On 19 December 2012, the Australian Tax Office issued a new GST ruling – GSTR 2012/5 – by which it seems to have changed its view on how you determine whether premises are residential or otherwise, for the purposes of GST.
GSTR 2012/5 makes it clear that premises, comprising land or a building, are also residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation.
The ruling goes on to state that there is a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation.
The real 'sting in the tail' of GSTR 2012/5 is contained in paragraph 10 of the ruling, which sets out:
"The requirement for residential premises to be used predominantly for residential accommodation does not include an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office)."
Previously, under GSTR 2000/20, the actual use of the premises was taken into account as a relevant factor in determining if the premises were 'residential premises'. That ruling set out that factors that were often, but not always, considered, and included:
- The purpose or context of the premises' use is for personal accommodation, rather than another purpose, such as for business.
- The tasks of day-to-day living, such as food preparation, cleaning and laundering, are performed by the occupant, or by others under private arrangements.
This can now lead to the somewhat strange result that premises – which have been used for years for commercial purposes as, for example, retail or office space but which were originally constructed as a house and have not had substantial modifications – may well be considered by the ATO to be input-taxed residential premises when they are sold.
The purchaser cannot claim any input tax credits in relation to its acquisition.
The very real danger is that the parties to the transaction may well think that the supply is taxable. As a result of that belief the purchaser then pays GST to the vendor and claims an input tax credit for the GST. If the ATO takes the view that the premises were 'residential premises' then it is likely to reject the claim for input tax credits and the purchaser may not be able to recover the GST from the vendor.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.