Edited version of private ruling

Authorisation Number: 1011886499159

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Ruling

Subject: GST and the sale of real property

Questions

Is the sale of the house and land (Property) located in Australia subject to goods and services tax (GST)?

If yes, is GST payable on the whole sale value or on a portion considering the other owners of the Property are not registered for GST and do not operate an enterprise or business on the Property?

Answers

No.

Not required to be answered.

Relevant facts and circumstances

· You are registered for GST.

· You and several other people are the owners of the Property as joint tenants.

· The Property is being used by you as farm land to allow you to carry on your enterprise. The Property also includes a house with land that is used by you and the other owners of the Property as residential premises.

· The Property has been used as farm land and residential premises for at least 5 years.

· The Property is to be supplied (by way of sale) to a purchaser who will continue to operate the land as farm land.

· There is no agreement in place between you and the other owners with respect to the use of the land and the other owners do not receive any business income from your enterprise.

· You do not want to use the going concern provisions of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if they are applicable to the sale.

· You do not wish the ATO to determine what portion of the Property used in your enterprise can be considered as an asset of your enterprise (and hence subject to the GST provisions when sold) unless GST is applicable to the sale.

· You are not going to claim input tax credits (GST credits) with respect to the sale given the associated costs in making the necessary apportionments between the commercial and residential parts of the Property.

Reasons for decision

Summary

Some of the Property may be considered as private property (and not an asset of your enterprise) and accordingly it will not be subject to GST when sold.

The portion of the land used in your enterprise that can be considered as an asset of your enterprise will be GST-free as farm land when sold provided the purchaser intends to use the land as a farming business.

The sale of the residential premises is an input taxed supply and not subject to GST.

Detailed reasoning

You and several other people are the owners of the Property as joint tenants. Consequently, some of the Property may be considered as private property (and not an asset of your enterprise) and accordingly, will not be subject to GST when sold given it is the sale of a private asset.

You do not wish the ATO to determine what portion of the Property used in your enterprise can be considered as an asset of your enterprise (and hence subject to the GST provisions when sold) unless GST is applicable to the sale.

Given it would appear that the sale of the land may be the GST-free sale of farm land, the following discussion is only relevant to the portion of the Property used in your enterprise that can be considered as an asset of your enterprise.

Taxable supply

The sale of real property used in an enterprise by a GST registered entity is generally a taxable supply. However, the sale of land that has been used as farm land for at least 5 years may be GST-free under section 38-480 of the GST Act. The sale of residential premises may also be exempt from GST as an input tax supply provided the requirements of section 40-65 of the GST Act are met.

Farm land

Section 38-480 of the GST Act states the following in relation to the sale of farm land:

The supply of a freehold interest in, or the lease by an *Australian government agency of or the *long term lease of, land is GST-free if:

(a) the land is land on which a *farming business has been *carried on for at least the period of 5 years preceding the supply; and

(b) the *recipient of the supply intends that a farming business be carried on, on the land.

Note that the asterisks denote a defined term in the GST Act.

Further, a farming business is defined in section 195-1 of the GST Act (with reference to subsection 38-475(2) of the GST Act) and includes the cultivation or propagation of plants, fungi or their products or parts (including seeds, spores, bulbs and similar things), in any physical environment.

Given this definition, your enterprise would be a farming business. The land has also been used as farm land for at least 5 years and the purchaser intends to carry on a farming business on the land once purchased.

Hence, as the requirements of section 38-480 are met, the sale of the land can be treated as a GST-free sale of farm land.

Residential premises

Section 40-65 of the GST Act provides that the sale of real property is input taxed but only to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation) and is not:

· commercial residential premises, or

· new residential premises.

In this case, the house located on the land is residential premises but not commercial or new residential premises. Consequently, the sale of the house and the land used in relation to the house is an input taxed supply under section 40-65 of the GST Act and consequently not subject to GST.

Claiming GST credits on costs associated with the sale

You have stated that you are not going to claim GST credits with respect to the sale given the associated costs in making the necessary apportionments between the commercial and residential parts of the Property.

Please note that if you do decide to claim GST credits then you would also need to make an apportionment of the Property between what is privately owed and what is considered as part of your enterprise.

Example

The total GST costs on the sale of the Property are $1000.

You make an apportionment and determine that the value of the house represents 15% of the total selling price. This equates to an amount of $150 leaving an amount claimable of $850.

It is then determined that 25% of the land is considered as being an asset of your enterprise.

Therefore, you would be entitled to claim 25% of $850 = $212.50.