Issue
Is the entity, an owner of a house, making an input taxed supply under section 40-35 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies its house by way of a lease to be used by the lessee as a display home?
Decision
Yes, the entity is making an input taxed supply under section 40-35 of the GST Act when it supplies its house by way of a lease to be used by the lessee as a display home.
Facts
The entity is an owner of a house. The entity is leasing the house to a builder who uses the house as a display home. The house has all the physical characteristics that enable it to be used for residential accommodation.
The entity is registered for goods and services tax (GST).
Reasons for Decision
Under subsection 40-35(1) of the GST Act, a supply of premises by way of lease is input taxed if it is a supply of residential premises.
A house is a residential premise as it is intended to be occupied, and is capable of being occupied, as a residence (section 195-1 of the GST Act). However, paragraph 40-35(2)(a) of the GST Act states that the supply is input taxed only to the extent that the premises are to be used predominantly for residential accommodation.
In order to determine whether the supply is input taxed, the issue that needs to be considered is whether the house is 'to be used predominantly for residential accommodation'.
It is considered that it is the physical characteristics of the premises that determine whether or not premises 'are to be used predominantly for residential accommodation'.
The premise leased as a display home is a house and has all the physical characteristics that enable it to be used for residential accommodation. Therefore, it is considered that the house being leased as a display home is to be used predominantly for residential accommodation.
Therefore, the supply of the house by way of lease, to be used by the lessee as a display home is an input taxed supply under section 40-35 of the GST Act.