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1 Will the sale of the property situated at XX (the Property) be an input taxed supply of residential premises pursuant to section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

1 No. This ruling applies for the following periods: DDMMYYYY The scheme commenced on: DDMMYYYY

You, the taxpayer, are registered for GST effective from DDMMYYYY, on the basis of conducting XX work. On DDMMYYYY, you purchased a property situated at XXX (the Property) for $XXX. The purchase price did not include GST. The Property is described as a single storey dwelling with a land size of XX, comprising of a kitchen, a toilet, sitting and fixed reception area, XX rooms and a sealed multiple car carpark. The Property does not contain a bath/shower facility, although you believe it contained a bath/shower facility at some point in time prior to your acquisition. As per the below property floor plan there are a total of XX handwashing basins installed in rooms that are not wet or kitchen areas of the Property. There is signage at the front of the Property to notify potential clients that XX consulting services are offered at the Property. There was an electrical fire following the acquisition of the Property. The Property was reinstated by the insurance company including plaster, paint, cupboards, carpet. The insurance company did not make changes to the above floor plan, but the brick exterior was rendered following the fire in XXXX

In late XXXX, you commenced your enterprise of licensing the rooms within the Property to third parties for the purposes of XX work and sessional leasing. The rooms were licensed on an hourly/daily basis, and you charged GST on the rent received for licensing the rooms. On DDMMYYYY, you signed a Contract of Sale with a purchaser (the Purchaser) for the sale of the Property for $XXX (the Contract of Sale). As per the Contract of Sale the price is inclusive of GST because an election has not been made to indicate otherwise. The settlement of the Property occurred on DDMMYYYY. At the time of sale and settlement, the Property was configured and in the same state as when you originally acquired it. You advised that, had you chosen to (or been requested to), the installation of a bath/shower facility would not have been a difficult or a costly exercise and could have been arranged and completed quickly in any one of the XX rooms at the rear of the residence, subject to any local council requirements. The Property was advertised on Website A and Website B. The Purchaser is demanding a tax invoice for the supply under the Contract of Sale.

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 Division 38 A New Tax System (Goods and Services Tax) Act 1999 section 40-65 A New Tax System (Goods and Services Tax) Act 1999 section 40-75 A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Section 9-40 provides GST is payable on taxable supplies. Section 9-5 provides that 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 that you carry on; c)             the supply is connected with the indirect tax zone (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. Division 38 and 40 provide for certain supplies to be GST-free and input taxed respectively. We consider that Division 38 has no application to your supply of the Property. Accordingly, your supply of the Property was not GST-free. As the Property contains an existing dwelling, it is relevant to consider whether the sale of the Property can be considered to be a supply of residential premises, and therefore input taxed under Division 40. Subsection 40-65(1) 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 (regardless of the term of occupation).

However, subsection 40-65(2) provides that the sale will not be input taxed to the extent the residential premises are commercial residential premises or new residential premises. Section 195-1 defines 'residential premises' to mean 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. The terms 'commercial residential premises' and 'new residential premises' are also defined in section 195-1 of the GST Act. When defining new residential premises, section 195-1 of the GST Act defines the term by reference to the meaning given for the term in section 40-75 of the GST Act. In this case the Property does not meet the definitions of new residential premises or commercial residential premises under the GST Act. Residential premises Goods and Services Tax Ruling 2012/5 G oods and services tax: residential premises (GSTR 2012/5) consider how section 40-65 applies to supplies of residential premises. Paragraphs 6 and 7 of GSTR 2012/5 explain the definition of residential premises to be as follows:

Residential premises to be used predominantly for residential accommodation (regardless of the term of occupation) Definition of residential premises 6. Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition . 7. Premises, comprising land or a building, are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises.

Therefore, to satisfy paragraph (a) of the definition of residential premises contained in section 195-1, the actual use of the property needs to be for residential accommodation. As the property is being used as XXX consulting rooms, paragraph (a) of the definition contained in section 195-1 is not satisfied. Paragraph (b) of the definition of residential premises is satisfied if the premises are intended to be occupied and are capable of being occupied as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises. Physical characteristics Paragraph 9 of GSTR 2012/5 provides that the requirement in section 40-65 of the GST Act 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.

