Edited version of private ruling

Authorisation Number: 1011753936874

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Ruling

Subject: GST credit entitlement on the acquisition of a rural property

Question

Is the acquisition of a rural property a creditable acquisition?

Answer

The acquisition of the property is partly creditable as the supply to you was a mixed supply for the purposes of A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts

You are registered for GST.

You purchased a property from a vendor that was registered for GST.

The property comprises a home and other buildings located on a number of hectares of rural land

The terms and conditions for the contract of sale of the house and land states:

"GST: Where used in this Contract has the meaning used in the A New Tax System Goods and Services Tax Act 1999 and GST includes any applicable rulings issued by the Commissioner".

The contract of sale makes no further references to GST.

Settlement of the property has occurred.

You obtained from the vendor a tax invoice that lists GST is not applicable on the sale of the property.

The property is to be used in carrying on your enterprise.

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

(a) You acquire anything solely or partly for a creditable purpose; and

(b) the supply of the thing to you is a taxable supply; and

(c) you provide or are liable to provide consideration for the supply; and

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

In relation to your case, subsections 11-5(c) and 11-5(d) of the GST Act are satisfied as you provided consideration for the supply of the property and you are registered for GST respectively.

Subsection 11-5(a) is also satisfied as you acquired the property for the purposes of carrying on your primary production enterprise. Thus the last criterion that needs to be satisfied is whether the supply of the property to you was a taxable supply.

Under section 9-5 of the GST Act, a supply will be taxable if the following conditions are met:

(a) the supply is for consideration; and

(b) the supply is made in the course or furtherance of an enterprise that the supplier carries on; and

(c) the supply is connected with Australia; and

(d) the supplier is registered for required to be registered

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

In this case, the conditions of subsections 9-5(a), 9-5(c) and 9-5(d) of the GST Act have been met as the supply was for consideration; the property is located in Australia, so its supply is connected with Australia; and the supplier is registered for GST respectively.

The supply of the property was part of an enterprise being carried on by the supplier and therefore subsection 9-5(b) of the GST Act is satisfied. This means the supply of the property is subject to GST except to the extent that it is GST-free or input taxed.

There is no legislative provision in the GST Act that allows the supply of the property to be GST-free in this case, however consideration needs to be given to whether the supply is input taxed.

Subsection 40-65(1) of the GST Act explains that to the extent that a property is residential premises to be used predominantly for residential accommodation, then it will be an input taxed supply.

Subsection 40-65(2) of the GST Act states

'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
before 2 December 1998.'

Guidance on the Australian Taxation Office's (ATO) position of residential premises, including new and commercial, can be found in Goods and Services Tax Ruling GSTR 2000/20 concerning commercial residential premises which is available on our website, at www.ato.gov.au.

Based on your advice the house located on the property is not commercial in nature nor is it a new residential premise as it is more than five years old. Thus the exclusion contained in subsection 40-65(2) of the GST Act does not apply and the supply of the house is not taxable as it is an input taxed supply.

Thus an apportionment is required by the vendor to determine the value of the land compared to the value of the house in order to calculate the GST payable on the supply of the property. Goods and Services Taxation Ruling GSTR 2001/8 provides this Office's view on apportioning the consideration for a supply that includes taxable and non-taxable parts. Paragraphs 26, 27, and 29 of GSTR 2001/8 state:

26. You can use any reasonable method to apportion the consideration for a mixed supply. The method you use must be supportable in the particular circumstances.

27. You should keep records that explain the method you use to apportion a mixed supply.

29. To work out the value of the taxable part of a mixed supply, you identify the parts of the supply and apportion the consideration to each of the parts. The value of the taxable part is 10/11 of the consideration for the taxable part, and the GST payable is equivalent to 1/11 of that consideration.

Paragraphs 114 to 119 of GSTR 2001/8 explain how to calculate the GST payable on the taxable part of a mixed supply. This ruling can be accessed at the ATO website www.ato.gov.au.

In summary

We find that the supply of the property to you was a mixed supply with the land being subject to GST while the residential premise located on it was not. We recommend that you approach the vendor and request a replacement tax invoice. Under subsection 29-10(4) of the GST Act you will then be entitled to attribute the relevant GST credit in the first tax period that you hold a valid tax invoice.