ATO Interpretative Decision
ATO ID 2004/807
Goods and Services Tax
GST and supply of a fractional interest in land by a tenant in commonFOI status: may be released
-
With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.
Status of this decision: Decision Current
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
Issue
Is the entity, a property developer that owns a fractional interest in vacant land as a tenant in common, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells its fractional interest in the land and the entity and co-owner are not carrying on an enterprise in partnership?
Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it sells its fractional interest in the land that it owns as a tenant in common and the entity and co-owner are not carrying on an enterprise in partnership.
Facts
The entity is a property developer that owns a fractional interest in vacant land, in Australia, as a tenant in common. The entity carries on an enterprise as a property developer and is registered for goods and services tax (GST).
The entity acquired the fractional interest in the land from a deceased estate (the co-owner). The acquisition resulted from the settlement of a debt owed by the deceased estate to the entity in respect of its enterprise activities.
The entity and co-owner are now selling their respective interests in the land at an auction. The entity and its co-owner are not carrying on an enterprise in partnership.
There have been no improvements or any development activities carried out on the land before the sale. The land is not farm land and the supply of the land does not fall under any provision of Division 38 of the GST Act.
Reasons for Decision
Under section 9-5 of the GST Act, an entity makes a taxable supply if:
- •
- it makes a supply for consideration
- •
- the supply is made in the course or furtherance of an enterprise that it carries on
- •
- the supply is connected with Australia, and
- •
- the entity is registered or required to be registered for GST.
However, a supply is not taxable to the extent that it is input taxed or GST-free.
The entity owns a fractional interest in vacant land as a tenant in common. The entity and co-owner are now selling the land at an auction.
The Butterworths Australian Property Law Dictionary, 1997, P E Nygh & P J Butt Eds, Butterworths, Sydney defines 'tenancy in common' as:
A type of co-ownership where two or more persons own distinct interests in the same piece of property. The tenants in common hold undivided shares, possessing the property in common and without exclusive possession of any part of it. The shares may be in different proportions. Tenants in common may deal with their respective shares as they wish during their lifetime, and usually may devise them by will...
Accordingly, as tenants in common, the entity and the co-owner are making separate supplies of their respective interests in the vacant land in their own capacities. Further, the entity and co-owner are not carrying on an enterprise in partnership. Thus, they are not making a single supply of the whole land. Rather, each is supplying its individual interest in the vacant land.
As the entity acquired the fractional interest in the vacant land as the settlement of a debt in respect of its enterprise, the supply of its fractional interest in the vacant land in Australia is in the course or furtherance of its enterprise as a property developer.
The entity is registered for GST and the entity's supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act.
Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells its fractional interest in the vacant land that it owns as a tenant in common and the entity and co-owner are not carrying on an enterprise in partnership.
Date of decision: 25 July 2003
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
Division 38
Division 40
Related Public Rulings (including Determinations)
GSTR 2003/3
GSTR 2004/6
GSTR 2006/8
GSTR 2009/2
Other References:
Butterworths Australian Property Law Dictionary, 1997, P E Nygh & P J Butt Eds, Butterworths, Sydney
Keywords
Goods and services tax
GST property & construction
GST sale of real property
GST supplies & acquisitions
Taxable supply
ISSN: 1445-2782
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
