Clarifying GST Rules Around Residential Property

by Mary Swire, Tax-News.com, Hong Kong

31 January 2011

The Australian Government has moved quickly to clarify how residential property is treated under the Goods and Services Tax (GST), following a Full Federal Court decision last year that found GST was not payable on the full value added to premises by developers in some circumstances.

The Assistant Treasurer, Bill Shorten, announced on January 27 that the Government will amend the GST law to ensure that it achieves the intended policy outcome for the GST treatment of residential premises. He also released a discussion paper on the design of the proposed amendments for public comment.

The Court found in Commissioner of Taxation v Gloxinia Investments (Trustee) [2010] FCAFC 46 that the sale, by developers, of newly constructed residential premises that had been subject to development lease arrangements, were input taxed when sold to home buyers and investors.

The Court's decision also means that, in some cases, the sale of newly constructed strata-titled residential premises will be input taxed rather than taxable. In addition, applying the decision in other circumstances may result in existing residential premises that have previously been sold being treated as taxable rather than input taxed.

"The GST provisions dealing with real property were designed to ensure that GST is payable on the full value-added to land once it enters the GST system. It was also designed to ensure the sale of newly constructed residential premises by GST-registered builders and developers are subject to GST," said Shorten.

"These amendments will restore the policy intention, safeguard revenue and provide certainty for stakeholders," he added.

The amendments will ensure that new residential premises constructed under development lease arrangements since October 3, 2007 are treated as taxable supplies, rather than input-taxed supplies, where the premises are sold by developers to home buyers or investors. This amendment will contain a transitional provision to ensure that taxpayers who have entered into arrangements on a basis consistent with the Court's findings, prior to this announcement over newly constructed residential premises, are not disadvantaged.

From July 1, 2000, the amendments will ensure that the granting of individual strata lot leases over newly constructed residential premises is not sufficient by itself to make future supplies of the premises input taxed. Therefore, the subsequent sale of the newly constructed strata-titled premises will be taxable supplies of new residential premises.

Also from July 1, 2000, any change in property title arrangements, such as the subdivision of surrounding land or registration of a strata plan title over existing residential premises, will not result in the premises once again becoming new residential premises and being subject to GST if they are subsequently sold.

"I encourage all interested parties to provide feedback on the discussion paper," said Shorten.

The closing date for submissions is February 25, 2011 and the measure is subject to the agreement of the States and Territories.

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