When a House is not a Home

If property developers bought a suburban commercial office for a GST-inclusive price of $1 million, intending to demolish the building and use the land for a residential unit development, they might expect to gain an input tax credit of $100,000 for the office but originally been built as a residence.

The Tax Office draft ruling on residential premise has undergone several revisions and is still not final. It points to two definitions of residential premises in the GST laws – land or a building that is occupied, or intended and capable of being occupied, as a residence or residential accommodation.

In the draft ruling, the Tax Office gives contrasting examples of part-conversions. In one of the examples, a doctor who created a surgery out of part of her house by significant physical modifications found the modified part ceased to lie within the definition of residential premises.

In another, a solicitor who created a commercial office out of part of her unit by replacing furniture with office equipment and putting up signage did not. It appears that premises built for use as a residence retain that classification, regardless of later use, unless, and to the extent that, the building is later modified in a structural way to make it incapable of occupation as a residence.

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