Edited version of your private ruling

Authorisation Number: 1012548192152

Ruling

Subject: GST and supply of Crown land

Question 1

Is the supply of Crown land adjoining a particular property located in Australia subject to goods and services tax (GST)?

Answer

No

Relevant facts and circumstances

· You are a State government entity and are registered for GST.

· You facilitate the appropriate management, use and development of Crown land, including the licensing, leasing, sale and rental of Crown properties in your State under a State Act.

· You will supply a parcel of land of approximately xxx square meters (the Land) to a purchaser.

· The Purchaser has applied to you to acquire the Land which is adjoining their property to legalise the encroachment of their house.

· The house was built decades ago and is currently used for residential accommodation.

· Your inspector has reported that The Crown land is fenced in with the freehold property. It contains approximately a half to three quarters of their single storey residence, picket and paling fences, garden and a timber outbuilding (a photograph of the residence is provided)

· An aerial photograph is provided. From the aerial photograph the house would encroach into the Crown land in excess of X%.

· There is no contract at this stage as the Purchaser is disputing the Crown valuation and is in the process of obtaining an independent valuation.

Relevant legislative provisions

All references are to the A New Tax System (Goods and Services Tax) Act 1999

Section 9-5

Section 40-65

Reasons for decision

What is the supply in the circumstances

You have provided that you will supply a parcel of land of approximately xxx square meters which is adjoining the freehold land owned by the Purchaser. The reason that the Purchaser applies to acquire the Land is to legalise the encroachment of their house.

Your inspector has provided that the Crown land is fenced in with the freehold property. It contains approximately a half to three quarters of their single storey, weatherboard residence, picket and paling fences, garden and a timber outbuilding (a photograph of the residence is provided)

It should be noted that vacant land is not capable of being occupied as a residence or for residential accommodation as it does not provide shelter and basic living facilities. Vacant land is not residential premises.

You have also provided an aerial photograph. From the aerial photograph the house would encroach into the Crown land in excess of X%.

The sale contract will only specify the Land, not any building attached to the Land. However, it is a general rule of real property law that whatever is attached to the soil becomes part of the soil (Minshall v Lloyd (1837) 150 ER 834). Consequently, when a building is constructed on land, the materials of which the building is constructed become, in law, part of the land. Any other objects which are initially personal property may, by being affixed or attached to the land or a building on the land, also become part of the land.

Although, the entire house does not encroach the Crown land, it is considered that you will supply the Land and the building on the Land (as the building becomes part of the Land).

Is the supply residential premises?

The term 'residential premises' is defined in section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

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.

An asterisk denotes a defined term in the Act.

Goods and services tax ruling GSTR 2012/85 considers how Subdivision 40-C of the GST Act (Residential premises) applies to supplies of residential premises.

Paragraph 6 of GSTR 2012/-5 discusses the definition of residential premises

Premises comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition.

You have provided that you will supply the Land and the building on the Land. The building on the Land was built in the early to mid 1900s and has been using as a residence.

The actual use of the building as a residence satisfies paragraph (a) of the definition of residential premises.

Section 40-65 of the GST Act states:

(1) 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).

(2) However, the sale is not input taxed to the extent that the *residential premises are:

(a) *commercial residential premises; or

(b) *new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

The requirement in section 40-65 of the GST Act that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability to be residential premises to be used for residential accommodation.

You have provided that the building is a single storey house. The building has been built about decades ago and currently being used for residential accommodation. You have also provided a photograph of the house with colour bond shed.

Based on your description of the building and the photographs provided, it is considered that the physical characteristics of the building is suitable and capable of to be used for residential as required under subsection 40-65 (1) of the GST Act.

The building is not a commercial property and is not new residential premises.

In conclusion, your supply is a supply of residential premises and is input taxed. In accordance with section 40-1 of the GST Act, if a supply is input taxed , then no GST is payable on the supply and there is no entitlement to an input tax credit for anything acquired to make the supply (the Land).