In brief - ATO ruling GSTR 2012/5 sets out single test for residential premises GST exemption

Ruling GSTR 2012/5 (which came into effect from 19 December 2012) highlights that for residential premises exemption from GST to apply, there is a single test that looks at the physical characteristics of the property to determine the suitability of that property for residential accommodation.

Purchaser's intention not relevant to ATO assessment of premises

In 2012 the Australian Taxation Office (ATO) issued a new GST ruling, GSTR 2012/5, which deals with the GST treatment of residential premises. The new ruling clarifies many issues raised with respect to previous rulings relating to the GST treatment of residential premises.

The ruling confirms that the intention of the purchaser is not relevant when determining whether the supply relates to residential premises.

If the premises are residential premises, it makes no difference if the purchaser's stated intention is to redevelop the property, because the buyer's plans do not change the characteristics of the premises in the hands of the supplier. Provided the house, at the date of supply, constitutes residential premises which are capable of being used predominantly for residential accommodation, then the sale is input taxed.

The ruling confirms that residential premises do not have to be used for accommodation on an extended basis. The premises have to be capable of providing "living accommodation" and this does not require a degree of permanence.

Sale of other facilities together with a residential unit

Often, in strata schemes, certain facilities are the subject of separate titles (for example garage, parking facilities or storage lots).

If these are supplied together with a residential unit, then the supply of these lots will be deemed to be input taxed. If, however, they are sold separately, then they are not a sale of residential premises to be used predominantly for residential accommodation (even though they are in a residential accommodation complex) and therefore they will be subject to GST.

Premises used both for residential accommodation and for business purposes

There will be many circumstances where the supply requires apportionment where part of the premises are used predominantly for residential accommodation and part are not residential premises to be used for this purpose.

For example, where there is a house or part of the house which is used (after significant modification) for business purposes, then there needs to be an apportionment of the value of the supply between the taxable portion (the portion used for business) and the input taxed portion (the residential accommodation portion).

Home office created without significant modification of premises

However, merely because one room of a residence is used for business purposes does not mean that an apportionment has to take place.

For example, if a room of a residential premises is used for office purposes without significant physical modification (for example, just putting in furniture, shelving and communication lines), then this is not sufficient to require an apportionment and the whole of the sale or lease of these premises would be input taxed.

Land included with building used for residential purposes

There is no specified restriction on the area of land that can be included with a building which will be deemed to be used for residential purposes. It is a question of fact and degree. You need to look at the extent to which the physical characteristics of the land and building as a whole indicate that the land is enjoyed as part of the use of the building for residential purposes.

Vacant land cannot be residential premises.

Display homes and transportable buildings

Interestingly, the ruling states that a display house that is residential premises to be used predominantly for residential accommodation and which is supplied by way of lease as a display home (even if the lease contains prohibition on the property being used for residential accommodation during the term of the lease) will be input taxed. The reason for this is that the underlying usage of the property will be for residential purposes on a long term basis.

A transportable building (for example a demountable dwelling or moveable home) is residential premises when placed on land, provided it is installed for use as a residence. The supply of a transportable home before it is placed on land and installed ready for residential occupation is not input taxed.

Are the premises suitable and capable of residential accommodation?

GST Ruling 2012/5 clarifies a number of grey areas that previously existed with respect to the residential premises exemption from GST liability, but highlights that the overarching principle always is to establish, by looking at all the facts, circumstances and the physical characteristics of the premises, whether the premises are suitable and capable of residential accommodation. One of these factors, of course, is the zoning for the property.