GST and supply of new residential premises

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 builds and sells residential premises?

No, the entity is not making an input taxed supply under section 40-65 of the GST Act when it builds and sells residential premises. The entity is making a taxable supply under section 9-5 of the GST Act.

The entity is a property developer. The entity purchased a vacant block of land and built residential premises after 2 December 1998. The entity is now selling the residential premises with the land and intends that the residential premises be used for residential accommodation. Prior to the sale, the premises are not used to make any input taxed supplies.

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 and is not a GST-free supply under Division 38 of the GST Act.

Subsection 40-65(1) of the GST Act states that a sale of real property is input taxed to the extent that it is residential premises to be used predominantly for residential accommodation. In this situation, the entity is selling residential premises to be used predominantly for residential accommodation.

However, subsection 40-65(2) of the GST Act provides that the sale of such a premise is not input taxed to the extent that it is: • commercial residential premises; or • new residential premises not used for residential accommodation before 2 December 1998.

The premises in question are not commercial residential premises. However, as it has not been used for residential accommodation before 2 December 1998, it may come within the definition of new residential premises, the supply of which is taxable where the requirements of section 9-5 of the GST Act are satisfied.

Subsection 40-75(1) of the GST Act provides that residential premises are new residential premises if they: • have not previously been sold as residential premises and have not previously been the subject of a long-term lease; • have been created through substantial renovations of a building; or • have been built, or contain a building that has been built, to replace demolished premises on the same land.

The entity is selling residential premises which it built on vacant land. The premises have not previously been sold as residential premises nor has it previously been the subject of a long-term lease. Accordingly, the residential premises in question satisfies the positive limb of the definition of new residential premises in subsection 40-75(1) of the GST Act.

However, the negative limb of the definition contained in subsection 40-75(2) of the GST Act, provides that premises are not new residential premises if, for the period of at least five years since the premises first became residential premises, the premises have only been used for making supplies that are input taxed because of paragraph 40-35(1)(a) of the GST Act.

The premises have not been used to make input taxed supplies. Therefore, subsection 40-75(2) of the GST Act does not prevent the premises from being new residential premises. Accordingly, the entity is making a supply of new residential premises as defined in section 40-75 of the GST Act.

As the entity is supplying new residential premises that have not been used for residential accommodation prior to 2 December 1998, it is not making an input taxed supply under section 40-65 of the GST Act.

The entity is registered for GST and the supply meets all of the 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 of the provisions in Division 40 of the GST Act. Therefore, the entity is making a taxable supply of new residential premises under section 9-5 of the GST Act.