Edited version of private advice

Authorisation Number: 1051764163698

Date of advice: 9 October 2020

Ruling

Subject: GST and real property

Questions

1. Is GST payable under section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on the subdivision of a block of land that you own?

2. Is GST payable on your registration of the subdivision?

3. Is GST payable on the sale of the resulting lots?

Answers

1. No. GST is payable only when you make supplies that are taxable supplies. GST is not payable on the subdivision activities itself, unless the activities include the making of supplies that would be taxable supplies under section 9-5 of the GST Act.

2. No. GST is payable only when you make supplies that are taxable supplies. There is no GST payable if you are not making any supplies at this point in the subdivision and development project.

3. No.

Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies.

An entity makes a taxable supply under section 9-5 of the GST Act if:

·         it makes the supply for consideration; and

·         the supply is made in the course or furtherance of the entity's enterprise; and

·         the supply is connected with the indirect tax zone (that is, Australia); and

·         the entity is 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.

A sale of residential premises that is not 'new residential premises' as defined in section 40-75 of the GST Act at the time of sale is an input taxed supply under section 40-65 of the GST Act.

Goods and Services Tax Ruling GSTR 2012/5: Goods and services tax: residential premises (GSTR 2012/5) provides guidance on how GST applies to supplies of residential premises.

Goods and Services Tax Ruling GSTR 2003/3: Goods and services tax: when is a sale of real property a sale of new residential premises? (GSTR 2003/3) provides guidance on when real property is new residential premises pursuant to section 40-75 of the GST Act.

Both GSTR 2012/5 and GSTR 2003/3 are available on the ATO website www.ato.gov.au

Residential premises that have not previously been sold as residential premises and residential premises that have been created through substantial renovations of a building are new residential premises as defined in section 40-75 of the GST Act.

Where residential premises have been used only for the purpose of making input taxed supplies (i.e. residential rental) because of paragraph 40-35(1)(a) of the GST Act for a continuous period of at least 5 years since the premises would otherwise have become new residential premises, they are no longer new residential premises.

On the facts provided, the lots with the dwellings attached, would have been rented out and used for residential accommodation for a continuous period of at least 5 years by the time you sell them. On that basis, it is considered that the sale would not be a sale of new residential premises.

As the residential premises will not be new residential premises, the sale would be an input taxed supply under section 40-65 of the GST Act at the time of settlement of the sale which occurs in 8 years' time or beyond. Consequently, your sale of the lots with the residential premises attached will not meet all the requirements for a taxable supply under section 9-5 of the GST Act.

As the supply will not be a taxable supply, GST will not be payable on the sale.

This ruling applies for the specified period.

The scheme commences on the specified date.

Relevant facts and circumstances

·         You are an entity and own the identified real property situated in Australia (the property).

·         You purchased the property as an investment.

·         You did not purchase the property with any intention of developing it for a profit.

·         The property comprised land and a residence which you have rented out since your purchase.

·         You are not registered for the goods and services tax (GST).

·         You are now considering subdividing the property and constructing a new dwelling.

·         On completion of the construction, the property will be subdivided into separate lots.

·         You will also be renovating the existing dwelling internally and externally.

·         You have no plan to sell either the renovated building or newly constructed dwelling at this stage.

·         You intend to retain both lots as an investment and rent both dwellings out for a continuous period of at least 5 years before you sell one of them.

·         Your long-term plan is to retain one of the dwellings indefinitely.

·         You have no experience at property development and are not in the property development business.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 7-1;

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 40-35(1)(a);

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

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

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