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Ruling
Subject: goods and services tax (GST) and calculating GST on a mixed supply of property.
Question
Is the method you propose to calculate GST on your sale of the property fair and reasonable?
Answer
Yes.
Relevant facts and circumstances
You will sell a property located in Australia (the property) that includes a commercial building and a residential building.
You will sell the property for land value.
The selling price will be a certain amount plus GST.
Your sale of the property is a taxable supply to the extent of the commercial part of the property only. You receive a ruling stating this.
You have proposed to use the following method to apportion the price between the commercial and residential parts of the property and calculate GST on the sale of the property:
Area of commercial part of property divided by total area of property x GST exclusive part of sale price multiplied by 10%.
(The GST exclusive part of the sale price is the GST inclusive price less the GST).
(The various areas are expressed in square metres).
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 9-70
A New Tax System (Goods and Services Tax) Act 1999 section 9-75
A New Tax System (Goods and Services Tax) Act 1999 section 9-80
A New Tax System (Goods and Services Tax) Act 1999 section 40-65
Reasons for decision
Summary
Your method is supported by paragraphs 106 to 108A of Goods and Services Tax Ruling GSTR 2001/8.
Detailed reasoning
Based on the fact that you are selling the property for land value and the price you are selling the property for, the method you have proposed is fair and reasonable. It is supported by paragraphs 106 to 108A of GSTR 2001/8, which state:
Relative floor area in a supply of property
106. In some cases, it is reasonable for you to allocate the consideration for a mixed supply by reference to the relative floor area of the property being supplied. To make an allocation on this basis, you also need to consider the relative price of different types of floor space (for example, floor space in residential, retail and industrial property are often priced differently). That is, you may simply work out the proportionate floor area if the value per square metre does not vary. However, if the value per square metre is variable, then you can reasonably apportion on a basis of each area and its relative value. You may also need to take into account external features, such as the value of recreational areas.
Example 17 - commercial and residential premises
107. Warren rents out a property to Josef for $ 2 , 000 per month. The property is comprised of residential and commercial premises. The floor area of the residential part is 160 square metres and the commercial part is 80 square metres. In the locality, the rental of commercial space is worth twice as much as residential space.
108. It would be reasonable for Warren to base the taxable proportion of the supply on the floor area of the commercial part as a proportion of the combined floor area of the commercial and residential parts. However, he also needs to take into account the difference in the relative value of the commercial and residential floor space. Warren may reasonably apportion the consideration equally between the commercial and the residential parts.
108A. The taxable proportion is therefore 50 %. Applying the formula in section 9-80, the taxable value of the actual supply is calculated as ($ 2000 x 10)/( 10 + 0.5). The value of the taxable part is $952.38 and the GST payable is $95.23.
If your situation was different and the buildings had value and the value of a square metre of commercial floor space was different to the value of a square metre of residential floor space and the relative difference was more than negligible, you would have had to have adjusted the formula to take into account those differences in value, in accordance with paragraphs 106 to 108A of GSTR 2001/8.
You can still rely on the original ruling that you received, which advised on whether GST is payable on your sale of the property.