Private ruling: goods and services tax (GST) and sale of property
Published: February 2012
Date scheme commenced: You are registered for GST.

Ruling: Q1: Will GST be payable on your sale of the property? | A1: No.

Relevant facts and circumstances: You are registered for GST. You are a not-for-profit public benevolent charitable institution that provides services for people with disabilities. You purchased a property with a house on it at an Australian address. The premises comprised of a few bedrooms, a kitchen, a dining room, a bathroom, an en-suite, a toilet, a games room and a laundry when you purchased them. These rooms still remain. The property is located in a residential zone. However, the authority gave approval to you to use the property for special use in a certain year and the premises were zoned for your use as something. You converted the house into an office. You installed sprinklers outside the house below the eaves. You installed fire extinguishers inside the house. The only alterations that would need to be done to make the premises suitable as a residence again are very minor - taking out a small partition and adding back the spa or bath. You did not substantially renovate the house. You will sell the property for more than you paid for it. The purchaser will convert the premises back into a residence.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-40 | 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 subsection 40-75(1)

Reasons for decision: Summary: Summary GST will not be payable on your sale of the property as it will be an input taxed sale of residential premises under subsection 40-65(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). | Detailed Reasoning - Detailed reasoning: GST is payable by you where you make a taxable supply. You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states: You make a taxable supply if: · you make the supply for *consideration; and · the supply is made in the course or furtherance of an *enterprise that · you *carry on; and · the supply is *connected with Australia; and · 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 defined in section 195-1 of the GST Act) In your case, you will satisfy the requirements of paragraphs 9-5(a) to 9-5(d) of the GST Act. That is, you will supply the property for consideration and you will make this supply in the course or furtherance of an enterprise that you carry on. Additionally, the supply of the property will be connected with Australia as the property is located in Australia and you are registered for GST. There are no provisions in the GST Act under which the sale of the property will be GST-free. Therefore, what remains to be determined is whether the sale of the property will be input taxed. | Detailed Reasoning - Input taxed sales of residential premises: Subsection 40-65(1) of the GST Act states: 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). Subsection 40-65(2) of the GST Act 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. Subsection 40-75(1) of the GST Act states: Residential premises are new residential premises if they: · 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 · have been created through *substantial renovations of a building; or · have been built, or contain a building that has been built, to replace demolished premises on the same land. In accordance with paragraphs 19 and 20 of Goods and Services Tax Ruling GSTR 2000/20, it is the physical characteristics that determine whether premises are residential premises to be used for residential accommodation. To be such premises, premises need only provide sleeping accommodation and the basic facilities for daily living. At the time you purchased the premises, they comprised of sleeping accommodation and the basic facilities for daily living. The premises comprised of a few bedrooms, a kitchen, a dining room, a bathroom, an en-suite, a toilet, a games room and a laundry at that time. Therefore, the premises were residential premises to be used for residential accommodation when you purchased them. The rooms that existed when you purchased the premises remain. The only alterations that would need to be done to make the premises suitable as a residence again are very minor - taking out a small partition and adding back the spa or bath. Therefore, we consider that you will sell residential premises to be used for residential accommodation. The residential premises are not commercial residential premises, such as a hotel. The residential premises have previously been sold as residential premises other than commercial residential premises. Therefore, the residential premises are not new residential premises under paragraph 40-75(1)(a) of the GST Act. In accordance with paragraph 28 of Goods and Services Tax Ruling GSTR 2003/3, paragraphs 40-75(1)(b) and 40-75(1)(c) of the GST Act raise the question of what has been done to the building or the activity of building by the current owner and this will determine whether the residential premises are new residential premises. You have not substantially renovated the residential premises, and the premises have not been built, and do not contain a building that has been built, by you to replace premises you demolished on the same land. Therefore, the residential premises are not new residential premises under paragraph 40-75(1)(b) or paragraph 40-75(1)(c) of the GST Act. Hence, you will make an input taxed sale of residential premises under subsection 40-65(1) of the GST Act. Therefore, you will not make a taxable sale of the property. Hence, GST will not be payable on your sale of the property.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.