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Ruling

Subject: GST and the sale of land

Question 1

Are the sales of three blocks of your land (the land) taxable supplies?

Answer

The sale of the block that includes a residence is an input taxed supply. The sales of the blocks that are vacant are taxable supplies.

Question 2

If so, can the margin scheme apply to the sales?

Answer

You can apply the margin scheme to the taxable supplies of vacant land, where both you and the recipient have agreed in writing on or before making the supply that the margin scheme is to apply.

Relevant facts and circumstances

You are registered for GST.

You carry on a primary production enterprise.

You intend to sell the land which consists of 3 blocks.

The land was transferred to you by a relative over 5 years ago. The relative had owned the land for over 20 years and it had been used in the relatives' primary production business for the total period of ownership. The land was under 10% of the total land that your relative used in the business. Your relative transferred the land to you in order to receive age pension benefits.

The transfer to you was made at market value. However, there was no contract, actual consideration paid or finance involved.

When you acquired the land your intention was to either use it in your primary production enterprise or sell it. You originally used it continuously for livestock grazing but because it is removed from your other land, you scaled it down to ad hoc usage.

There have not been any zoning changes to the land.

a number of blocks. This was because one of the titles was land locked with no access.

One of the blocks of land has residential premises. This was your relatives' principal place of residence. It has remained vacant during your ownership and is still able to be used as residential premises.

You have not included the land as a partnership asset. However, you have claimed expenses, such as, rates and utility costs.

You are selling the land as the blocks are located in a township and are not really suitable for livestock grazing. You believe that the land will not be used as primary production land in the future.

Question 1

Detailed reasoning

All legislative references in this ruling are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise stated.

Section 9-5 provides that an entity makes a taxable supply if:

As you are selling the blocks of land they will be made for consideration.

When you acquired the land your intention was to either use it in your enterprise or sell it. You have used the land in your enterprise. You claimed associated rates and utility costs. The supply will therefore be made in the course of an enterprise that you carry on.

The supply is connected with Australia as it is real property located in Australia.

You are registered for GST.

There is nothing in the GST Act that would make the supplies GST-free. It remains to determine whether or not the supplies are input taxed.

Section 40-65 states:

A sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used for residential accommodation.

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

(* denotes a term defined in section 195-1 of the GST Act).

Residential premises are defined to be a land or building that:

You have advised that one of the blocks of land has premises that are still able to be used as residential premises.

Vacant land is not residential premises. There is nothing in the GST Act that would make vacant land input taxed.

Therefore, when you supply the land, you are making an input taxed supply of the block that includes a residence and a taxable supply of each of the blocks that are vacant.

Question 2

Detailed reasoning

Subsection 75-5(1) provides that you may use the margin scheme if the supplier and the recipient have agreed in writing that the margin scheme is to apply. Subsection 75-5(1A) provides that the agreement must be made on or before making the supply, or within such further period as the Commissioner allows.

Goods and Services Tax Ruling GSTR 2006/8 provides guidance on the margin scheme for supplies of real property acquired on or after 1 July 2000. It can be found on our website at www.ato.gov.au. From the home page click on Law, rulings & policy, Rulings & ATO view, Public rulings & determinations, Indirect taxes, Goods & services tax rulings, 2006, and GSTR 2006/8.

Paragraphs 106 to 109 of GSTR 2006/8 state:

Example 11: real property acquired from an associate

Associate is defined and includes a relative of a partner that is a natural person.

Therefore, you can apply the margin scheme to the taxable supplies of vacant land, where both you and the recipient have agreed in writing on or before making the supply that the margin scheme is to apply. The margin will be the amount by which the consideration for the supply exceeds the GST market value at the time of acquisition.

Further information

Further information about approved valuations can be found from paragraph 115 of GSTR 2006/8.

MSV 2009/1 is a determination under subsection 75-35(1) and applies to valuations for taxable supplies of real property made on or after 1 March 2010. It can also be found on our website. From the home page click Law, rulings & policy, Rulings & ATO view, Public rulings & determinations, Indirect taxes, Goods & services tax determinations, Legislative Determinations and Declarations, Goods and Services Tax, Margin scheme valuation - 75-10(3)(b), 2009, and MSV 2009/1.

Our fact sheet GST and the margin scheme (NAT 15145) can be found on our website. From the home page type "15145" in the search box.

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