Wherever you hang your hat may be home, but is it 'residential premises' for GST purposes?

Woellner, Robin (2010) Wherever you hang your hat may be home, but is it 'residential premises' for GST purposes? Journal of the Australasian Law Teachers Association, 3 (1 and 2). pp. 139-153.

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[Introduction] The concept of 'residential premises' is important in relation to Goods and Services Tax ('GST') liability because it plays a key role in determining whether property usage and transfers — the latter being a particularly significant element of modern capitalist economies — will be GSTfree, input taxed or fully taxable.

Recent cases have raised a number of interesting issues in relation to 'residential premises' under the GST legislation. Some of these issues have been resolved satisfactorily by court decisions, others have been 'resolved' in rather puzzling ways, while some remain unresolved.

It is useful to begin the discussion of GST treatment of residential premises with an overview of the relevant provisions.

Underpinning the GST treatment of residential premises is the principle that persons selling or leasing real property should be treated in a comparable way to owner-occupiers. To achieve this outcome, where other requirements are satisfied: * in general, supplies of residential premises by lease, hiring, licence or sale are input taxed under Subdivisions 40-B and 40-C5 (which are generally in similar terms); that is, the supply of the items is not taxed, but the supplier cannot claim input tax credits incurred in the supply; * however, the supply of residential premises is only input taxed to the extent that the premises are to be used predominantly for residential accommodation — regardless of the length of occupation; * the supply of new residential premises or commercial residential premises is an exception to the above rules and is not input taxed, but is subject to full GST taxation.

The interplay of these factors creates an interesting but complex picture — particularly as the Courts have consistently indicated that the GST is a practical, business tax; that it is to be interpreted in a way that gives it a real-world effect; and that Division 165 gives the Commissioner wide powers to attack over-zealous tax planning arrangements.

The effect of these GST provisions can be represented diagrammatically by a flowchart, as shown in Figure 1.

The impact of the provisions affecting residential property was outlined by Perram J in Sunchen Pty Ltd v Federal Commissioner of Taxation, who referred to the GST Act’s 'confusing terminology' before noting that it relieves certain supplies from the GST in two ways. Firstly, certain supplies are made 'GST-free', and no GST is collected by the revenue. While the suppliers are not obliged to collect GST from the consumer, they are still entitled to claim input tax credits on supplies leading to that supply. As Perram J noted: The practical consequence of the tax not being collected from the consumer and the supplier being entitled to claim an input tax credit is that none of the inputs into the ultimate supply are taxed — GST is not collected from the ultimate consumer and each intermediate supplier obtains input tax credits which neutralise their own liability to GST.

Secondly, certain supplies are 'input taxed'. In these cases, the supply is not subject to GST, but the supplier cannot claim an input tax credit for supplies made to it which were inputs into the supply to the consumer:

The practical effect of this is to cast the ultimate economic burden of the tax not on the end user but on the immediately preceding supplier.

The practical effect of denying an input tax credit to the supplier [such as the owner of land who sells it, or a landlord who grants a residential lease to a tenant] on supplies which are inputs into the premises is to render those supplies subject to GST in the hands of the supplier. Put another way, the inputs into the supply of the premises are taxed which gives rise, no doubt, to the otherwise rather obscure expression 'input taxed'.

Item ID: 15748
Item Type: Article (Research - C1)
ISSN: 1836-5620
Keywords: GST, tax, residential premises
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Date Deposited: 07 Apr 2011 23:35
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