Private ruling: Input tax supplies
Published: May 2013

Ruling: Q1: Is your supply of apartments an input-taxed supply of residential premises? Decision: Yes. Facts: You are been registered for GST. You carry on an enterprise in property development. You built a residential property complex containing units with the intention to sell them for a profit. Each unit provides its own living spaces along with its own kitchen, bedroom and bathroom. There is no commercial infrastructure to support any commercial operation of the premises. You sold some of those units and applied the margin scheme. You decided to lease/rent the unsold units due to a sharp decline in the market. You made adjustments pursuant to Division 129 to reflect the change in the extent of creditable purpose of your acquisitions relating to the construction of the unsold units. The unsold units have not been available for sale since the change of intention. The unsold units have been tenanted or actively marketed for tenants since the change of intention. They have not been used for a private purpose or left vacant with no attempt to lease, hire or license during that time. The unsold units, individually and together, have the physical characteristics of residential premises. The unsold units have not been used as, and do not display any characteristics of commercial residential premises. There have been no substantial renovations to the unsold units since construction was completed.


Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 9-5, | A New Tax System (Goods and Services Tax) Act 1999 40-65 and | A New Tax System (Goods and Services Tax) Act 1999 40-75.

Reasons for decision: Summary: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides 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 you carry on, (c) the supply is connected with Australia, and (d) you are registered or required to be registered for GST. A supply however is not a taxable supply to the extent that it is GST-free or input taxed. In this case, of relevance for consideration in section 9-5 of the GST Act is, whether the future sales of your unsold units constitute input-taxed supplies. Division 40 of the GST Act deals with supplies that are input taxed. If a supply is input taxed, then: · no GST is payable on the supply; · there is no entitlement to an input tax credit for anything acquired or imported to make the supply. Subsection 40-65(1) of the GST Act provides that 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. However, under subsection 40-65(2), the sale is not input taxed to the extent that the residential premises are commercial residential premises or new residential premises other than those used for residential accommodation before 2 December 1998. On the facts you have provided, the premises are residential premises that have not previously been sold. You have also advised that they are not commercial residential premises. Paragraph 40-75(1)(a) of the GST Act provide situations where residential premises are considered to be new residential premises. These situations include where the premises have not previously been sold as residential premises. However, paragraph 40-75(2)(a) of the GST Act further provides that premises are not new residential premises if, for a period of at least five years since the premises first became residential premises, the premises have only been used for making input taxed supplies by way of lease, hire or licence. Goods and Services Tax Ruling 2003/3: when is a sale of real property a sale of new residential premises? (GSTR 2003/3) provides guidance in relation to the five years. It states in paragraph 91; "We consider the five year period must be a continuous period. A continuous period is not broken by short periods between tenancies where the premises are actively marketed for rent following the departure by a previous tenant". Further paragraph 92 of GSTR 2003/3 states; "However a continuous period would not include periods when the premises are used for a private purpose or left vacant with no attempt to lease, hire or licence". In your circumstances, you built a number of residential units. These units had the physical characteristics of residential premises and had not previously been sold. For these reasons, they would be classed initially as new residential premises. However, from the date you changed your intention until now (a period that exceeds 5 years), they have been used continuously to make input taxed supplies of residential rent. Therefore, they are no longer considered to be new residential premises. Accordingly, the sale of the units will constitute an input-taxed supply.