Private ruling: GST and property
Published: May 2013

Ruling: Q1: Will the supply of the property to you be a taxable supply? | A1: Yes, the supply of the property to you will be a taxable supply.

Relevant facts and circumstances: You purchased a property at auction post July 2000. The vendor is registered for the goods and services tax (GST). The property is situated in Australia and had previously been used for non-residential purposes. It is in a residential zone. It was advertised as 'house for sale'. The dwelling set out is clearly for residential purposes. Floorplan shows a kitchen, bathroom, laundry, bedrooms, lounge and dining area. No title exists on the property to your knowledge.

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 subsection 40-65(1). | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(2). | A New Tax System (Goods and Services Tax) Act 1999 paragraph 40-65(2)(a). | A New Tax System (Goods and Services Tax) Act 1999 paragraph 40-65(2)(b). | A New Tax System (Goods and Services Tax) Act 1999 subsection 40-75(1). | A New Tax System (Goods and Services Tax) Act 1999 paragraph 40-75(1)(a). | A New Tax System (Goods and Services Tax) Act 1999 section 195-1.

Reasons for decision: Summary: GST is payable on taxable supplies. You make a taxable supply where you satisfy the requirements of section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which 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. (* Denotes a term that is defined in section 195-1 of the GST Act). In your case, the sale of the property to you will satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is, the sale to you of the property will be a supply made for consideration; it will be made in the course or furtherance of the supplier's enterprise that the supplier carries on; the property is connected with Australia as it is located in Australia; and the supplier is registered for GST. There are no provisions of the GST Act or any other Act under which the sale of the property to you could be GST-free. Therefore, what remains to be determined is whether the sale of the property to you would be input taxed. In accordance with subsection 40-65(1) of the GST Act, a sale of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation. However, subsection 40-65(2) of the GST Act provides exceptions to the rule in subsection 40-65(1) of the GST Act. It states: (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. | Detailed Reasoning - Residential premises: The term 'residential premises' is defined in section 195-1 of the GST Act: 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 accommodation; (regardless of the term of the occupation or intended occupation) and includes a *floating home. In accordance with Goods and Services Tax Ruling GSTR 2012/5, whether premises are residential premises to be used for residential accommodation depends on the physical characteristics of the premises. Paragraphs 9 and 10 of the GSTR 2012/5 relevantly state: 9. 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. 10. 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 your case, the property has the physical characteristics common to residential premises that provide residential accommodation, as they contain sleeping accommodation - the bedrooms, and some basic facilities for day to day living - the bathroom (which contains a shower and a toilet) and the kitchen/lounge room. Hence, the property in your case is residential premises to be used predominantly for residential accommodation, and therefore, the sale of the property to you would satisfy the requirements of subsection 40-65(1) of the GST Act. We then need to consider subsection 40-65(2) of the GST Act which provides exceptions to the rule in subsection 40-65(1) of the GST Act. | Detailed Reasoning - Commercial residential premises: The term 'commercial residential premises' is defined in section 195-1 of the GST Act: commercial residential premises means: (a) a hotel, motel, inn, hostel or boarding house; or (b) premises used to provide accommodation in connection with a *school; or (c) a *ship that is mainly let out on hire in the ordinary course of a *business of letting ships out on hire; or (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; or (da) a marina at which one or more of the berths are occupied, or are to be occupied, by *ships used as residences; or (e) a caravan park or a camping ground; or (f) anything similar to *residential premises described in paragraphs (a) to (e). However, it does not include premises to the extent that they are used to provide accommodation to students in connection with an *education institution that is not a *school. * denotes a term defined in the Dictionary, starting at section 195-1 of the GST Act. From the facts provided, the property does not meet the definition of commercial residential premises. | Detailed Reasoning - New residential premises: New residential premises are defined in section 40-75 of the GST Act: 40-75 Meaning of new residential premises (1) *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. Goods and Services Tax Ruling GSTR 2003/3 provides guidance on the meaning of new residential premises. Paragraphs 27 and 29 provide: 27. Paragraph 40-75(1)(a) raises the question whether the residential premises have previously been sold as residential premises or have previously been the subject of a long-term lease. Where land (or part of that land) and a building that is residential premises is sold, it is the previous sale, or long-term lease, of that land (or that part of the land) and building as residential premises which will determine whether the premises are new. 29. Residential premises that have not previously been sold as residential premises and have not previously been the subject of a long-term lease are new residential premises. In your case, the property had not been sold previously as residential premises and have not previously been the subject of a long term lease, so it will meet the definition of new residential premises in paragraph 40-75(1)(a) of the GST Act. It is then necessary to consider whether the property has been used for residential accommodation before 2 December 1998. Goods and Services Tax Ruling GSTD 2012/11 provides guidance on the new residential premises that were used for residential accommodation before 2 December 1998. Paragraphs 11 to 14 provide: 11. The effect of paragraph 40-65(2)(b) is that a sale of new residential premises that have been used for residential accommodation (regardless of the term of occupation) before 2 December 1998 is an input taxed supply where the premises are to be used predominantly for residential accommodation. 12. The reference to prior use for residential accommodation in paragraph 40-65(2)(b) is construed as applying only where the premises at the time of use before 2 December 1998 were residential premises but not commercial residential premises. That is, the prior use referred to in paragraph 40-65(2)(b) does not encompass prior use for making supplies of accommodation in commercial residential premises. 13. In South Steyne Hotel Pty Ltd v. Commissioner of Taxation Edmonds J considered that the legislative policy perceived from the statutory context supported this view. His Honour noted that the definition of new residential premises in section 40-75 made it clear that the fact that premises have previously been sold as commercial residential premises does not preclude them from being new residential premises. Additionally, a supply of premises by way of lease, hire or licence that is a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises is not input taxed. His Honour then concluded that the policy underlying the 'carve-out' for premises used for residential accommodation before 2 December 1998 was to be found in a use of the premises that would be input taxed if the subject of a current supply. Therefore, the 'carve-out' in paragraph 40-65(2)(b) should be construed as not extending to a use prior to 2 December 1998 which would not now be an input taxed supply. 14. At first instance, Stone J in South Steyne Hotel Pty Ltd v. Commissioner of Taxation reached a similar conclusion with reference to 'slight but clear' textual support in the Act and relevant extrinsic materials, in particular, paragraph 11.21 of the Revised Explanatory Memorandum to the Indirect Tax Legislation Amendment Bill 2000 and example 15.4 of the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 3) Bill 2006. In your case, the property was not used for residential accommodation before 2 December 1998. As such, the exception at paragraph 40-65(2)(b) of the GST Act will apply. The sale of the property to you will be a taxable supply of new residential premises under paragraph 40-65(2)(b) of the GST Act. Consequently, GST will be payable on the sale of the property to you.