Edited version of your private ruling

Authorisation Number: 1012561731637

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Ruling

Subject: GST and sale of property

1. Is your supply of properties 1, 2, and 3 an input taxed supply of residential property?

2. If not, can your supply of the agistment area be a GST-free supply of a going concern if the requirements in section 38-325 are met?

3. Can you apply the margin scheme to calculate the GST payable on the supply of the agistment area?

Advice/Answers

1. Your supply of the properties will be a mixed supply of residential and non-residential property. Your supplies of properties 1 and 2 are input supplies of residential properties, as is your supply of the non-agistment area of property 3. Your supply of the agistment area of property 3 is a taxable supply of vacant land.

2. Yes, if the requirements of section 38-325 are met, the agistment area and leasing enterprise can be supplied as GST-free supply of a going concern.

3. Yes, if all the requirements of Division 75 are met, you can apply the margin scheme to calculate the GST payable on the supply of the agistment area.

Relevant facts and circumstances

You are registered for GST.

You own three adjoining properties in Australia. The zoning of the lots allows a multi unit residential development to be built across the 3 lots.

· Property 1

This is a xxx m² property with an old residential home. The home was constructed prior to December 1998. The property was tenanted (residential lease) until a few months ago. It is currently vacant and unoccupied. There is no council order, etc prohibiting occupancy.

You acquired the property in yyyy from a vendor who was not required to be registered for GST. The property backs on to property 3.

· Property 2

This is a xxx m² property with an old fibro home. The home was constructed prior to December 1998. The property was tenanted (residential lease) until a few months ago. It is currently vacant and unoccupied. There is no council order, etc prohibiting occupancy.

You acquired the property in yyyy from a vendor who was not registered for GST. The property backs on to property 3.

· Property 3

You acquired the property in yyyy. The contract for sale of land indicates that it was not acquired as a taxable supply or as a going concern.

This property is xxx m² and contains more than 1 residential dwellings (which are currently occupied), and other buildings. The dwellings were constructed prior to December 1998. The property is subject to 3 separate lease agreements. The original terms have expired and they now run on a month to month basis.

1. Residential tenancy agreement with Tenant A - $xxx per month.

2. Residential tenancy agreement with Tenant B - a company controlled by Tenant C - $xxx per month.

3. Agistment agreement with Tenant C - $xxx per month. The agistment lease area is xxx m². The agistment area is separated from the residences by a fence.

The aerial view (Google) shows that the agistment area has been divided into some large paddocks and some small yards.

You have contracted to sell the 3 properties to the same purchaser on a single contract. If the Commissioner agrees that the entire supply (including the agistment area) is a supply of residential premises, you will sell the 3 properties on that basis.

If the Commissioner does not agree that the entire supply is a supply of residential premises, you will sell the agistment area as a going concern.

You provided various documents and photos.

Relevant legislative provisions

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

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

A New Tax System (Goods and Services Tax) Act 1999 section 38-325

A New Tax System (Goods and Services Tax) Act 1999 Division 75

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

Reasons for decision

In this ruling,

· unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

· all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website www.ato.gov.au

Question

1. Is your supply of the properties an input taxed supply of residential property?

Under section 9-5, you make a taxable supply if:

· you make a supply for consideration

· the supply is made in the course or furtherance of your enterprise

· the supply is connected with Australia, and

· you are registered or required to be registered.

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

In your case, you intend to:

· supply the property for consideration,

· the supply is made in the course or furtherance of the leasing enterprise you carry on,

· the supply is connected with Australia as the property is located in Australia and

· you are registered for GST.

· Furthermore there are no provisions in the GST Act that will make your supply of the premises, GST-free.

Therefore, the supply of the premises will be a taxable supply unless the supply is input taxed to any extent.

Under section 40-65, a supply of real property is input taxed to the extent that it is residential premises to be used predominantly for residential accommodation unless the premises are commercial residential premises or new residential premises to any extent.

The definition of residential premises in section 195-1 refers to land or a building that is occupied as a residence, or for residential accommodation, or is intended and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation), and includes a floating home.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the Tax Office view of the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-35 is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. Paragraph 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

You have advised properties 1 and 2 each have a fibro home on the land, while property 3 has more than 1 residential dwelling. You have advised that all of the dwellings are being used, or until recently were used, for residential accommodation. There is no council order, etc prohibiting preventing continued use for residential accommodation. Accordingly, the dwellings are residential premises.

