Edited version of private ruling

Authorisation Number: 1011372014582

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Ruling

Subject: GST and sale of property

Facts:

· You are a membership based incorporated not for profit organisation.

· You have an Australian business number (ABN) and are registered for the goods and services tax (GST).

· You own a real property which has been in your possession since before the advent of GST.

· In the past there were two residential premises on the property, which were in habitable condition.

· One residential premises was given for the use of an employee. The other residential premises was given to your guests for short term occupation.

· The guests who occupied the residential premises paid a fee same as those who occupied your other properties elsewhere.

· The provision of guest accommodation is a taxable supply.

· The two residential premises are now dilapidated and cannot be used for human occupation.

· The property is under a single title.

· For some time now you have not used the property for revenue generating purposes.

· However, the property was not held for the purpose of capital appreciation.

· You had, at times, an intention of renovating the two buildings and reusing them for the same purpose as in the past, but were not able to carry it out for a variety of reasons.

· You intend to sell the property in its present condition.

· You expect the property will be developed for residential purposes.

Issues:

1. Is the sale of the property a taxable supply?

2. If so, can we apply the margin scheme?

Decisions:

1. The sale of that part of the property that made taxable supplies of accommodation is a taxable supply. The sale of the part of the property that was leased for residential accommodation is input taxed.

2. You can apply the margin scheme to the taxable component of the sale.

Reasons for the decision:

Mixed Supplies

1. The sale of the property constitutes a taxable component and a non-taxable component. Such supplies are called mixed supplies. The two components of the supply are to be considered separately, apportioned appropriately and reported correctly. Goods and Services Tax Ruling GSTR 2001/8, a copy of which is enclosed, details how you can do this and it forms part of this private ruling.

Taxable Supply

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free or *input taxed.

The items marked with an *asterisk are defined in section 195-1 of the GST Act.

You are selling the property for consideration in the course of the enterprise you are carrying on. The property is in Australia, and therefore connected to Australia, and you are registered for the GST. Therefore you satisfy all of the positive limbs of section 9-5 of the GST Act.

Some supplies are excluded from being taxable supplies if they are either GST-free or input taxed.

If the property you are selling had been farm land, it would have been a GST-free supply where the required conditions specified in Subdivision 38-O of the GST Act are satisfied. From the facts provided, this is not the case.

One part of the property you are selling was used exclusively for making leasing supplies. The other part of the property that you are selling was used for making taxable supplies. The two parts are to be considered separately.

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.

You used part of the property that you are selling exclusively for making supplies of leasing residential premises. Therefore, although that premises is no longer habitable, under the above subsection, supply of that part of the property is considered as an input taxed supply.

The other building, which is the rest of the property, was used for making taxable supplies. Supply of that part therefore is a taxable supply under section 9-5 of the GST Act.

Margin Scheme

2. Under section 75-5 of the GST Act, an entity can apply the margin scheme to work out the amount of GST on a taxable supply of real property when you sell a freehold interest in land if you and the recipient of the supply have agreed in writing that the margin scheme is to apply. The agreement must be made on or before making the supply or within such further period as the Commissioner allows. This section also lists a number of situations where an entity is not eligible to apply the margin scheme.

In your case you are selling a freehold interest in land which was purchased before the advent of GST. One part of the supply is taxable as explained above. From the facts given, it appears that none of the exclusions in section 75-5 of the GST Act are applicable to that part of your sale. Therefore, you may choose to apply the margin scheme for the taxable component of the proposed sale.

We have enclosed some Fact Sheets on the margin scheme for your information.

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