Private ruling: GST and residential premises
Published: April 2014

Ruling: Q1: Is your supply of residential premises, by way of lease to a tenant who is conducting a commercial enterprise at the premises, a taxable supply pursuant to Division 9 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No, your supply is an input taxed supply of residential premises pursuant to section 40-35 of the GST Act.

Relevant facts and circumstances: You purchased residential premises in Australia (the premises). The premises are not commercial residential premises. At settlement, the premises were leased to a company, which conducted a commercial enterprise from the premises. You have continued to supply the premises to the company under that lease agreement. The tenant has made minor alterations to the 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 40-35 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: 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 Australia; 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. (Items marked with an *asterisk are defined in the Dictionary at section 195-1 of the GST Act). In this case: • your supply of the premises is made for consideration, • it is made in the course or furtherance of an enterprise that you carry on, • it is connected with Australia, and • you are registered for GST. We therefore need to consider whether your supply is GST-free or input taxed. There are no provisions within the GST Act that make the supply of the premises, in your circumstances, GST-free. However, section 40-35 of the GST Act states: 1. A supply of premises that is by way of lease, hire or licence (including a renewal or extension of the lease, hire or licence) is input taxed if: (a) the supply is of *residential premises (other than a supply of *commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity owned or controlled the commercial residential premises); or (b) the supply is of *commercial accommodation and Division 87 (which is about long-term accommodation in commercial premises) would apply to the supply but for a choice made by the supplier under section 87 - 25. The premises are residential premises that are not commercial residential premises. As explained in paragraphs 9 and 10 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax : residential premises (GSTR 2012/5), it is the physical characteristics of premises that determines that they are residential premises. This is so even if they are used for a purpose other than to provide residential accommodation (eg, where the premises are used as a business office). Your tenant has made minor modifications to the premises. However, as explained in paragraphs 40-45 of GSTR 2012/5, minor modifications to premises are not sufficient to change the physical characteristics of residential premises into premises other than residential premises. Despite the minor modifications made by your tenant, your premises are residential premises. Your supply of the premises by way of lease is an input taxed supply of residential premises.