Private ruling: Sale of Input Taxed Residential Premises
Date of advice: 13 October 2016
Published: January 2017

Ruling: Q1: Is the sale of a group of strata units at X (“the Property”) input taxed supplies of residential premises? | A1: Yes

Relevant facts and circumstances: A and B (“the Vendors”) are selling the Property. The group of strata units comprising the Property were purchased by the Vendors on Z. The Property purchased was a group of individual residential apartments with an individual contract of sale for each apartment. GST was paid in full by the Vendors in respect of the purchase of each of the residential apartments. The units are constructed in a way as to accept and accommodate short term and/or permanent residents. All units are equipped with separate living areas, individually keyed, full kitchen, laundry, bathroom/s, separate air conditioning units, smoke detectors, individual electricity meters and water usage billed individually. The units are identified and leased individually and offered to the market via various accommodation portals. Guests can book a property online or in person, pay the full price of stay prior to arrival and must collect keys from the managing agent before attending the property. Guests agree to a defined set of terms and conditions when holidaying in the property. The property is offered as a fully self-contained privately owned, non- serviced holiday accommodation units. The guest registration form states 'No Linen, Towelling or Toiletries are provided'. There is no replenishment, housekeeping, concierge or any other similar services that is offered by the managing agent. There is no on-site management or caretaker and no separate 'managing rights agreement' in existence. The units are inspected and cleaned upon guest departure prior to the return of any security deposit. The Property is a group of self-contained, non-serviced apartments. There is no on-site office function. There are no on-site commercial functions. There are marked car parking spaces allocated to the units respectively. There is a common area swimming pool. There is no storage facility outside the individual units. There are no common areas such as dining, bar, function, kitchen, laundry or reception functions or facilities at the Property.

Relevant legislative provisions: A New Tax System (Goods and Services) Tax Act 1999 section 40-65

Reasons for decision: Summary: Section 9-5 of the A New Tax System (Goods and Services) Tax Act 1999 (“GST Act”) provides the following exception to what constitutes a taxable supply: However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed. Subsection 40-65(1) of the GST Act states: | Detailed Reasoning - Sales of residential premises: 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). The term *residential premises is defined in section 195 of the GST Act as follows: residential premises means 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 occupation; (regardless of the term of the occupation or intended occupation) and includes a *floating home. | Detailed Reasoning - Residential: To determine whether the units comprising the Property are residential premises for GST purposes, it is necessary to examine their physical characteristics. Paragraph 10 of Goods and Services Tax Ruling GSTR 2012/5 states: The requirement for residential premises to be used predominantly for residential accommodation 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). In Sunchen Pty Ltd v Federal Commissioner of Taxation Edmonds and Gilmour JJ held that the phrase 'to be used predominantly for residential accommodation' does not refer to use by any particular person, but to the attributes of the property to which it is suited. In this respect the operation of subsection 40-65(1) is not to be determined by the subjective intention of the purchaser. It is to be determined objectively based on the physical characteristics of the property. Paragraph 15 of GSTR 2012/5 in part states; To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. On the information you have provided, each of the units comprising the Property are capable of providing the necessary shelter and basic living facilities for human inhabitation. | Detailed Reasoning - Commercial Residential: Subsection 40-65(2) of the GST Act provides exceptions to the rule in subsection 40-65(1). It states: 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. Paragraph 6 of Goods and Services Tax Ruling GSTR 2012/6 (Goods and services tax: commercial residential premises) refers to the definition in Division 195 of the GST Act for “commercial residential premises” as: (a) a hotel, motel, inn, hostel or boarding house; (b) premises used to provide accommodation in connection with a school; (c) a ship that is mainly let out on hire in the ordinary course of a business of letting ships out on hire; (d) a ship that is mainly used for entertainment or transport in the ordinary course of a business of providing ships for entertainment or transport; (da) a marina at which one or more of the berths are occupied, or are to be occupied, by ships used as residences; (e) a caravan park or a camping ground; or (f) anything similar to residential premises described in paragraphs (a) to (e). Solely on the information you have provided, the units comprising the Property can be differentiated from the above categories based on the following: ● there is no on site office function; ● there is no on-site management and no separate 'managing rights agreement' in existence; ● there is no on-site caretaker; ● each of the units are run as self-contained, non-serviced apartments; ● there are no on-site commercial functions; ● there are no common areas, for example, dining, bar, function, kitchen, laundry or reception functions or facilities at the Property. ● individual electricity meters and water usage are billed individually; ● there are no linen, towelling or toiletries provided, nor is there any replenishment of items. Guests are expected to provide such items and food for themselves; and ● there are no housekeeping, concierge or any other similar service. They are therefore not considered to be “commercial residential premises”. Applying subsection 40-65(1) of the GST Act, the supplies of each of those units is therefore input taxed as residential premises.