Private ruling: GST - sale of residential premises
Date of advice: 15 August 2025
Published: 27 October 2025
Ruling period: 1 July 2025 to 30 June 20XX
Date scheme commenced: 5 August 20XX

Ruling: Q1: Is GST payable on your sale of real property, Unit Y at (address), pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) 1999 (GST Act)? | A1: No.

Relevant facts and circumstances: You are not registered for GST. You constructed two residential units (units X and Y) at (address) may years ago. Both units have X bedrooms, X bathrooms, 1 kitchen, 1 living room and 1 laundry. The units are not hotel or motel style or similar types of premises. You held both units as long-term rental investments. You have leased out unit Y for a continuous period of approximately X years. Each lease agreement was for a specified period of X months or less. Your plan was to hold unit Y for as long as you could, and you never had any intentions of selling it within the first 5 years of leasing it out. At the end of MM/YYYY, you made the decision that you would sell unit Y, once you knew that the tenant would not be continuing with the lease. You would have liked to have kept both units, but your circumstances changed, and you needed to sell one of the units. You entered into a sale contract for unit Y on (date). Settlement is to occur on (date). You will sell unit Y with vacant possession. To facilitate the sale of unit Y, a subdivision must be done to create a separate Strata Title for it. You have not substantially renovated unit Y. Only minor works were completed subsequent to building the unit. You had painting done at unit Y due to marked walls and water damage from renting over the last X years. You had this painting done in preparation for the sale of the unit. The painting was done in MM/YYYY. No improvements/work on the units will be required to meet the requirements of the Strata Titling

