Does the intention of the purchaser determine the GST treatment
of a property sale? Confusion reigns supreme!
Under section 40-65 the sale of residential premises is input
taxed but only to the extent that the property is residential
premises "to be used" predominantly for residential
The meaning of "to be used" was debated in The Federal
Court decision in Sunchen Pty Ltd v Commissioner of Taxation 
FCA 21 (29 January 2010). It was held in that case that the future
intention of the purchaser should determine the GST treatment of
Sunchen purchased land upon which a house was erected. The
contract included as a component of the purchase price an amount
said to be for GST.
The purchaser claimed an input tax credit for this amount. The
claim was disallowed on the basis that the supply was an input
The purchaser argued that it intended to develop the property
and therefore the property was not held predominantly for
The evidence did not establish that the taxpayer's
intention was to develop the property.
Issue and decision
The decision was that the input tax credit was not allowed.
The result was inevitable given the evidence but Perram J
considered the meaning of the term "to be used" in
section 40-65. In Toyama Pty Limited v Landmark Building and
Developments Pty Ltd  NSWSC 83; (2006) 197 FLR 74 the Supreme
Court of NSW held that this term required an examination of the
subjective intention of the purchaser. In contrast in Marana
Holdings Pty Ltd v Commissioner of Taxation  FCAFC 307;
(2004) 141 FCR 299 the Full Federal Court held that it was
objective purpose or use for which the building was intended that
was relevant. Although Perram J preferred the Marana approach he
felt bound to follow the Toyama reasoning as this was not
Therefore he held that the subjective intention of the purchaser
to use the property as residential accommodation or otherwise would
determine whether the sale was an input taxed supply
Until there is legislative correction or further court
consideration the intention of the purchaser is relevant in
determining the GST status of the sale of residential property.
This is a wholly undesirable situation.
In the meanwhile it is imperative that vendors ensure that their
Sale Contracts incorporate appropriate GST clauses so they do not
incur unexpected GST liabilities and/or undertake steps to
determine the intention of their purchaser.
Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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