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
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
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
The purpose or context of the premises' use is for personal
accommodation, rather than another purpose, such as for
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
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.
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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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