GST treatment of new residential premises: draft legislation released

The Assistant Treasurer has released for comment draft legislation which proposes to ensure that, for GST purposes sales, or long-term leases, of:

• new residential premises by a registered entity are taxable supplies, and
• residential premises (other than new residential premises) are input taxed supplies.

What has caused the proposed legislative changes?

The proposed legislative changes are in response to the Full Federal Court's decision in FCT v Gloxinia Investments (Trustee)[1]. In that case, the Full Court held that a developer's sales of newly constructed residential premises (constructed under a "development lease" arrangement) were input taxed supplies under Subdivision 40-C of the GST Act. The Government said the outcome of the case was contrary to the policy intent of the GST legislation and therefore amendments to the GST law are required.

The exposure draft legislation and associated draft explanatory memorandum are available on the Treasury website here.

Changes for subdivisions, wholesale supply, and strata titles

The aim of the amendments is to ensure:

• that the subdivision of existing residential premises (that are not new residential premises) does not result in the subdivided premises being new residential premises;
• that an earlier "wholesale" supply of residential premises under certain arrangements is disregarded in determining whether the later supply of the premises is a supply of new residential premises; and
• the strata titling, and grant of a strata lot lease, over newly constructed residential premises does not itself cause the premises to cease to be new residential premises. This means they are still subject to GST when sold to home buyers and investors.

These changes are proposed to have effect from 27 January 2011 (the date of the Government's announcement that it would amend the law).

Changes for renovations or for construction after demolitions

The changes aim to clarify that premises that become "new residential premises" due to substantial renovations, or because they have been built to replace demolished premises, cease to be new residential premises once they are sold or supplied by way of long term lease as residential premises.

This change will have effect on the day the amending Bill receives Royal Assent.

More information

Comments were due by 21 October 2011. Enquiries should be directed to Jonathan Przydacz of the Treasury on (02) 6263 4301.

Source: Assistant Treasurer's media release No 135, 23 September 2011

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[1] (2010) 75 ATR 806 (see 2010 WTB 23 [902])