Private ruling: GST and sale of property
Date of advice: 13 November 2015
Published: February 2016

Ruling: Q1: Are you making taxable supplies when you sell lots A, B and C located at a specified address? | A1: Yes.

Relevant facts and circumstances: You are registered for GST. In 200X you purchased property located at a specified address which contained an existing residence. You rented the residential premises for a period of six months. In 200X a Demolition Licence was issued. You subsequently demolished the existing residence and constructed a house and X units designed to comply with residential and short term tourist accommodation requirements of your local council authority. In 200X you were granted a permit to operate as short term tourist accommodation by the local council authority. You operated these units as commercial residential premises for the period 200X to 20XX. The prices charged to the guests included GST. The newly constructed house was primarily used as your principal place of residence and contained a small office/reception area for the management of the units. The units consisted of X bedrooms, bathroom, kitchen, laundry and living room each having a private front porch and rear courtyard. In 20XX you received notice from the local council authority granting permission for a change of use of the property. As a result, the property was rezoned as residential and the units were strata titled (Lots A, B and C). You ceased operating your enterprise on 30 June 20XX. You sold lots A, B and C. Settlement of the lots occurred in July 20XX. The sales of the units were under separate contracts to separate parties.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-40 | Section 9-5 | Section 40-65 | Section 40-75

Reasons for decision: Summary: Note: In this reasoning, unless otherwise stated, • all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 provides you make a taxable supply if: • you make the supply for consideration; and • the supply is made in the course or furtherance of an enterprise that you carry on; and • the supply is connected with the indirect tax zone; 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. The issue in this case is whether the sale of your strata titled properties are input taxed supplies of residential premises. Section 40-65 provides that a sale of real property is input taxed to the extent that the property is 'residential premises' to be used predominately for residential accommodation. However such supplies will not be input taxed to the extent the residential premises are either 'commercial residential premises' or 'new residential premises'. The first aspect to consider is whether the units in question are 'residential premises' to be used predominately for residential accommodation. The meaning of 'residential premises' is defined in section 195-1 and refers to 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). Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) discusses issues in regard to residential premises. Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-65 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 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. In this case the units will satisfy the definition of 'residential premises' as the apartments provide shelter and basic living facilities such as bedrooms, bathrooms, kitchen and living areas. The next step is to consider whether the supplies of the units fall within the exclusions being supplies of either 'commercial residential premises' or 'new residential premises'. Commercial residential premises are defined in section 195-1 to include, amongst other things: (a) a hotel, motel, inn, hostel or boarding house, or (b) … … (f) anything similar to residential premises described in paragraphs (a) to (e). However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an *education institution that is not a *school. Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6) provides the ATO view on how the GST applies to this class of property. In this case the units were sold under individual contracts to different purchasers. Paragraphs 156 and 157 of GSTR 2012/6 discusses, with reference to a recent court case and subsequent appeal, the question of whether a supply of a single apartment in a complex was a supply of anything similar to a hotel, motel, inn, hostel or boarding house noting that such terms are not used where only one apartment, room or other space is provided. Furthermore, it was also noted that the term hotel or motel would not be used where a single apartment room or other space is supplied. Therefore, the supplies of the units under separate contracts to separate parties are not considered to be supplies of commercial residential premises. 'New residential premises' are defined in section 40-75 as residential premises that: (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. In this case the units were built in 200X to replace the existing premises on the land that was demolished in 200X thus satisfying a positive limb of the definition to be considered 'new residential premises'. However, the units will not be new residential premises if, in this case, for the period of at least 5 years since the premises were last built, the units have only (emphasis added) been used for making supplies that are input taxed (i.e. supplies of residential premises other than supplies of accommodation in commercial residential premises) pursuant to subsection 40-75(2). In this case, the units were used to make taxable supplies of accommodation in commercial residential premises for the period 200X to 20XX. As such, the units were not used to make input taxed supplies for a period of 5 years preceding the sales of the units in July 20XX. Therefore the supplies of the units will be the sale of 'new residential premises' and not classified as an input taxed supply. The supply of the units will be a taxable supply of new residential premises as the supply is neither GST-free nor input taxed and: • the units were sold for consideration; • sold in the course of carrying on (in this case ceasing) your enterprise of providing accommodation in commercial residential premises; • connected/located in the indirect tax zone (Australia); and • you are registered for GST.