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Ruling

Subject: Sale of residential property - ''lifestyle' blocks.

Question

Will your supply of residences on large 'lifestyle' blocks be taxable supplies?

Answer

No, they will be input taxed supplies of residential property.

This ruling is issued broadly on the basis of the facts supplied. As each individual property is sold, you will need to ensure that the facts for that individual property are consistent with the facts stated in this ruling.

Relevant facts and circumstances

As part of a proposed (now cancelled) infrastructure project, you purchased a number of properties.

Some of the properties are what are called 'lifestyle' properties. Each has a residence located on it. These are the properties that are the subject of your ruling request.

Following the cancellation of the project, the properties have been leased back to the previous owners, for periods of varying lengths, at 1/3 to ½ of market rental value. As these leases expire, the properties will be sold.

You provided the following further facts:

· the properties are large (by normal standards) residential properties, with sizes ranging from 3 hectares to 25 hectares.

· they are zoned for residential use

· the residences are not new residential premises.

· the residences are not commercial residences.

· whilst it is possible to generate some income from the properties to offset some expenses, they are, for various reasons (eg the nature of the terrain and inaccessibility of parts of the land), not suitable to support viable primary production activities

· the terms of the leases do not allow the lease holders to operate a business from the property

· you see the 'additional' land attached to the residence as land that is to be enjoyed in conjunction with the residential building

· under the terms of the original leases, you are responsible for maintenance of the residence, whilst the tenant is responsible for repairs to the rest of the property

· as the original leases expire, they are being replaced by dual lease arrangements; whereby with similar separation of maintenance responsibilities

· you treat the rental income from both the residences and the land as input taxed

Relevant legislative provisions

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

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

Reasons for decision

Section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a 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).

However, the sale is not input taxed if the residential premises are commercial residential premises or new residential premises,

Residential premises is defined in section 195-1 of the GST Act as follows:

Residential premises means land or a building that:

(a)   is occupied as a residence or for residential accommodation; or

(b)   is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation;

(regardless of the term of the occupation or intended occupation) and includes a *floating home.

(terms marked * are defined in section 195-1 of the GST Act)

On the facts provided, the residences are residential premises that are neither commercial residential premises nor new residential premises. Therefore, the issue for consideration is whether the large (by normal residential standards) area of land surrounding the residences is part of the residential premises.

As explained in paragraph 31 of Draft Goods and Services Tax Ruling GSTR 2011/D2: residential premises and commercial residential premises, (GSTR 2011/D2), the definition of residential premises does not limit the area of land that can be included with the building.

31. There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent that the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building.

You advised that, whilst it is possible to generate some income from the properties to offset some expenses, they are, for various reasons, not suitable to support viable primary production activities.

You further advised that the properties are zoned for residential use and that the terms of the lease do not allow the lease holder to operate a business from the property.

In view of the above, we consider that the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building.

Therefore, your supplies of the residences and attached land will be input taxed supplies of residential property.