On the information supplied, which includes photo's and the residential tenancy agreements, we consider the dwellings are residential premises that are not commercial residential premises or new residential premises as defined in sections 195-1 and 40-75.

However, in this instance, the properties are being sold with an area of land this is currently used for agistment. We therefore need to consider if this land make's up part of the residential premises

Paragraph 46 of GSTR 2012/5 states:

46. There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises.

Characterisation of the properties

· Property 1

The aerial view of this property shows a residential building with adjoining land, all within a fenced boundary. The physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building.

· Property 2

The aerial view of this property shows a residential building with adjoining land, all within a fenced boundary. The physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building.

· Property 3

The aerial view of this property shows a clear delineation between the residential dwellings, other buildings and the agistment area. Further, the agistment area has been divided into some large paddocks and some small yards.

The physical characteristics of the land and building as a whole indicate that the other buildings are to be enjoyed in conjunction with the residential buildings.

However, the layout of the agistment area suggests that it is intended for something more than enjoyment in conjunction with the residential buildings. This view is further supported by the separate leasing of the dwelling and the agistment area.

As the agistment area is not to be enjoyed in conjunction with the residential buildings, it is vacant land which, as explained in paragraph 47 of GSTR 2012/5, is not residential premises.

Your supply of the properties will be a mixed supply of residential and non-residential property. Your supplies of properties 1 and 2 are input supplies of residential properties, as is your supply of the non - agistment area of property 3. Your supply of the agistment area of property 3 is a taxable supply of vacant land.

Paragraph 40 of GSTR 2012/5 explains that the value of a supply of premises that includes residential premises to be used predominantly for residential accommodation needs to be apportioned to the extent that part of the premises is not residential premises to be used predominantly for residential accommodation.

Apportionment

Section 9-80 requires you to apportion the consideration for the total supply between the input taxed supplies and the taxable supply.

Goods and Services Tax Ruling GSTR 2001/8: apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8), states that GST is payable on a mixed supply that you make, but only to the extent that the supply is taxable.

26. Apportionment must be undertaken as a matter of practical commonsense. You can use any reasonable basis to apportion the consideration. Depending on the facts and circumstances of the supply, a direct or indirect method may be an appropriate basis upon which to apportion the consideration and ascertain the value of the taxable part of the supply. The basis you choose must be supportable in the particular circumstances.

Paragraph 93 of GSTR 2001/8 further explains that, in some cases, there will be only one reasonable method that you may use.

Paragraph 97 of GSTR 2001/8 lists several direct methods. In your factual circumstance, the majority of the property value is in the land itself. In apportioning the consideration received for property 3, we consider that the most appropriate methods are:-

· the comparative price of each part if it were supplied on its own, relative to the whole payment received, and;

· the relative land areas of the input taxed and taxable areas.

2. If not, can your supply of the agistment area be a GST-free supply of a going concern if the requirements in section 38-325 are met?

The 'supply of a going concern' is GST-free where the requirements of section
38-325 are met.

For a supply to be a GST-free 'supply of a going concern' under section 38-325 of the GST Act:

· the supply must be made under an arrangement under which:

· the supplier supplies to the recipient all of the things that are necessary for the continued operation of the enterprise; and

· the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as part of a larger enterprise carried on by the supplier).

· the supply must be for consideration;

· the recipient of the supply must be registered or required to be registered for GST;

· the supplier and the recipient have agreed in writing that the supply is of a going concern.

As defined in subsection 9-20(1) an enterprise includes an activity, or a series of activities, done:

· in the form of a business, or

· in the form of an adventure or concern in the nature of trade, or

· on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or…

The agistment area is currently tenanted. This constitutes a leasing enterprise as defined in subsection 9-20(1). As explained in paragraph 23 of Goods and Services Tax Ruling GSTR 2002/5: when is a 'supply of a going concern' GST-free?, the activity of leasing can be the subject of a going concern.

Therefore, if the requirements of section 38-325 are met, the agistment area and leasing enterprise can be supplied as GST-free supply of a going concern.

3. Margin scheme

Under Division 75, the margin scheme can be applied to determine the GST payable on a taxable supply. On the facts supplied, the properties are not ineligible. Therefore, if the other requirements of Division 75 are met, you can apply the margin scheme to calculate the GST payable on the supply of the agistment area.

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