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Ruling

Subject: GST and the liability to pay GST on the sale of properties

Question 1

Are you liable to pay Goods Services Tax (GST) on the sale of a block of land and new residential premises?

Answer

Yes. You are liable to pay GST on the sale of a block of land and new residential premises.

Relevant facts and circumstances

Our decision is based on the following facts.

You are registered for GST.

You wrote to the Australian Taxation Office (ATO) requesting to confirm who is liable to pay GST on the sale of a block of land and a new residential premises.

You confirmed over the phone that you sold these properties by appointing a real estate agent.

The contracts of sale relating to the properties sold show you as the seller.

You provided copies of correspondences from the bank. Those correspondences relate to the properties sold and inform that the bank will provide a release over the property in exchange for the full sale proceeds less reasonable agent's commission, and reasonable conveyance costs including normal settlement adjustments such as rates.

The contracts of the sale for these properties indicate that the sale price includes GST.

You have provided a copy of a tax invoice issued by you to the purchaser of the block of land.

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 9-40

A New Tax System (Goods and Services Tax) Act 1999 subsection 195-1

A New Tax System (Goods and Services Tax) Act 1999 Division 40

A New Tax System (Goods and Services Tax) Act 1999 Division 105

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

Section 9-5 of the GST Act provides that you make a taxable supply if you make the supply for consideration; in the course or furtherance of an enterprise that you carry on; the supply is connected with Australia; and 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.

Is the supply of the block of land a taxable supply?

You informed that you, not the bank:

· sold a block of land; and

· a new residential premises.

A supply is taxable where all the conditions under section 9-5 of the GST Act are met. In this case you made the supply of the block of land for consideration; in the course or furtherance of an enterprise that you carry on; the supply is connected with Australia; and you are registered for GST.

Furthermore, in this case the supply of the vacant land is neither GST-free nor input taxed.

Therefore, your supply of the block of land is taxable under section 9-5 of the GST Act.

Is the supply of new residential premises a taxable supply?

Subsection 40-65(2) of the GST Act provides that the sale of real property is not input taxed to the extent that the residential premises are commercial residential premises or new residential premises other than those used for residential premises before 2 December 1998.

According to section 40-75 of the GST Act residential premises are new residential premises if they:

· have not previously been sold as residential premises and have not previously been subject to a long-term lease; or  

· the premises have been created through substantial renovations of a building; or

· have been built, or contain a building that has been built, to replace demolished premises on the same land.

According to the facts provided the residential premises is a new residential premises.

Your supply of new residential premises satisfies section 9-5 of the GST Act and is therefore taxable.

The facts provided indicate that you, not the bank, made the supply of these properties. Therefore, you must pay the GST payable on the taxable supplies made by you.

Additional information:

Section 105-5 of the GST Act provides that the creditor is liable for GST if they supply the property of the debtor to a third party in satisfaction of the debt owed to the creditor on the proviso that, had the debtor made the supply, the supply would have been a taxable supply.

However, in this instance the bank provided a release over the properties in exchange for the full sale proceeds. The contracts of sale relating to the properties indicate you are the seller of the properties.

Furthermore, a copy of a tax invoice you provided indicates that you are the seller of the property. Therefore, as the bank did not supply the properties, Division 105 of the GST Act does not apply in this instance.

Whether you are able to recover the GST payable from the bank is a matter of contractual arrangements between you and the bank. The Tax Office cannot intervene in contractual matters between parties.