Private ruling: Goods and Services Tax (GST) and the sale and residential premises with development approval
Date of advice: 9 February 2017
Published: March 2017

Ruling: Q1: Will the sale of the property for which you have obtained development approval be subject to GST? | A1: No, the sale of the property will be an input taxed supply and therefore not subject to GST.

Relevant facts and circumstances: You are a company registered for GST. You purchased residential premises and leased them for several months for residential purposes. You obtained Development Approval for the construction of a unit complex. No construction has commenced. You subsequently entered into a Contract for Sale to sell the property with the Development Approval still valid to individual buyers.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999: Section 9-40 | Section 9-5 | Subsection 40-65(1) | Subsection 40-65(2) | Subsection 40-75(1) | Section 195-1

Reasons for decision: Summary: Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), imposes liability for GST on the supplier of any taxable supply. Section 9-5 of the GST Act states: You make a taxable supply if: (a) you make the supply for consideration; and (b) the supply is made in the course or furtherance of an enterprise that you carry on; and (c) the supply is connected with the indirect tax zone; and (d) you are registered, or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Input taxed supplies are dealt with in Division 40 of the GST Act. Specifically, subsection 40-65(1) of the GST Act states: (1) A sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation. ‘Residential premises’ are defined under section 195-1 of the GST Act: Residential premises means land or a building that: (a) is occupied as a residence; or (b) is intended to be occupied, and is capable of being occupied, as a residence; and includes a floating home. According to the facts presented, the property constitutes ‘residential premises’ for GST purposes. Consequently, when you sell the property you will be making a supply of real property which is residential premises pursuant to subsection 40-65(1) of the GST Act. However, subsection 40-65(2) of the GST Act excludes certain supplies of residential premises from being input taxed supplies: (2) However, the sale is not input taxed to the extent that the residential premises are: (a) commercial residential premises; or (b) new residential premises other than those used for residential accommodation before 2 December 1998. The property does not match the definition of ‘commercial residential premises’ under section 195-1 of the GST Act. ‘New residential premises’ are defined under subsection 40-75(1) of the GST Act: (1) Residential premises are new residential premises if they: (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. According to the facts presented, the property which you bought has previously been sold, has not been created through renovations and has not been rebuilt. The property then does not constitute ‘new residential premises’ and therefore its supply will not be excluded from being input taxed under subsection 40-65(2) of the GST Act. Consequently, your sale of the property will be an input taxed supply under subsection 40-65(1) of the GST Act and GST will not apply to the sale as it is not a taxable supply pursuant to section 9-5 of the GST Act. Development Approval Before determining whether a taxable supply is being made in relation to the development approval, the substance of the supply or supplies must be established. That is, in relation to the development approval, it must be determined whether you are making a separate supply from the input taxed supply of the property. The development approval is attached to the land belonging to the residential premises and runs with that land. Upon sale of the property, the development approval is automatically transferred to the purchaser as a natural consequence of the sale. This transfer takes place regardless of any formal assignment in the sale contract. There is no separate supply of the development approval. Therefore, you would not be supplying a purchaser with anything more than the property containing residential premises. As such, you are not making a separate taxable supply under section 9-5 of the GST Act when the development approval runs with the property to the purchaser or there is a formal assignment under the contract of sale. You will be making a single input taxed supply of the residential premises.