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Edited version of your written advice

Authorisation Number: 1051360151696

NOTICE

This private ruling was revised following an issue. This edited version has therefore been replaced with the edited version of the private ruling with the authorisation number of 1051377958689

Date of advice: 13 April 2018

Ruling

Subject: GST and the sale of real property

Question

To what extent will the supply of the property by you, located in Australia (the Property) be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

The Property will be fully taxable except for the portion of the property that contains the house and the associated land around the house.

Relevant facts and circumstances

In 19XX you, acquired a vacant property (20 acres in size) in Australia.

In 19XY you built a house on the land and lived in it up until the present day.

In 19YZ you developed and operated a business from the property. The business infrastructure included a workshop, kiosk, eating facilities and public car park.

On DDMMYYYY you registered for GST as a partnership.

You entered into a sale contract for the whole property and settlement is intended to be MMYYYY. The sale of the business will not be included in the sale but all of the plant and infrastructure associated with the miniature train park will be sold as inspected.

The sale contract provides under the ‘Particulars’ that the price includes GST.

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 9-80

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

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

Reasons for decision

In this reasoning, unless otherwise stated,

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

You will be supplying the whole property for consideration. The supply is connected with Australia and you are registered for GST and the supply is made in the course or furtherance of an enterprise that you are carrying on.

Therefore your supply of the whole property will be taxable, unless it is GST-free or input taxed to any extent.

In your circumstances, there is no provision in the GST Act whereby any portion of the property supplied would be GST-free.

Residential premises to be used predominantly for residential accommodation

Under subsection 40-65(1), a sale of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation.

There are two exclusions to this provision which relate to commercial residential premises and new residential premises. No portion of your property meets the definition of new residential or commercial residential premises.

The term ‘residential premises’, as defined in section 195-1, refers to 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 2012/5, Goods and services tax: residential premises (GSTR 2012/5), provides guidance on what is considered to be residential premises to be used predominantly for residential accommodation for the purposes of subsection 40-65(1).

Paragraph 9 of GSTR 2012/5 provides that the requirement in section 40-65 that premises be ‘residential premises to be used predominantly for residential accommodation’ 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 outlines that the premises must provide shelter and basic living facilities. The premises must also be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation.

Paragraph 46 of GSTR 2012/5 explains that, in considering land supplied with a building, the extent to which the land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree. The most relevant factor 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.

In your case, the house and associated land enjoyed in conjunction and collocated with the house meets the definition of residential premises and the guidelines provided in GSTR 2012/5.

You supplied a map of the property and contended that a number of areas on your property separate to the house including portions within the area of the business would be private.

We consider that any area that is not collocated with the house and not enjoyed as part of the residential premises will not be included in the input taxed supply of residential premises and will therefore be taxable.

The infrastructure associated with the business and the area used and enjoyed as part of this business, including land around the commercial areas of the property, will be part of the taxable supply and does not meet the definition of residential premises.

Apportionment

Section 9-80 provides that, where a supply is partly taxable and partly input taxed, the value of the supply is to be apportioned between the taxable and non-taxable (that is, input taxed) parts of the supply.

Paragraph 40 for GSTR 2012/5 provides that

A supply which contains both taxable and non-taxable parts is referred to as a mixed supply. Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8), provides guidance on the GST treatment of mixed supplies, and in particular, provides methods and examples that you may use to help you work out how to apportion the consideration for a supply that contains separately identifiable taxable and non-taxable parts. Example 15 C in GSTR 2001/8 paragraph 103Fprovides the following example.

The general principle provided in the ruling is that an entity can use any reasonable method of apportionment that is supportable under the circumstances. Records must be retained to support the method of apportionment that you have used.

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