Edited version of private advice

Authorisation Number: 1051630608842

Date of advice: 31 January 2020

Ruling

Subject: Supply of subdivided residential property

Question

Is the sale of the subdivided Property a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No. The sale of the subdivided Property is an input taxed supply under section 40-65 of the GST Act. No GST is payable on input taxed supplies.

This ruling applies for the following period:

2019 - 2023.

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 not registered for GST.

You bought the property (Property) from a developer in 20XX. This sale was subject to GST.

In compliance with section 14-250 of Schedule 1 of the Taxation Administration Act 1953, you withheld from the Vendor the GST amount due on the sale of the Property and paid this amount directly to the Commissioner.

The Property contained two townhouses on one title of land.

You moved into one townhouse and leased out the other townhouse.

You subdivided the Property into two lots (subdivided Property). Each lot contained one townhouse.

You did not renovate the Property.

You sold one lot of the subdivided Property in 2019.

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 40-65

A New Tax System (Goods and Services Tax) Act 1999 Section 40-75

Reasons for decision

In this reasoning,

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

·        all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act.

Taxable supplies

Goods and services tax (GST) is payable on taxable supplies. Section 9-5 states:

You make a taxable supply if:

(a)   you make a supply for *consideration; and

(b)   the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c)   the supply is *connected with Australia; and

(d)   you are *registered, or *required to be registered.

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

All of the requirements of section 9-5 must be satisfied in order for your supply (the sale of the subdivided Property) to be a taxable supply. However your supply will not be a taxable supply to the extent that it is GST-free or input taxed.

Consequently, we have first considered whether your supply could potentially be GST-free or input taxed, before considering whether all of the requirements of section 9-5 have been met.

GST-free and input taxed supplies

GST-free means that there is no GST payable on the supply and there is an entitlement to an input tax credit for anything that is acquired to make the supply (provided the other requirements of section 11-5 are met).

There is no provision in the GST Act that makes your supply GST-free.

Input taxed means that there is no GST payable on the supply and there is no entitlement to an input tax credit for anything that is acquired to make the supply.

Under subsection 40-65(1), a supply of real property is input taxed, but only to the extent that the property is residential premises to be used predominately for residential accommodation (regardless of the term of occupation).

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 to be, and is capable of being, occupied as a residence or for residential accommodation (regardless of the term of occupation or intended occupation).

However, subsection 40-65(2) states that the supply of real property 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

Based on the information provided, the subdivided Property is residential premises that is to be used predominately for residential accommodation, is not commercial residential premises, and was not used for residential accommodation before 2 December 1998.

We have considered below if the subdivided Property constitutes "new residential premises" within the meaning of section 40-75.

The meaning of new residential premises under section 40-75

The term 'new residential premises' has the meaning given by section 40-75, which in part states:

40-75 Meaning of new residential premises

When premises are new residential premises

(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;

(b) ...; or

(c) ....

Paragraphs (b) and (c) have effect subject to paragraph (a).

You have advised that the developer sold the Property to you in 20XX. Further, this sale of the Property was treated as a taxable supply of residential premises. You withheld the GST amount due on the sale of the Property from the Vendor and paid this amount directly to the Commissioner in accordance with section 14-250 of Schedule 1 of the Taxation Administration Act 1953.

On this basis, the Property is not new residential premises in accordance with the meaning of section 40-75 as it has been previously sold as residential premises, satisfying paragraph 40-75(1)(a). This supply is not disregarded as a sale or supply for the purposes of applying paragraph 40-75(1)(a).

You have also advised that post acquisition of the Property, you subdivided the Property to create two lots. Each lot contained one townhouse.

Subsection 40-75(2AA) provides that a subdivision of property may not result in new residential premises:

(2AA)Despite subsection (1), the *residential premises are not new residential premises if:

(a)             they are created from residential premises that became the subject of a *property subdivision plan; and

(b)             the residential premises referred to in paragraph (a) were not new residential premises immediately before they become the subject of that plan.

This subsection has effect subject to paragraphs (1)(b) and (c).

Pursuant to subsection 40-75(2AA), your subdivision of the Property does not result in new residential premises as the Property was not new residential premises immediately before it became the subject of the property subdivision plan.

As the subdivided Property is residential premises to be used predominately for residential accommodation and is not excluded from being residential premises from paragraphs 40-65(2)(a) or (b), the sale of the subdivided Property is input taxed.

As a supply is not a taxable supply to the extent that it is input taxed, it is not necessary to consider whether the requirements of section 9-5 have been satisfied.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).