GST and supply of residential premises rented out for more than five years

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 residential premises for the first time after it has been rented out for a period of more than five years?

Yes, the entity is making an input taxed supply under section 40-65 of the GST Act when it sells residential premises for the first time after it has been rented out for a period of more than five years.

The entity is a property developer. The entity builds residential premises and plans to rent it out for a period of more than five years. The entity then plans to sell the residential premises. The premises are to be used predominantly for residential accommodation. The premises arenot commercial residential premises. The premises will not be the subject of a sale or a long term lease prior to the planned sale.

The entity is registered for goods and services tax (GST).

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. However, subsection 40-65(2) of the GST Act provides that the sale of such premises 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; or • 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.

As the premises will not be the subject of a sale or a long term lease prior to the planned sale, itsatisfies 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 entity is supplying a premise that will be rented out for residential accommodation for a period of more than five years. This supply will be input taxed under paragraph 40-35(1)(a) of the GST Act. As such, subsection 40-75(2) of the GST Act operates to prevent the premises from being new residential premises.

Accordingly, the entity is making an input taxed supply of residential premises under section 40-65 of the GST Act, when it sells residential premises for the first time after it has been rented out for a period of more than five years. [Note: Where the entity builds residential premises and subsequently rents out the residential premises, the entity cannot claim the input tax credits for the construction costs under section 11-20 of the GST Act, because the construction costs relate to making an input taxed supply of those premises.]