The Administrative Appeals Tribunal has held that a builder was unable to receive a refund of GST incorrectly charged on the sale of a residential premises that had been rented for just over five years since construction was complete.
The taxpayer claimed the GST charged on a unit was charged in error, on the basis that the sale was actually an input taxed supply. Accordingly, the taxpayer sought a refund of the GST previously remitted to the ATO on the unit.
For residential premises to fall outside the definition of ‘new residential premises’ and therefore be input taxed rather than a taxable supply, it needs to meet the requirements of S.40-75(2)(a) of the GST Act.
Broadly, to meet the requirements of this section there needs to have been a continuous five-year period since the premises first become residential premises, during which the premises have “only been used for making supplies that are input taxed” (i.e., being used as a rental property).
Unfortunately for the builder, this requirement was not satisfied because the unit was also marketed for sale a few months before the completion of the five-year period since the issue of the certificate of occupancy.
A lesson to be learnt here is that any time a residential premises is both rented and on the market for sale it does not meet the requirements to count towards the five-year continuous period that it has “only been used for making supplies that are input taxed.”