Private ruling: GST and property
Date of advice: 23 June 2016
Published: August 2016

Ruling: Q1: Will the sale of property be an input taxed supply of residential premises under section 40-65 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 the Property from a private owner. The Property is on one Certificate of Title. The Property comprises a x bedroom and x bathroom house, together with self-contained accommodation, a garage and established gardens. The Property is under a x lease to, and occupied by, a residential tenant. You acquired the property with the intention of building townhouses on the site. You have organised drawings, builders and loan finance and made one pre-sale, however, no physical changes have been or will be made to the Property prior to settlement. Your original plans were submitted to the local council, who did not provide a decision. You revised the plan, which was not supported by the Council. On the rejection of both the plans and revised plans, you decided to cancel the pre-sale contract and sell the property with a view to undertaking another property development at a different location. On DDMMYYY, you entered into a contract to sell the Property. Information and photos at a website show the property has a house, surrounding gardens and outdoor areas, including driveways.

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

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 40-65 provides that the sale of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation. However the supply is not input taxed to the extent that the residential premises are commercial residential premises or new residential premises. 'Residential premises' is defined in section 195-1 as 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). The Commissioners' view on residential premises is found in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5). Paragraphs 9 and 15 explain that a single test looking at the physical characteristics will determine the premises' suitability and capability for residential accommodation. To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. The property contains a x bedroom, x bathroom house and surrounding gardens, currently under lease to a residential tenant. It is considered the physical characteristics of a residence are present and the definition of residential premises to be used predominantly for residential accommodation is satisfied. However, the words 'to the extent' in section 40-65 of the GST Act indicates that the GST Act contemplates circumstances where the supply of an interest in real property may not be wholly input taxed. In paragraph 46 of GSTR 2012/5, the Commissioner expresses the view that 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 would form part of the 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 whether the land forms part of the residential premises. Photographs and the descriptions you have provided demonstrate that the surrounding land has the physical characteristics which indicate it is to be enjoyed with the home such as: • infrastructure related to a residential dwelling such as outdoor area and a driveway to the garage; and • an amount of cultivation that indicate the land has been maintained for a residential purpose such as a lawn and gardens. Accordingly, the land forms part of the residential premises. The next question to consider is whether the premises are 'commercial residential premises' or new residential premises. 'Commercial residential premises' includes a hotel, motel, inn, hostel or boarding house or anything similar (section 195-1). In this case the premises do not possess the characteristics, as outlined in paragraph 12 of Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises (GSTR 2012/6), to be classified as a hotel, motel, inn, hostel or boarding house, or anything similar for GST purposes. 'New residential premises' are premises that have: • not been previously been sold as residential premises; or • been created through substantial renovations; or • been built to replace demolished premises. In this case the premises were purchased as residential premises. In addition, no improvements to the property have been made. Given the above, the residential premises are considered to be neither commercial residential premises nor new residential premises for GST purposes. Therefore the sale of the residential premises is an input taxed supply of residential premises under section 40-65 of the GST Act.