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Edited version of your private ruling
Authorisation Number: 1012032115687
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Ruling
Subject: Sale of real property
Question
Were your supplies of the properties in Australia taxable supplies?
Answer
Yes
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You are registered for GST.
On ddmmyyyy, you purchased the property, for approximately $xx.
At the time of purchase, the property contained a residence which you rented out until mmyyyy.
You demolished the residence and subdivided the property into three lots.
You sold one of the lots (vacant land) in mmyyyy, using the services of a real estate agent.
The vacant lot was sold in order to generate funds for the construction of a dwelling on each of the other two lots.
You engaged a builder to construct the two dwellings.
Total costs, excluding land cost, were approximately $xxx (GST exclusive), including construction costs of $xxxx and capitalised interest of $xxxxx.
Once completed, the properties were sold in mmyyyy and mmyyyy, for $zz $zzz respectively.
Your agent stated that the development was undertaken to maximise the return on investment, based on the fact that the block was zoned for more dense housing and it would not be cost effective to leave the property as one house.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 Section 9-40
A New Tax System (Goods and Services Tax) Act 1999 Section 9-5
A New Tax System (Goods and Services Tax) Act 1999 Section 40-65
A New Tax System (Goods and Services Tax) Act 1999 Section 40-75
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.
As defined in section 9-5 of the GST Act, a supply is taxable if it is:
· made for consideration
· made in the course or furtherance of an enterprise carried on by the entity making the supply
· connected with Australia, and
· made by an entity registered or required to be registered.
However, the supply is not a taxable supply to the extent that the supply is GST-free or input taxed.
Section 40-65 of the GST Act provides:
(1) 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).
(2) 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.
New residential premises is defined in section 40-75 of the GST Act to mean amongst other things
(1) 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 created through substantial renovations of a building; or
(c) have been built, or contain a building that has been built, to replace demolished premises on the same land.
(2) However, the premises are not new residential premises if, for the period of at least 5 years since:
(a) if paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies)--the premises first became residential premises; or
(b) if paragraph (1)(b) applies--the premises were last substantially renovated; or
(c) if paragraph (1)(c) applies--the premises were last built;
The premises have only been used for making supplies that are input taxed because of paragraph 40-35(1)(a).
(2A) ….
(3) To avoid doubt, if the residential premises are new residential premises because of paragraph (1)(b) or (c), the new residential premises include land of which the new residential premises are a part.
You are registered for GST. You have sold properties for consideration, being vacant land for $xx and two dwellings for $xxx and $xxxx respectively. Being located in Australia, the properties were connected with Australia.
On the facts provided, your supplies of the dwellings were supplies of new residential premises. Therefore, if your supplies of the vacant land and dwellings were made in the course or furtherance of an enterprise that you carry on, they were taxable supplies.
The property was purchased by you for use in your business, initially by way of leasing the property which is considered to be an enterprise. You later subdivided the land into three lots and constructed residences on two of the properties. All three lots were sold.
ATO Interpretative Decision ATO ID 2003/701 explains that when an entity sells a business asset that it initially purchased to use in its business, the sale is made in the course or furtherance of the entity's enterprise.
Therefore, your supplies of the properties in Australia were taxable supplies.
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