GST and the sale of a strata titled residential apartment

Is the entity, a property developer, making an input taxed supply under section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells a strata titled residential apartment that was constructed after 2 December 1998?

No, the entity is not making an input taxed supply under section 40-65 of the GST Act when it sells a strata titled apartment that was constructed after 2 December 1998. The entity is making a taxable supply under section 9-5 of the GST Act when it sells the residential apartment.

The entity is a property developer. The entity has constructed a residential complex that was completed after 2 December 1998. Once completed, the entity retained ownership of several of the residential apartments located within the complex. The residential apartments are strata titled. The entity is now selling one of these residential apartments that has been used solely for making input taxed supplies (ie rental purposes) for less than five years.

The entity is registered for goods and services tax (GST). The supply meets the other positive limbs of section 9-5 of the GST Act.

Section 40-65 of the GST Act provides that a sale of residential premises may be an input taxed supply.

Under subsection 40-65(1) of the GST Act, 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.

Real property is defined in section 195-1 of the GST Act to include any interest in or right over land. The sale of the strata titled residential apartment is the sale of real property.

Residential premises are defined in section 195-1 of the GST Act to mean land or a building that is occupied or is intended to be occupied as a residence and which is capable of being occupied as a residence. The residential apartment is capable of being occupied as a residence and is therefore, a residential premise.

Under paragraph 40-65(2)(b) of the GST Act, the sale of residential premises is not input taxed if the residential premises are new residential premises, other than those used for residential accommodation before 2 December 1998.

Section 40-75 of the GST Act defines the meaning of new residential premises.

Under paragraph 40-75(1)(a) of the GST Act, new residential premises are defined to include residential premises that have not previously been sold as residential premises and have not previously been the subject of a long-term lease.

However, under paragraph 40-75(2)(a) of the GST Act, residential premises are not new residential premises if the premises have been used solely for making input taxed supplies for a period of at least five years since the premises were built.

Construction of the residential complex, containing strata titled residential apartments, has created a new title of real property that has not previously been sold as residential premises. The residential apartment has been used solely for making input taxed supplies for less than five years. Therefore, the residential apartment is a new residential premise under section 40-75 of the GST Act.

In addition, the residential apartment was not used for residential accommodation before 2 December 1998 and as such, the sale of the strata titled residential apartment is not input taxed under section 40-65 of the GST Act.

The entity is registered for GST and the supply satisfies the other positive limbs of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under any other section of Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells the residential apartment. [NOTE: Where an entity is making a taxable supply of real property, it is liable for one-eleventh of the GST-inclusive sale price. However, the entity may be able to apply the margin scheme where the requirements of Division 75 are met.]