Private ruling: GST and the sale of residential premises
Date of advice: 16 January 2019
Published: April 2019

Ruling: Q1: Is the sale of the properties by the vendor a taxable supply under s9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No | Q2: Will the purchaser be able to use the margin scheme in its future sale of the property as part of its property development business? | A2: Yes

Relevant facts and circumstances: The vendor signed a contract of sale for two properties with the original purchaser. The contract stated the words ‘Plus GST’ in the particulars of sale but the parties disagreed as to whether or not GST was applicable to the sale. The ultimate purchaser obtained transfer of the property by way of nomination and completed the property purchase with the vendor. The vendor agreed to settle the property sale without charging GST at the time of settlement on the condition that a private ruling was obtained from the ATO following settlement. The properties were sold as two existing residential premises and are not new residential premises or vacant land. The vendor did not perform any development, renovation, repairs and/or modifications to the properties. At the time of settlement, the vendor had obtained a planning certificate for the properties allowing construction of an apartment building.

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 40-75 | A New Tax System (Goods and Services Tax) Act 1999 division 75

Reasons for decision: Summary: Section 9-5 of the GST Act sets out the requirements that must be satisfied for a supply to be a taxable supply. It further provides that a supply is not a taxable supply to the extent that it is GST-free or input taxed. Section 40-65 of the GST Act states that a supply of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation. The term 'residential premises' is defined in section 195-1 of the GST Act to mean land or a building that: (a) is occupied as a residence or for residential accommodation; or (b) is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation. In your case, the properties were sold as two existing residential premises and are not new residential premises or vacant land. Therefore, the sale is a supply of residential premises and input taxed pursuant to section 40-65 of the GST Act. However, as the sale also included a planning certificate, we need to consider whether there is a taxable supply separate to the input taxed supply of the residential properties. Before determining whether a taxable supply is being made in relation to the planning certificate, the substance of the supply or supplies must be established. The planning certificate is attached to the land belonging to the residential premises and runs with that land. Upon sale of the residential premises, the planning certificate is automatically transferred to the purchaser as a natural consequence of the sale. This does not result in anything being transferred to the purchaser that would not result naturally from the transfer of the land itself. Therefore, the vendor is not supplying the purchaser with anything more than the residential premises. The vendor is making a single input taxed supply of the residential premises, which includes the planning certificate. Subsection 75-5(2) of the GST Act provides that the margin scheme does not apply if the acquisition of the entire freehold interest, stratum unit or long-term lease was made through a supply that was ineligible for the margin scheme. Under subsection 75-5(3) of the GST Act, a supply is ineligible for the margin scheme if it is one of the supplies listed in that subsection. In the current case, there are no facts in evidence that would make any subsequent supply by the purchaser ineligible for the margin scheme. Providing the requirements set out on Division 75 of the GST Act are met, the purchaser will be able to apply the margin scheme to its future sale of the property.