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Will the supply of the property XXX be an input taxed supply of residential premises by The Trustee for XXX Trust pursuant to section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Yes, your sale of the Property will be an input taxed supply of residential premises under section 40-65 of the GST Act, and GST is not payable on the supply

The Trustee XXX is not registered for GST. The house was originally built by the previous owners in approximately 19XX. The property was never rented out since purchased. A builder was engaged to make the house ready for occupancy. All rooms remained in their original positions, except for opening a half wall between the lounge and dining areas. A deck was added to the existing verandah. Kitchen cupboards were removed due to age and water damage. You borrowed money and now you have intention to sell the Property.

A New Tax System (Goods and Services Tax) Act 1999 section 40-35 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

Subsection 40-65(1) Act provides: 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' 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. Goods and Services Tax Ruling GSTR 2012/5, Goods and services tax: residential premises (GSTR 2012/5) sets out the Commissioner's view on how Subdivision 40-B and 40-C apply to supplies of residential premises, and includes the following:

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 .... 14. Residential premises are not limited to premises suited to extended or permanent occupation. Residential premises provide 'living accommodation', which does not require any degree of permanence. It includes lodging, sleeping or overnight accommodation.

15.          To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation. In this case, you will be selling the Property, which consists of one residential house situated on the land. The house is fully suitable for use as a residence. We consider that your Property provides shelter and basic living facilities. The Property has the physical characteristics that make it suitable for and capable of being occupied as residential accommodation. This means your Property satisfies the condition specified in subsection 40-65(1) as 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' Accordingly, your sale of the Property will be input taxed, provided the exceptions in subsection 40-65(2) do not apply. Subsection 40-65(2) 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. The GST definition of 'commercial residential premises' includes a hotel, motel, inn, hostel or boarding house or anything similar to those premises. In your case, the Property consists of a single residential dwelling intended for residential premises, as determined earlier in this ruling. There is no commercial or office space, reception area, or lounge/bar within the house. You do not present the premises to the public as offering accommodation or services consistent with a hotel, motel, hostel, or boarding house. There are no shared facilities such as a common laundry or common areas, as the property is a standalone residence. Accordingly, we consider that, by itself, your residential Property does not have any commercial infrastructure that would support the commercial operation of the premises and therefore cannot be classified as commercial residential premises for GST purposes. This means the exception in paragraph 40-65(2)(a) to you making an input taxed supply of residential premises has no application.

Furthermore, we need to consider whether the 'new residential premises' exception in paragraph 40-65(2)(b) applies. Subsection 40-75(1) provides the meaning of 'new residential premises', and generally includes: •                     residential premises that 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, •                     residential premises that have been created through substantial renovations of a building, or •                     residential premises that have been built, or contain a building that has been built, to replace demolished premises on the same land. However, under paragraph 40-75(2)(c), the premises are not new residential premises if, for the period of at least 5 years from becoming new residential premises, the premises have only been used for making supplies by way of lease, hire or licence that are input taxed under paragraph 40-35(1)(a). Section 195-1 of the GST Act defines the term substantial renovations as the following:

'substantial renovations' of a building are renovations in which all, or substantially all, of a building is removed or is replaced. However, the renovations need not involve removal or replacement of foundations, external walls, interior supporting walls, floors, roof or staircases. Goods and Services Tax Ruling GSTR 2003/3, Goods and services tax: when is a sale of real property a sale of new residential premises? (GSTR 2003/3) sets out the Commissioner's view on what is a 'sale' for the purposes of section 40-65 and when real property is new residential premises pursuant to section 40-75 of the GST Act. The following paragraphs from GSTR 2003/3 are relevant to your circumstances: 53. New residential premises may be created through substantial renovations of a building. A sale of new residential premises may be a taxable supply if the requirements for the making of a taxable supply are satisfied... 61. We consider that for substantial renovations to occur for the purposes of the GST Act, the renovations need to satisfy the following criteria before it is necessary to make further inquiry to establish whether the renovations are substantial:

(i)       the renovations need to affect the building as a whole; and (ii)      the renovations need to result in the removal or replacement of all or substantially all of the building. 62. Where one of the above criteria is not satisfied substantial renovations have not occurred and no further inquiry needs to be made. Based on the facts provided, we consider that the renovations carried out on the Property did not affect the building as a whole and did not result in the removal or replacement of all or substantially all of the building. In your case: •                     You acquired the Property in XXX with an existing house on the land. •                     You did not carry out any substantial renovations on the house. •                     Since acquisition, you have not leased the property to another entity. The property has remained under the control of the trustee and was not used to generate rental income. •                     No GST was charged or included in relation to any rental arrangement, as the property was never leased.

•                     You are now proposing to sell the property. There is no existing lease in place, and the sale will occur without any tenancy obligations. Therefore, the Property is not a new residential premises. In summary, we have determined the Property: •                     is residential premises under subsection 40-65(1); •                     is not a commercial residential premises under paragraph 40-65(2)(a); and •                     is not new residential premises under paragraph 40-65(2)(b). Accordingly, your sale of the Property will satisfy the requirements of subsection 40-65(1) to be an input taxed supply of residential premises and GST is not payable on the supply. That is, you will not be required to include GST in the price when you sell the Property.