GST and Residential contract

6/8/2018
Written by

Just a reminder that GST is now a query of every Residential contract dated on & post 1/7/18.

Not just the obvious ‘new land or new builds’, since ‘New Residential Premises’ under the Taxation administration act, may still be quite aged properties!
“The term ‘new residential premises’ is defined in s 40-75 of the GST Act:
Residential premises are new residential premises if they:
a. have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or
b. have been created through substantial renovations of a building; or
c. have been built, or contain a building that has been built, to replace demolished premises on the same land.”

The AICWA have created a ‘Seller’s Notice to Buyer’ seems to be more direct about if GST is applicable or not?

Either way this new ruling is not well known, nor tested so watch this space as it is likely to develop further as time goes on.


Application of the amendments Law Companion Ruling (LCR) 2018/4 cites”
10. The Act applies to supplies for which any of the consideration (other than consideration provided as a deposit) is first provided on or after 1 July 2018. It applies whether a contract for the supply was entered into before, on or after commencement of the measure.
Transitional rule
11. However, the Act does not apply if:
(a) the contract was entered into before 1 July 2018, and
(b) consideration for the supply, other than a deposit, is first provided before 1 July 2020.
When is a contract ‘entered into’?
12. The time when a contract is ‘entered into’ is based on general contract law. For example, a contract was entered into before 1 July 2018 if:
(a) the contracts were exchanged between the parties before 1 July 2018, or
(b) where the contract was entered into by the purchaser and vendor executing two copies of the contract in turn, the acceptance of the offer was communicated to the other party before 1 July 2018.
13. A contract for the sale of property was not entered into before 1 July 2018 if there was only an option in the nature of an irrevocable offer to purchase or sell the property granted before that date. The relevant date for determining whether the measure applies is the date at which the option is exercised.
Overview of when a purchaser has a GST withholding obligation
14. A purchaser has a GST withholding obligation if:
(a) they are the ‘recipient’ of a ‘taxable supply’
(b) the supply is by way of sale or long-term lease
(c) the supply is of
(i) new residential premises (apart from some exclusions) – this is explained in paragraphs 17 and 18 of this Ruling, or
(ii) potential residential land where particular requirements are met – this is explained in paragraphs 19 to 34 of this Ruling.
15. A purchaser only has a GST withholding obligation when a vendor is making a taxable supply. A vendor will not be making a taxable supply in situations including:
• where the vendor is not registered for GST and not required to be registered for GST as the sale is not in the course or furtherance of an enterprise
• the sale of residential premises is input taxed because they are not ‘new residential premises’ (refer to paragraph 18 of this Ruling), or
• the sale is a GST-free supply, for example as part of a GST-free supply of a going concern or GST-free farmland.
16. We consider that ‘sale’, in this context, similar to the GST Act, includes transfers for monetary or non-monetary consideration. Purchaser liability for taxable supplies of new residential premises
17. A purchaser may have a GST withholding obligation under section 14-250 for acquisitions of ‘new residential premises’. The term ‘new residential premises’ has the meaning given by the GST Act. 2 Section 14-250, however, does not apply to:
(a) a supply of new residential premises that have been created through substantial renovations, or
(b) a supply of ‘commercial residential premises’. 
18. This Ruling does not deal with the definition of these terms as they are covered by other Rulings:
• ‘new residential premises’ – Goods and Services Tax Ruling GSTR 2003/3 Goods and services tax: when is a sale of real property a sale of new residential premises?
• ‘residential premises’ – Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises
• ‘commercial residential premises’ – Goods and Services Tax Ruling GSTR 2012/6 Goods and services tax: commercial residential premises.

Purchaser liability for taxable supplies of potential residential land 
19. A purchaser may have a GST withholding obligation under section 14-250 if each of the following requirements are satisfied:
• the property is ‘potential residential land’
• the property is included in a ‘property subdivision plan’
• the property does not contain any building that is in use for a commercial purpose, and
• the purchaser is not registered for GST, or is registered but does not purchase the property for a creditable purpose.
1 See, for example, Goods and Services Tax Ruling GSTR 2009/2 Goods and services tax: partitioning of land at paragraphs 102 to109.
2 See section 40-75 of the GST Act.
3 See paragraph14-250(2)(a).
20. A purchaser who is registered and purchases potential residential land under the margin scheme is not making a creditable acquisition. 4 However, they may still be acquiring the property for a creditable purpose. If so they will not have a GST withholding obligation in those circumstances.
21. A purchaser acquires the potential residential land for a creditable purpose if they have a creditable purpose to any extent. That is, if a purchaser acquires the potential residential land for a partly creditable purpose they do not have a GST withholding obligation. 
22. Whether a supply is of potential residential land included in a property subdivision plan is determined at the time of settlement of the contract. 

Meaning of potential residential land
23. The GST Act defines ‘potential residential land’ as ‘land that it is permissible to use for residential purposes, but that does not contain any buildings that are residential premises’. 
24. It is permissible to use land for residential purposes if the land use and planning laws that apply to the land allow residential use of the land. It is not permissible to use land for residential purposes if the land use and planning laws that apply to the land prohibit residential use of the land. Where the land use and planning laws permit a number of uses for the land, one of which is residential use, then the land will be potential residential land.
25. Land use and planning laws typically categorise land by zones. These define the potential uses of the land and say what the land may be used for.
26. For example, residential zonings typically allow ‘dwelling use’, meaning the land may be used for residential purposes. Commercial or business zoning may also permit use of land for residential purposes. Similarly, agricultural or rural zoning may allow use of land for a residential purpose like a residence on farmland. On the other hand, land may be zoned for industrial use which may prohibit, or not permit, use of the land for residential purposes.
27. Whether it is permissible to use land for residential purposes is not determined by any restrictions imposed by a land owner, for example, by way of a permitted use under a lease or covenant.
28. Land will still be permissible to use for residential purposes even if that use is subject to local government requirements, such as obtaining approval or a permit. For example, it may be necessary to obtain local government development approval before a particular dwelling can be constructed. Despite the requirement for development approval, the residential zoned land is still land that is permissible to use for residential purposes.
29. ‘Residential purposes’ is not defined in the GST Act. It covers potential use of land for a residence or for residential accommodation. While ‘residence’ may suggest permanent or long-term occupation, ‘residential accommodation’ means living accommodation which does not require any degree of permanence of occupation. 7″

Source:https://www.ato.gov.au/law/view/pdf/pbr/lcr2018-004.pdf

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