ATO Interpretative Decision
ATO ID 2009/20
Goods and Services TaxGST and sale of vacant land and demountable dwelling used solely in connection with input taxed supplies
FOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Is the entity, a residential property owner, making input taxed supplies under subsection 9-30(4) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it sells vacant land and a demountable dwelling separately, which together have been used by the entity solely to make input taxed supplies by way of lease?
Yes, the entity is making input taxed supplies under subsection 9-30(4) of the GST Act when it sells the vacant land and the demountable dwelling separately in these circumstances.
The entity is a residential property owner and is registered for GST. The entity carries on an enterprise of leasing and selling residential premises, and developing property. As part of its property development activities, it regularly acquires properties to demolish the existing houses and to sell the vacant land (whether subdivided or not) or to construct new houses for sale or lease. Some of the properties the entity uses for residential leasing have demountable dwellings which the entity may sell separately from the land.
The entity owns a property which has a demountable dwelling affixed to the land. The property is residential premises for the purposes of the GST Act. Since acquiring the property more than 30 years ago, the entity had used it solely to make supplies by way of lease that are input taxed under section 40-35 of the GST Act.
The entity no longer requires this property for its activities of making supplies by way of lease and the existing lease has terminated. The demountable dwelling is in poor condition and adds little economic value to the land. The entity sells the demountable dwelling and then the vacant land in separate transactions to another party. The entity arranged for the disconnection of essential services (such as electricity and water) to the demountable dwelling, but no other work is done to the dwelling or the land. The purchaser of the demountable dwelling is responsible for the removal of the demountable dwelling from the land.
Reasons for Decision
Subsection 9-30(4) of the GST Act states:
A supply is taken to be a supply that is *input taxed if it is a supply of anything (other than *new residential premises) that you have used solely in connection with your supplies that are input taxed but are not *financial supplies.
In considering the application of subsection 9-30(4) of the GST Act to the supplies of the vacant land and the demountable dwelling it is necessary to identify the uses to which each has been put by the entity and whether these uses are solely in connection with the entity's input taxed supplies (other than financial supplies). This requires that the land or the demountable dwelling, whether by itself or as part of the residential premises, has not been used in any way other than in connection with the entity's input taxed supplies.
The Commissioner's view is that 'used' has a broad meaning in the context of subsection 9-30(4) of the GST Act (see the interpretation of 'use' in other statutory contexts in Council of the City of Newcastle v. Royal Newcastle Hospital (1959) 100 CLR 1; Ryde Municipal Council v. Macquarie University (1978) 139 CLR 633; and Lennard v. Jessica Estates Pty Ltd  NSWCA 121).
The Macquarie Dictionary, 2005, 4th edn, The Macquarie Library Pty Ltd, NSW, defines 'use' as including 'to employ for some purpose'. In considering whether land has been used solely in connection with input taxed supplies, it is important to consider throughout the period of ownership by the entity:
- how the land has been exploited or enjoyed (for example, private use by the entity, business use by the entity, or leasing to a third party)
- what the entity has done to change or develop the land, and whether those things can be said to be connected to input taxed supplies, and
- what the entity's purpose has been in holding the land (for example, if the land is dormant for a period of time, whether the purpose of holding the land is to achieve profits through appreciation in the capital value).
It is necessary to look at the surrounding circumstances to determine if the entity's activities can be said to be connected with the entity's input taxed supplies, or whether they instead should be regarded as having a separate purpose.
Similarly, occupying a demountable dwelling for private purposes or making significant physical improvements to increase its sale value may indicate that the dwelling is held for a purpose not solely connected with the owner's input taxed supplies of residential leasing.
In this case, the entity's only use of the land has been in connection with its input taxed supplies of residential leasing. Since the residential lease terminated, the entity has not done anything significant to the land or occupied it in a way to suggest that it commenced to hold the land for a purpose not connected with its input taxed supplies of residential leasing. The entity arranged for the disconnection of the electricity and water to the demountable dwelling merely to prepare both the dwelling and the land for sale. The scale and degree of these activities is not sufficiently significant to indicate a separate use of the land. There is no evidence that the entity commenced holding or employing the land or dwelling for the purpose of the entity's property development activities.
The entity also has not made any significant physical changes to the demountable dwelling or occupied it in a way to suggest that it has changed its use of the dwelling. The entity has only used it together with the land in connection with the entity's input taxed supplies of residential leasing. After the lease terminated, the entity has only been carrying out activities in relation to the land and the demountable dwelling for the purpose of bringing an end to its leasing of the property.
Therefore, the sales of the vacant land and the demountable dwelling both satisfy the requirements of subsection 9-30(4) of the GST Act and are taken to be supplies that are input taxed.Date of decision: 25 March 2009
Council of the City of Newcastle v. Royal Newcastle Hospital
(1959) 100 CLR 1
(1978) 139 CLR 633 Lennard v. Jessica Estates Pty Ltd
 NSWCA 121
Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2003/3
ATO ID 2009/18
ATO ID 2009/19
The Macquarie Dictionary, 2005, 4th edn, The Macquarie Library Pty Ltd, NSW
Goods and services tax
GST property & construction
GST residential premises
GST sale of real property
Input taxed supplies