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 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 40-35 | A New Tax System (Goods and Services Tax) Act 1999 section 40-65 | A New Tax System (Goods and Services Tax) Act 1999 section 40-75 | A New Tax System (Goods and Services Tax) Act 1999 Division 188 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: GST will not be payable on the sale of unit Y as it will be an input taxed sale of residential premises under section 40-65 of the GST Act. | Detailed Reasoning - Detailed reasoning: Section 9-5 of the GST Act provides that you make a taxable supply if: (a) you make the 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 the indirect tax zone (essentially Australia), and (d) 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. A sale of residential premises may be input taxed under section 40-65 of the GST Act, which 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 (regardless of the term of occupation). (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 (regardless of the term of occupation) before 2 December 1998. Goods and Services Tax Ruling Goods and services tax: residential premises (GSTR 2012/5) provides the Australian Tax Office's (Tax Office's) view of the characteristics of residential premises. Paragraphs 9 and 10 of GSTR 2012/5 explain that 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. The test 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). To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Unit Y contains 3 bedrooms, 2 bathrooms, 1 kitchen, 1 living room and 1 laundry. Therefore, it has the elements of shelter and basic living facilities required to be residential premises. Therefore, your sale of unit Y is a sale of residential premises to be used predominantly for residential accommodation, and so the requirements of subsection 40-65(1) of the GST Act are met. However, even if a sale of premises is a sale of residential premises to be used for residential accommodation, the sale is not input taxed if it is a sale of: (a) commercial residential premises or (b) new residential premises (other than those used for residential accommodation before 2 ... December 1998). Commercial residential premises Commercial residential premises are defined in section 195-1 of the GST to include a hotel, motel or similar establishment. Unit Y is not commercial residential premises. Therefore the exclusion (from input taxed treatment) under paragraph 40-65(2)(a) of the GST Act does not apply. New residential premises The term 'new residential premises' is defined under subsection 40-75(1) of the GST Act, and provides that residential premises are new residential premises if they: (a) have not previously been sold as residential premises (other than commercial 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. However, subsection 40-75(2) of the GST Act provides an overriding rule. It states: (2) However, the *residential premises are not new residential premises if, for the period of at least 5 years since: (a) if paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies) the premises first became residential premises; or (b) if paragraph (1)(b) applies--the premises were last * substantially renovated; or (c) if paragraph (1)(c) applies--the premises were last built; the premises have only been used for making supplies that are *input taxed because of paragraph 40 - 35(1)(a). You constructed two residential units at (address). Once they were built, they were new residential premises under paragraph 40-75(1)(a) of the GST Act as they had not been sold before. Since completion, both units have been held as long term rental investments and have been continually tenanted. You have leased out unit Y for a continuous period of more than 5 years. Paragraph 90 of Goods and Services Tax Ruling Goods and services tax: when is a sale of real property a sale of new residential premises (GSTR 2012/5) sets out the Tax Office view on the 5 year rule. It states: 90. Subsection 40-75(2) requires that for the period of at least 5 years the premises have been used only for making input taxed supplies under paragraph 40-35(1)(a). This requirement in subsection 40-75(2) is satisfied where the only supplies of the premises were by way of lease, hire or licence (i.e. residential rental) for any continuous period of at least 5 years between when the premises would otherwise have become new residential premisesand when they are sold. See Example 8 at paragraphs 124 to 127. In accordance with paragraph 138 of Goods and Services Tax Ruling Goods and services tax: new residential premises and adjustments for changes in extent of creditable purpose GSTR 2004/9, it is considered by the Tax Office that a broad interpretation of 'used' in subsection 40-75(2) to extend to any uses of the premises by the entity including applications for a creditable purpose by way of holding premises for the purpose of sale is consistent with the intended policy referred to in Revised Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 8) 2000. For a continuous period of a least 5 years since you built unit Y, you have held this unit solely for the purposes of making input taxed supplies of residential rental under paragraph 40-35(1)(a) of the GST Act. Additionally, you did not substantially renovate the unit at any point in time after building it. Therefore, unit Y ceased to be new residential premises. You are currently (as at (date)) in the process of selling unit Y. To facilitate the sale, the property containing the two units must be subdivided to create a separate Strata Title for unit Y. We need to consider whether the subdivision and Strata Titling results in the creation of new residential premises. Subsection 40-75(2AA) of the GST Act provides that a subdivision of property may not result in new residential premises. It states: (2AA)Despite subsection (1), the *residential premises are not new residential premises if: (a) they are created from residential premises that became the subject of a *property subdivision plan; and (b) the residential premises referred to in paragraph (a) were not new residential premises immediately before they become the subject of that plan. This subsection has effect subject to paragraphs (1)(b) and (c). 'Property subdivision plan' is defined in section 195-1 of the GST Act as: A plan: (a) for the division of real property; and (b) that is registered (however, described) under an *Australian law Note: Examples are strata title plans and plans to subdivide land. Pursuant to subsection 40-75(2AA) of the GST Act, your subdivision of the entire property that contains the two units which will involve the creation of two Strata Titles will not result in unit Y becoming new residential premises as the unit will not be new residential premises immediately before it becomes the subject of the property subdivision plan. As unit Y is residential premises to be used predominately for residential accommodation and is not excluded from input taxed treatment by paragraph 40-65(2)(a) or 40-65(2)(b) of the GST Act, the sale of unit Y is input taxed pursuant to section 40-65 of the GST Act. As a supply is not a taxable supply to the extent that it is input taxed, GST is not payable on your sale of unit Y. | Detailed Reasoning - Additional information: Supply made in the course or furtherance of an enterprise. The term 'enterprise' includes an activity carried on on a regular or continuous basis in the form of a lease on property (paragraph 9-20(1)(c) of the GST Act). You leased out unit Y on a regular and continuous basis. Therefore, this rental activity is an enterprise. You will sell the unit. The sale of the unit will be made in the course or furtherance of your leasing enterprise. Therefore, the requirement of paragraph 9-5(b) of the GST Act is met. GST registration You are not currently registered for GST. Therefore, if you are not required to be registered for GST, you will not meet the requirement of paragraph 9-5(d) of the GST Act. An individual is not required to be registered for GST if their projected GST turnover is less than $75,000. Input taxed sales and sales of capital assets are excluded from projected GST turnover You will make an input taxed sale of unit Y and this sale will be a sale of a capital asset. Therefore, this sale will be excluded from projected GST turnover. Hence, the sale of unit Y will not result in you being required to be registered for GST.