Private ruling: GST and commercial premises
Published: April 2015

Ruling: Q1: Was the sale of the property a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act)? | A1: Yes.

Relevant facts and circumstances: You are registered for GST. In 20XX you acquired a property (the Property). The Property was used by you as commercial offices. The Property was not commercial residential premises or new residential premises. On DDMMYYYY you entered into a Contract of Sale with the Purchaser to sell the Property for $X Settlement occurred on DDMMYYYY and you and the Purchaser acted on the basis that GST did not apply to the sale of the Property as it was a supply of residential premises. GST was not collected by you from the Purchaser and you did not remit GST on the adjusted purchase price (taking into account all adjustments) of $X GST exclusive. During the period DD to DD MMYYYY you conducted an internal audit of your activities and concluded that the Property was not residential premises but a commercial building. You included the GST payable on your supply of the Property in your Business Activity Statement (BAS) for the quarter ending DDMMYYYY. You prepared and provided the Purchaser with a Tax Invoice (pursuant to the Contract of Sale) for the adjusted sale price and requested a cheque from the Purchaser for the GST payable in respect of the sale. You have advised that the Purchaser maintains that the sale is of residential premises and is therefore input taxed. The Purchaser has not paid you any GST. You have provided a copy of an Environmental Site Assessment for the Property dated MMYYYY. The relevant information is: • Historical land use includes residential properties, use as commercial premises, and more recently commercial. • The site is currently being utilised for commercial / office use • The site is zoned residential. • You have provided a copy of the Auction Advertisement. The relevant information is: • main building including reception/entrance, X offices, X toilets, large kitchen • garages The Property did not contain a shower or bathroom. You have advised that it is possible that the offices could be converted into bedrooms. The Property was at the time of the supply zoned residential. Subsequent to settlement the Purchaser demolished the premises. On DDMMYYYY your representative advised at the time of purchase, the property had already been converted into commercial premises.

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 40-65, and | A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision: Summary: In this reasoning, please note all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified. You must pay the goods and services tax (GST) payable on any taxable supply you make. Section 9-5 provides that you make a taxable supply if: (a) you make a supply for consideration (b) the supply is made in the course or furtherance of an enterprise that you carry on (c) the supply is connected with Australia, and you are registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. You supplied a freehold interest in land in Australia (which included a building and X garages) for consideration. The supply was made in the course or furtherance of your enterprise and you are registered for GST. Therefore, your supply will be taxable, unless it is GST-free or input taxed to any extent. In your circumstances, there is no provision in the GST Act whereby any portion of the Property supplied would be GST-free. Therefore, it is only necessary to determine if the Property was input taxed to any extent. | Detailed Reasoning - Residential premises to be used predominantly for residential accommodation: Under subsection 40-65(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. There are two exclusions to this provision which relate to commercial residential premises and new residential premises. In your case, these two exclusions do not apply as the premises are neither commercial residential premises nor new residential premises . The term 'residential premises', as defined in section 195-1, refers to land or a building that is occupied as a residence or for residential accommodation or 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). Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5), provides guidance on what is considered to be residential premises to be used predominantly for residential accommodation for the purposes of subsection 40-65(1). Paragraph 9 of GSTR 2012/5 advises that the requirement in section 40-65 that premises be 'residential premises to be used predominantly for residential accommodation' 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 10 clarifies that 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). Paragraph 15 of GSTR 2012/5 outlines that the premises must provide shelter and basic living facilities. The premises must also be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. (Paragraph 20 of GSTR 2012/5) In your case, although the Property is zoned residential, the Property contains a commercial office building containing a reception and X offices, and was formerly commercial premises that had been converted into another commercial premises at the time of your purchase. Paragraph 25 of GSTR 2012/5 advises that not all premises that possess basic living facilities are residential premises to be used predominantly for residential accommodation. If it is clear from the physical characteristics of the premises that their suitability for living accommodation is ancillary to the premises' prevailing function, the premises are not residential premises to be used predominantly for residential accommodation. Your situation is similar to Example 4 at paragraphs 26 and 27 of GSTR 20012/5. While the premises provides shelter and some basic living facilities including a kitchen and toilets, the physical characteristics of the premises indicate that they are not residential premises to be used predominantly for residential accommodation. The physical characteristics indicate that the premises are a place for office workers to undertake tasks associated with a business. The supply of the Property is not an input taxed supply of residential premises under Division 40. The supply of the property is a taxable supply under section 9-5.