Property
Residential premises
Residential premises are land or buildings occupied, or intended to be occupied, as a residence or for residential accommodation, and sales of established ones and residential rent are generally input-taxed.
Residential premises is a defined GST term describing land or a building that is occupied, or is intended to be occupied, as a place of residence or residential accommodation. It does not matter whether the occupier is the owner or a tenant, or whether the occupation is permanent or not. A house, a unit, a flat or a granny flat can all be residential premises, as can a home that is vacant but intended to be lived in.
The classification matters because most supplies of residential premises are input-taxed. Renting out residential premises is input-taxed, which means the landlord charges no GST on the rent and cannot claim credits on related costs. The sale of established residential premises, as opposed to new ones, is also input-taxed. The effect is that a landlord or home seller generally has no GST to charge or claim on those transactions.
There are important exceptions. Commercial residential premises, such as hotels, motels and caravan parks, have their own rules and short stay accommodation there is generally taxable. New residential premises are subject to GST when sold, which is dealt with separately. And premises that are used for both residential and commercial purposes, such as a shopfront with a flat above, may need to be split between residential and commercial parts for GST purposes.
For a landlord, the practical effect is straightforward. Rent for a house is not GST-bearing, so there is nothing to report on the BAS for that rent, and the landlord generally does not register for GST because of it. However, costs such as repairs and agent fees may include GST, and the landlord cannot claim those credits as the rental is input-taxed. The costs can still be income tax deductions, which is a separate matter.
For a buyer, buying established residential premises means no GST in the price. Buying new residential premises from a registered developer or builder means GST is included in the price. A home built to replace a demolished one, or a substantially renovated one, can count as new, so the history of the property matters. In certain cases, premises are no longer new after being rented for five years.
Common misunderstandings include thinking that holiday rentals are always input-taxed, and treating all sales of homes the same. Short-term holiday accommodation can be commercial residential premises, which affects whether GST applies and whether the owner must register if turnover is above the threshold. The nature of the services and the length of stays matters, so the facts need to be checked.
This is general information only. For specific property, check with the ATO or a registered tax professional.
Worked example
Carla owns an established house which she rents to a family for $2,600 per month. Because the house is residential premises, the rent is input-taxed, so Carla charges no GST and pays no GST on that income. When she pays $1,320 including GST to a plumber to fix a tap, the $120 of GST in that bill, worked out as $1,320 divided by 11, cannot be claimed as an input tax credit.
Practical tips
- Treat rent from residential premises as input-taxed and do not charge GST on it.
- Check whether a property is new or established before deciding whether the sale carries GST.
- If a building has both residential and commercial parts, get advice on splitting the treatment.