Is GST Payable on a Residential Purchase if the Proposed Use is Commercial?
In a recent full Federal Court decision, a New South Wales property developer purchased a single story house, intending to develop it into units for use other than for residential accommodation. At the time of settlement the home was occupied by a tenant. The developer adopted the view that the sale was a taxable supply because it was his intention to develop the land into commercial units and consequently claimed a tax credit from the ATO.
The ATO took a different view.
The GST legislation provides that the supply of property is not subject to GST if the premises are to be used predominantly for residential accommodation. The issue was whether the property was to be used predominantly for residential accommodation.
The developer contended that the question as to whether the premises were to be used predominantly for residential accommodation is to be determined by reference to the subjective intentions of the developer. The developer asserted that it intended to develop the property at the end of the tenancy period for uses which were not predominantly for residential accommodation.
The full Federal Court dismissed the developer’s submissions and determined that the test as to whether residential premises are to be used predominantly for residential accommodation should be determined objectively by reference to the physical characteristics of the property as at the date of acquisition and that the intentions of the future owner are irrelevant.
The implications of GST must be considered in every property transaction. It is still an area which is fraught with uncertainty.
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