GST and the sale of townhouses

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 townhouses that have been constructed on two vacant blocks of residential land?

No, the entity is not making an input taxed supply under section 40-65 of the GST Act when it sells townhouses that have been constructed on two vacant blocks of residential land. The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is a property developer that owned two vacant blocks of residential land. The entity constructed townhouses on these blocks of residential land after 2 December 1998. The townhouses are strata titled. The townhouses are capable of being occupied as a residence.

The entity is registered for goods and services tax (GST). The supply satisfies 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 input taxed.

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 under section 195-1 of the GST Act to include any interest in or right over land. The sale of the townhouses is the sale of real property.

Residential premises are defined under 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 townhouses are capable of being occupied as a residence and therefore, are residential premises.

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.

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.

The construction of strata titled townhouses has created a new title of real property that has not previously been sold as residential premises. Therefore, the townhouses are new residential premises under paragraph 40-75(1)(a) of the GST Act. In addition, the townhouses were not used for residential accommodation before 2 December 1998 and as such, the sale of the townhouses is not an input taxed supply 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 townhouses. [Note: Where an entity is making a taxable supply of real property, it will be 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 of the GST Act are met.]