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Ruling

Subject: GST and sale of property with mooring facility

Questions

Will you be liable to pay the goods and services tax (GST) on the proposed sale of an Australian residential property that includes a mooring facility?

If the proposed sale of the above property is subject to GST, can the margin scheme be applied?

Answers

Based on the information received, you will not be liable to pay GST on the proposed sale of the Australian residential property that includes a mooring facility, provided the residential premises are sold in conjunction with the mooring facility to the same recipient and the sale contract includes specific reference to the mooring facility.

In this instance, the supply of the mooring facility will be considered as part of the residential premises and the supply of the residential premises with the mooring facility will be an input taxed supply under section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). No GST will be applicable to the sale.

Where there is no GST applicable to the sale of the proposed sale of the property, the margin scheme is not relevant.

Relevant facts and circumstances

You purchased an Australian residential property a few years ago. No GST was included in the purchase price as the vendor used the property as their residence. After the purchase you lease the property.

The residential property includes a mooring facility which you also leased separately from the residential premises. This lease will not be included in the sale of the residential property as the lessee has now ceased operation.

At the time of purchase there was no formal council approval to operate a commercial mooring facility; however you subsequently obtained such approval and commenced leasing the mooring. There were no significant construction costs as the previous owner had used it as a private mooring without council approval.

This property is due for sale shortly. You are not able to supply us with a copy of the sale contract because it will not be available until the sale. However, you advise that the entire property including the mooring facility will be sold on one title.

There is no going concern activity involved with the sale of the property.

You do not know if the purchaser will be registered or required to be registered for GST.

You are registered for GST.

Relevant legislative provisions

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

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

Reasons for decisions

Question 1

GST is payable on taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and

(c) the supply is *connected with Australia; and

(d) 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.

(* denotes terms defined in the GST Act).

In your case, you are making a supply of real property through a business that you are carrying on for consideration. The property with the mooring facility is located in Australia and hence is connected with Australia and you are registered for GST. Accordingly, you satisfy paragraphs 9-5(a), (b), (c) and (d) of the GST Act.

However, the supply of the property with the mooring facility will be a taxable supply to the extent that it is not GST-free or input taxed. There is no provision under the GST Act which would make the sale of the property with the mooring facility GST-free.

We will now consider whether the sale of the property with the mooring facility is an input taxed supply under Division 40 of the GST Act.

Input taxed supply

A sale of real property is input taxed under section 40-65 of the GST Act if it is a supply of residential premises to be used predominantly for residential accommodation.

'Residential premises' are defined in section 195-1 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.

The Australian Taxation Office's (ATO) view is that, where a mooring facility is supplied as part of premises being supplied, it takes its character from the premises being supplied. If the premises are residential premises then the mooring facility will also have that character. There is no apportionment issue as the mooring facility does not have a character separate from the residential premises. This policy applies to other related facilities such as store rooms and garages.

This is so even though the mooring facility is physically separate from the residential premise and is supplied under a separate title. The ATO does not make a distinction based purely on title structure.

A mooring facility can be considered to be part of the sale of the residential premises under the GST Act if:

· the sale contract for the residential premises include some specific reference to the mooring facility. If the mooring facility is to be supplied at a later point in time, this should be stated in the terms and conditions of the sale contract.

· if there is more than one document, the documents must comprise a single transaction, and they must relate to both the supply of the residential premises and the supply of the mooring facility; and

· the contract for the sale of residential premises (which includes the residence itself and the mooring facility) should be between the same supplier and the same recipient.

The GST law examines each supply on the basis of its character and the supply is treated accordingly. Where the supply is a separate supply of mooring facility (no residential premise included), the mooring facility does not display the characteristics of residential premises. The supply of the mooring facility on its own is a taxable supply where all the requirements in section 9-5 of the GST Act are met.

In your case you do not have a sale contract available. However, you advised that on the auction day, the sale of the residential property will include the mooring facility and will be sold under one title. Consequently, if your sale contract includes specific reference of the mooring facility and the mooring facility is supplied in conjunction with the residential property to the same recipient, then the supply of the mooring facility will be considered as part of the residential premises. In this instance, the supply of the property with the mooring facility will be an input taxed supply under section 40-65 of the GST Act and no GST will be applicable to the sale.

Question 2

The margin scheme is applicable only where the supply of a real property is a taxable supply. In your case, since your supply is not a taxable supply the margin scheme is not relevant.