommodation. | 46. There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises. | 80. The condition of the premises supplied is relevant in deciding whether they are suitable for, and capable of, being occupied as a residence or for residential accommodation. To be residential premises as defined, premises must be fit for human habitation. An objective consideration of the relevant facts and circumstances determines whether residential premises are fit for human habitation. Premises are not suitable for, or capable of, human habitation if they are dilapidated to the extent that their condition prevents occupation for residential accommodation (as may be evidenced by a demolition order issued by a relevant authority because of the premises' condition). In these circumstances, the condition of the premises indicates that the premises are no longer suitable for, or capable of, providing shelter and the basic living facilities. However, residential premises that are either: | · in a minor state of disrepair; or | · subject to a temporary legal prohibition for occupation pending minor repairs; | are still suitable for, and capable of, being occupied as a residence or for residential accommodation. See Example 3 at paragraph 23 of this Ruling. | In this case, the properties were previously used as residential premises and were sold to you with vacant possession. These properties have not been occupied after your purchase and it is clear from the information given to us that the two premises are run down and they need maintenance and repairs. | After considering all the information given we consider that the required repairs and maintenance would only temporarily render the premises not occupiable. The basic features of a residence are still in existence for the two premises and access to essential services such as water and electricity can be re-activated. In this instance our view is that the two properties meet the definition of residential premises. The laundry, garage and shed are incidental to the supply of the residential premises which is the dominant part of the supply. | Since the two properties are residential premises, your sale of the two properties will be input taxed.


You are an Australian company and registered for GST. | You currently are the owner of two properties (Lots X and Y) located in Australia. The vendors did not apply the margin scheme when the properties were sold to you. | The two properties were occupied as residential premises prior to being sold to you. The premises have been designed and built as residential premises. Based on historical Google satellite imagery, both Lots have been occupied as private residences before they were sold to you. | The houses are currently empty. No leases have been entered into since their purchase from you. You have not conducted a primary production business and/or a commercial accommodation business on the Lots. | The premises need repairs and maintenance. Both buildings have also been vandalised (e.g. broken windows etc) and from time to time, squatters have been living in the premises. The Council has not issued any defect notices nor has it conducted an inspection of the houses. There are no contamination or demolition/building notices from Council that you are aware of. | Apart from boarding up the houses for security reasons (e.g. to prevent squatting) and erecting temporary fencing around the Lots, you have neither renovated, repaired nor modified the premises since their purchase. | Both Lots are zoned "DC2 - District Centre (Coridoor)". The purpose of the DC2 - District Centre zoning is to provide for a mix of uses and activities. It involves a concentration of land uses including retail, commercial, residential, offices, administrative and health services, community, small-scale entertainment and recreational facilities capable of servicing a district. | You have now placed the two properties on the market for sale and have provided us with a copy of the contract for each property. You do not intend to apply the margin scheme when selling the Lots. You have provided us photos of the two properties. | Lot X: · You purchased Lot X with vacant possession and this property has remained vacant up until now. No residential leases, or any other type of leases, have been entered into since you acquired the property. | · The property contains a residential dwelling comprising of three bedrooms, one bathroom, a kitchen, living facilities, a laundry and a garage for two cars. | · The property is approximately 15,500 sqm (1.55 hectares, 3.83 acres).and you continue to pay rates to the Council. The premise was originally constructed as residential dwelling. Physical connection lines and pipes remain for electricity, water and telephone connections, but there are no active services. These services can, however, be easily reconnected. | · A property developer that works for you has produced internal notes on the condition of the property(Report). The Report states that the property contains an old kitchen and laundry that are maintained quite well, the bathroom contains an old shower and appliances but taps are working and all the light fittings and fixtures (doors and windows) are old but operational. The interior walls and ceiling have a number of marks, dents, scratches and uneven paint but no holes. The carpets and Lino are old and have few stains. | · The buildings on the property are substantially the same now as when they were purchased from you. The property has not had any renovations during the time you owned it. | · You have no plans to make any alternations to the buildings on the property and they will not be leased out until settlement of the sale under the Contract. | · The premise is a post-war style home. You estimate the building to be at least 15+ years. | · In addition to the residential building, there is also a large detached shed to the west of the building. The shed is in a dilapidated state. | · There are no other structures on the Lot that indicates they have been used for any other purpose other than residential accommodation. | · The Lot is not part of a resort, serviced apartment or hotel type setting. | Lot Y: · You purchased lot Y with vacant possession and this property has remained vacant up until now. No residential leases, or any other type of leases, have been entered into since you acquired the property. | · The property contains a residential dwelling comprising of one bedroom, one bathroom, a kitchen, living facilities, a laundry and a garage. | · The property is approximately 15,500 sqm (1.55 hectares, 3.83 acres).and you continue to pay rates to the Council. The premise was originally constructed as a residential dwelling. Physical connection lines and pipes remain for electricity, water and telephone connections, but there are no active services. These services can, however, be easily reconnected. | · The report from the property developer states that the kitchen and bathroom are in a very poor state (the doors and door handles are in poor condition, stains and some holes around the living area) and there is an unconnected outdoor laundry. Some light fittings are broken whilst others are fine. The dwelling was vacant and there was a squatter living inside so the house was in a bad way. | · The premise is a post-war style home. You estimate the building to be at least 10+ years.