Today the Commissioner issued two GST Determinations and one GST draft ruling – they all deal with residential and commercial premises. The publications are:
- GSTD 2012/1 – Goods and Services tax: what are the goods and services tax consequences following the sale of residential premises that are subject to a lease?
- GSTD 2012/2 – Goods and Services tax: what are the goods and services tax consequences following the sale of commercial premises that are subject to a lease?
- GSTR 2012/D1 – Goods and Services tax: residential premises and commercial residential premises
This Determination seeks to confirm the Commissioner’s view in the Decision Impact Statement published following the decision of the Full Federal Court in South Steyne Hotel Pty Ltd v Commissioner of Taxation  FCAFC 155.
The background to the Determination states that it concerns the following issues:
- whether a supply of residential premises by way of lease remains an input taxed supply under s 40-35 of the GST act following the sale of a reversion: the Determination states that following the sale, there is a continued supply of the premises by way of lease which remains an input taxed supply.
- whether the purchaser of the reversion is entitled to input tax credits in connection with their acquisition of the reversion and other acquisitions: the Determination states that the purchaser is not entitled to an input tax credit to the extent that it is intended that the lease will continue following the completion of the sale
- whether the purchaser of a reversion has an increasing adjustment under Division 135 if the sale of the residential premises is, or is part of, the sale of a going concern: the Determination states that the purchaser has an increasing adjustment.
The Determination is interesting because the Commissioner contends that the judgments of the Full Federal Court in South Steyne and in Westley Nominees Pty Ltd v Coles Supermarkets Australia Pty Ltd  FCAFC 115 both indicate that, upon the sale of a reversion, the supply by way of lease continues. However, the Commissioner acknowledges that he cannot fully reconcile the conclusion in Westley Nominees that the purchaser of the reversion makes a supply by tolerating the lessee’s occupation of the premises with the conclusion in South Steyne that there is no supply by the purchaser of the reversion.
What he does say is:
It would be extraordinarily anomalous if the GST treatment of leases were to change because of a mere change in ownership of the reversion and it would be expected that, if the Court intended such improbable outcomes, it would have referred to them in its judgments.
Having two decisions of the Full Federal Court in apparent conflict on an everyday issue such as the purchase of a reversionary interest in a lease is unfortunate.
Similarly to GSTD 2012/2, this Determination deals with the GST implications of the sale of a reversionary interest in a lease, but with regards to commercial premises. The Commissioner’s view is that following the sale of commercial premises that are subject to a lease, the purchaser of the reversion is liable for GST relating to the lease where s 9-5 is satisfied.
Interestingly, in this Determination, the Commissioner relies on the decision of the Full Court in Westley Nominees – whereas in GSTD 2012/1 the Commissioner relies on the decision of the Full Court in South Steyne. Given the concession by the Commissioner that he cannot reconcile the two decisions, one could be forgiven for thinking that the Commissioner is having “a bit each way”.
Draft GSTR 2012/D1
This is a long ruling (some 82 pages and 325 paragraphs). Comments are due on the draft by 6 April 2012.
The draft Ruling considers how Subdivisions 40-B, 40-C and Division 87 of the GST Act apply to supplies of residential premises, commercial residential premises and accommodation in commercial residential premises. The Ruling does not consider the issue of when a sale of real property is a sale of new residential premises – that issue is dealt with in GSTR 2003/3.
The draft Ruling deals with a number of important issues relating to residential premises and commercial premises and it warrants a more detailed analysis. By way of summary, the draft Ruling deals with the following subjects:
Residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)
- physical characteristics
- living accommodation provided by shelter and basic living facilities
- fit for human habitation
- other premises (including office building, private hospital and residential care facility)
- premises requiring apportionment
- land supplied with a building
- vacant land
- used for residential accommodation before 2 December 1998
Commercial residential premises
- hotel, motel, inn, hostel or boarding house (including bed and breakfast accommodation, single room in a house, farm stays, whole of resort complex, house provided to employee, camp-style accommodation for employees and contractors, accommodation supplied to employees and contractors by third parties, individual holiday apartments, sale of vacant land,supply of a hotel, apartments that are residential premises
Division 87 – long term accommodation in commercial residential premises
- commercial accommodation
- provided to an individual as long-term accommodation
- predominantly for long-term accommodation
- option to input tax supplies of long-term accommodation