Further, paragraph 10 of GSTR 2012/5 provides that 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 the 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, premises may be used as a business office, however they may still be considered to be a residential premises based on the fact that it displays the physical characteristics common to 'residential premises'. Paragraph 15 of GSTR 2012/5 provides that in order to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Further, as explained in paragraph 20 of GSTR 2012/5, the premises must be fit for human habitation, which is determined through an objective consideration of the relevant facts and circumstances.

However, not all premises that possess basic living facilities are residential premises to be used predominantly for residential accommodation. If it is clear from the physical characteristics of the premises that their suitability for living accommodation is ancillary to the premises' prevailing function, the premises are not residential premises to be used predominantly for residential accommodation (paragraph 25 of GSTR 2012/5). The physical characteristics common to 'residential premises' is that they provide the occupants with sleeping accommodation and basic facilities for day to day living. These characteristics will be inherent in the design and fabrication of the premises, which typically include areas for sleeping, eating and bathing. However, these things do not need to be arranged in a manner that is similar to a conventional house or apartment.

You advised that the Property was purchased 'as is' without any modifications made to the Property. Furthermore, despite an electrical fire following the acquisition of the Property, no changes were made to the Property or the floor plan following the minor rectifications made by the insurance company in XXXX, and the Property remains the same to date.

Taking into consideration the configuration of the Property, it is evident that the Property has rooms that can be treated as sleeping areas. The Property also has a kitchen facility that, while basic in nature, still display and are consistent with the characteristics of a domestic kitchen. While the Property also contains a toilet, which is an essential facility for residential premises, it however does not contain a bathroom/shower facility. Whilst the Property can provide shelter, the absence of a shower/bathing facility prevents it from being capable of providing all of the requisite 'basic living facilities' necessary to meet the definition of a residential premise. The shower/bathing facility is a fundamental characteristic of a residential premises without which, a premises is not suitable for or capable of being occupied as residential premises or for residential accommodation. Furthermore, the Property displays characteristics that are not common to a residential premise as the Property has had almost every room in it subject to some form of modification to convert the rooms to areas suitable to be used as XX consulting rooms.

We consider the Property displays similar characteristics to the property described under Example 8 of GSTR 2012/5 (paragraphs 41 to 43 of GSTR 2012/5), whereby residential premises have been partly converted for business use: Example 8 - residential premises partly converted for business use 41. Shannon decides to partly modify her house to use in her profession as a doctor. She modifies an area of the house to provide office and consulting room space, an operating theatre, a waiting room and storage for the business. A sealed car park is also added to the property. Significant physical modifications are made to these areas, including the removal and alteration of walls, and the addition of lighting, hygiene facilities and security to meet industry standards. The existing lounge room is used as the patients' waiting room. An existing bedroom is used for storage. No physical modifications are made to the lounge room or bedroom.

42. The modifications result in the part of the premises consisting of the office, consulting room, operating theatre and car park no longer being residential premises to be used predominantly for residential accommodation. Objectively, part of the premises is still designed predominantly for residential accommodation, comprising bedrooms (including the bedroom used for storage), bathroom, kitchen, living room, lounge room and gardens. 43. If Shannon later sells or leases the premises, she will need to apportion the value of the supply between the taxable and input taxed parts of the supply. Based on the facts of this case, physical modifications have been made to the Property, in particular, the installation of a ramp at the entrance of the Property, a built-in reception area/desk, basins in XX of the XX available rooms and a sealed multiple car parking area at the rear of the Property. These significant modifications, albeit not initiated by you, strengthen the position that the Property, as a whole, is no longer designed or suitable for residential premises to be used predominantly for residential accommodation.

It is clear from the physical characteristics of the Property that its suitability for living accommodation is ancillary to the Property's prevailing function as a XX consultation suite. As such, consistent with the principles outlined in paragraph 25 and Example 8 of GSTR 2012/5, the Property is not residential premises to be used predominantly for residential accommodation. That is, the physical characteristics of the Property indicate that the Property in its current form is a place to undertake tasks associated with providing XX consultations to patients in a commercial XX facility environment. Therefore, the supply of the Property will not be an input taxed supply under Division 40 of the GST Act. As the supply of the Property will not be an input taxed supply of a residential premise, it will be a taxable supply if all the elements of section 9-5 are satisfied. In this case all the elements of section 9-5 will be satisfied as the supply of the Property will be made for consideration, in the course or furtherance of an enterprise you carry on, connected with the indirect tax zone and you are registered for GST.

Therefore, the sale of the Property will be a taxable supply, and you will be required to remit 1/11th of the sale price of the Property being the GST payable.