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Authorisation Number: 1011542678985

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Ruling

Subject: GST & THE SALE OF A SECTION OF A CARAVAN PARK

Question 1

Will the property, comprising Lot A, be treated as new residential premises, as defined in subsection 40-75(20) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it is sold?

Answer

Yes. The property, comprising Lot A, will be treated as new residential premises, as defined in subsection 40-75(20) of the GST Act, when it is sold.

Question 2

If the supply is a taxable supply of new residential premises, can the taxpayer use the margin scheme method to calculate the GST on that particular block of land?

Answer

The margin scheme may be applicable. Please see reasoning for further information.

Relevant facts and circumstances

The taxpayers bought an existing caravan park business.

· The caravan park was supplied to you as a GST-free supply of a going concern.

· The caravan park occupies a XX square metre beachfront site. An area of XY square metres is held under leasehold tenure from the Council. The remaining XZ square metres is freehold land and comprises four individual allotments. The whole property comprises a residence, ablution building, swimming pool and caravan sites.

· After settling on the business and property it came to the attention of the partners there was a history of erosion at the caravan park.

· The taxpayers engaged a firm to investigate the erosion and to explore / investigate various mitigation options for any possible future erosion.

· The firm determined that the construction of a seawall at the eastern edge of the property was the only option to arrest the erosion.

· A significant erosion event occurred to the caravan park and destroyed caravan sites. The erosion also caused the partial loss of the esplanade along the beach frontage of the caravan park.

· The caravan park continued operating after the event but business was affected and income declined due to the loss of more than a quarter of the caravan sites plus the partial open space along the beachfront.

· The caravan park was further damaged by another significant erosion event (severe tropical storm) the following year. There were more caravan sites destroyed and a further loss of the beachfront esplanade.

· As a result of a severe storm, almost the whole caravan park was destroyed. This was the same day the taxpayers received notification of the agreement to construct the seawall. The area of XY square metres of leasehold tenure from the Council was completely eliminated.

· The taxpayers lost most of their possessions and had to leave their residence which was located on one of the freehold lots within the caravan park.

· At this point in time, there was only one cabin, swimming pool and some equipment on the caravan park that was undamaged.

· The caravan park did not generate income from a particular time.

· Due to the loss of income and enormous ongoing and rebuilding costs, the taxpayers decided to cease the caravan park operation. The freehold land was put on the market in as soon as remedial works were completed.

· Later, a sales contract was signed for one of the four individual lots.

· The block, which is the subject of the sale contract, has a self-contained cabin and swimming pool. It has been utilised by the taxpayer's immediate family for residential accommodation from time to time.

· The individual lot, which was part of the original four parcels of land acquired, has never been leased as residential property and has been used in the caravan park business in a similar way to the on site caravans which are hired to customers.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 40-65,

A New Tax System (Goods and Services Tax) Act 1999 40-75(1),

A New Tax System (Goods and Services Tax) Act 1999 195-1,

A New Tax System (Goods and Services Tax) Act 1999 75-5.

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

Section 9-5 of the GST Act states:

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 to you 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.

Note: The * indicates a defined term in the GST Act.

Subsection 40-65(1) and (2) of the GST Act state that:

(i) A sale of *real property is input taxed, but only to the extent that the property is *residential

premises to be used predominantly for residential accommodation (regardless of the term of occupation)

(ii) However, the sale is not input taxed to the extent that the *residential premises are:

(a) *commercial residential premises; or

(b) *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

Section 195-1 of the GST Act defines residential premises to mean land or a building that:

· is occupied as a residence or for residential accommodation, or

· is intended to be occupied, and is capable of being occupied as a residence or for residential accommodation.

(regardless of the term of the occupation or intended occupation) and includes a floating home.

The definition requires that land must have a building affixed to it and that the building must have the physical characteristics that enable it to be occupied or capable of occupation as a residence or for residential accommodation.

Goods and Services Tax Ruling GSTR 2000/20: Commercial residential premises, provides guidance on the meaning of residential premises and commercial residential premises.

Paragraph 26 of GSTR 2000/20 states:

The physical characteristics common to residential premises that provide accommodation are:

(i) (i)The premises provide the occupants with sleeping accommodation and at least some basic facilities for day to day living.  

(ii) (ii)The premises may be in any form, including detached buildings, semidetached buildings, strata-

(iii) title apartments, single rooms or suites of rooms within larger premises.

In addition to the physical characteristics, there are other factors that may be of use in determining whether premises are to be used for residential accommodation or accommodation of another kind. These characteristics would usually be present in residential premises that have the physical characteristics given in paragraph 26 and include:

(i) The purpose or context of the premises' use is for personal accommodation rather than another purpose, such as for a business.

(ii) The tasks of day to day living such as, preparing food, cleaning and laundering are performed by the occupant, or by others under private arrangements.

(iii) The status of the occupant is most commonly that of owner, tenant or lessee. Any borders, lodgers or guests occupy the premises by private arrangement with the owner, tenant or lessee.

(iv) The premises will be in an area zoned by Council or Shire regulations as suitable for human habitation.

Paragraphs 28 and 29 of GSTR 2000/20 state:

28. The definition states that residential premises must be capable of occupation as a residence. To be a residence in this sense, a place normally should have the facilities required for day to day living. These characteristics are inherent in the fabrication of the structure itself. The premises should have such things as areas for sleeping, eating and bathing, but it is not necessary that these things be arranged in a similar manner to a conventional house or apartment.

29. Premises that lack these basic features may not be either residential premises or commercial residential premises. Supplies of buildings or other structures without these characteristics are subject to GST under the basic rules, regardless of whether or not they are or have been at one time, occupied as some form of residence

In your case, the cabin comprises one room including a bed, small kitchenette (with a sink), separate shower and chemical toilet facilities. The ablution facilities may also be used for washing and bathing.

Paragraph 28 of GSTR 2000/20 states that residential premises must be capable of occupation as a residence. The premises should therefore have such things as areas for sleeping, eating and bathing.

As the cabin has areas for sleeping, eating and bathing and is to be used predominantly for residential accommodation, we consider that the subject property is included in the definition of residential premises.

New residential premises is defined in subsection 40-75 (1) as follows:

*Residential premises are new residential premises if they:

(a) have not previously been sold as residential premises (other than *commercial residential premises) and have not previously been the subject of a *long-term lease; or

(b) have been built, or contain a building that has been built, to replace demolished premises on the same land.

(c) have been built, or contain a building that has been built, to replace demolished premises on the same land.

In your case, Lot A was acquired as part of the Caravan Park. Caravan parks and camping grounds are specifically included in the definition of commercial residential premises at paragraph (e), in section 195-1 of the GST Act.

Paragraph 41 of Goods and Services Tax Ruling GSTR 2003/3: when is a sale of real property a sale of new residential premises, provides that residential premises have not been sold as residential premises where the real property was previously sold only as commercial property.

You have further advised that the property has not previously been the subject of a long-term lease.

Consequently, as Lot A has not previously been sold as residential premises and has not been the subject of a long-term lease, it is considered to be new residential premises and a taxable supply will be made, under section 9-5 of the GST Act, when the property

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