Sunchen Pty Ltd v Commissioner of Taxation (2010) FCA
21 This case provides that a vendor's liability for GST on a
sale of used residential premises is actually determined by what a
purchaser may or may not do with the property in the future.
Sunchen purchased a used residential property from the vendor
under a contract which stated the purchase price was GST inclusive.
Presumably, from the vendor's point of view it was selling
"used residential property" and assumed that the supply
was input taxed and no GST would be payable.
Sunchen successfully obtained an input tax credit for GST as its
purchase was a creditable acquisition. The vendor had to remit
1/11th of the purchase price to the ATO.
The relevant section provides that the sale of property is input
taxed if the property is residential premises to be used
predominantly for residential accommodation.
Sunchen's argument was that he did not buy the property for
use as residential accommodation, rather he bought the property to
undertake a commercial development and that the words "to be
used" imported a subjective prediction of future use.
The judge in the decision concluded that "to be used"
calls for a prediction as to future use and the intention of the
purchaser is signifcant.
So while the decision has been much criticised, if you are a
vendor registered for GST and sell a used residential dwelling to a
person who is also registered for GST, and that person proposes to,
for instance, develop the property then this decision means the
supply will not be input taxed but will in fact be a taxable
supply. The vendor will then have to remit 1/11th of the price to
We recommend that if you are a vendor registered for GST and
propose to sell used residential premises then you either state the
price as "plus GST" or you include a special condition
that the parties acknowledge and agree that the property is a used
residential property and will be used as residential property after
settlement. A vendor could also require covenants as to the future
use remaining residential and appropriate indemnities and
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.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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