Edited version of private ruling

Authorisation Number: 1011549834538

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Ruling

Subject: GST and the sale of a house with land

Question

Is your supply (by way of sale) of a house and the land on which it sits subject to GST?

Answer

Yes.

Relevant facts and circumstances

You are registered for GST.

You purchased a house which you had cut into parts and transported to your land.

The land on which the house was placed is the result of a subdivision of residential land purchased by you and located in Australia.

The house up to that time had only been used for residential purposes.

To accommodate the house on your land, you had the house reassembled and placed on foundations. You also installed plumbing.

The house and land are being sold as residential premises to be used for residential accommodation.

The house is fit for human habitation and includes sleeping, kitchen and toilet facilities.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) 1999 Section 7-1

A New Tax System (Goods and Services Tax) 1999 Section 9-5

A New Tax System (Goods and Services Tax) 1999 Paragraph 9-10(2)(d)

A New Tax System (Goods and Services Tax) 1999 Division 40

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

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

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

Reasons for decision

Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies.

Paragraph 9-10(2)(d) of the GST Act provides that a grant, assignment or surrender of real property is a supply for GST purposes.

Furthermore, under section 9-5 of the GST Act, you make a taxable supply if:

· you make the supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on

· the supply is connected with Australia, and

· you are registered, or required to be registered for GST.

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

In your case, you are selling a house with land for consideration, the sale is made in the course or furtherance of your enterprise, the supply is connected with Australia as it is being made in Australia and you are registered for GST.

There are no provisions in the GST Act or any other Act that would allow the sale to be treated as GST-free. However, division 40 of the GST Act includes as an input taxed supply the sale of residential premises. Therefore, before considering if your sale of the house and land is taxable, it is necessary to consider whether your sale can be treated as the sale of residential premises and hence, input taxed.

What are residential premises

Section 40-65 of the GST Act provides that 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. However, the sale is not input taxed to the extent that the residential premises are:

· commercial residential premises; or

· 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 further provides the definition of residential premises as 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.

Goods and Services Tax Ruling GSTR 2000/20 provides the Tax Office view on the characteristics indicative of residential premises. In particular, paragraphs 25 and 28 of GSTR 2000/20 state:

25. The definition [195-1] 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 be capable of occupation as a residence…

28. The definition [195-1] 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. …

In your case, the house is fixed to the land, has sleeping, kitchen and toilet facilities and both the house and land are intended to be occupied (and are capable of being occupied) as a residence. Consequently, the house and land are residential premises.

Hence, your sale of the house and land would be input taxed under section 40-65 of the GST Act, provided they are not new or commercial residential premises.

Commercial residential premises

Section 195-1 of the GST Act defines commercial residential premises to include anything similar to a hotel, motel, inn, hostel or boarding house (the other parts of the definition not being relevant to your circumstances).

Under this definition, the house and land are not commercial residential premises.

New Residential Premises

Subsection 40-75(1) of the GST Act provides that residential premises are new residential premises if they:

· have not previously been sold as residential premises and have not previously been the subject of a long-term lease

· have been created through substantial renovations of a building, or

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

The Tax Office view on the sale of new residential premises is provided by the public ruling GSTR 2003/3. In particular paragraph 40 of this ruling states the following in relation to houses relocated onto new land:

Where a residential building is relocated from one block of land to a different vacant block, we consider that the building and new block of land become new residential premises. The land and building, as a 'package', have not previously been sold together, or the subject of a long-term lease…

Hence given the direction provided by this paragraph, the sale of the house and land is the sale of new residential premises and not an input taxed sale and consequently, is subject to GST as legislated for by section 9-5 of the GST Act.

GST credits claimable

You are entitled to claim GST credits for any GST included in acquisitions you have made in relation to the purchase, erection, improvement or selling of the house and land. You must however hold a tax invoice for an acquisition unless the cost of the acquisition does not exceed $82.50 (GST inclusive).

Please note that you cannot claim a GST credit on the purchase of real property if it was sold to you under the margin scheme.

Margin Scheme

Provided you meet all the necessary requirements, you would be entitled to sell the house and land using the margin scheme. This can have the effect of reducing the amount of GST payable.

A fact sheet is enclosed on this and further information is available from the Tax Office website.

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