Edited version of your private ruling

Authorisation Number: 1012595274978

Ruling

Subject: GST and sale of property

Question 1

Is the sale of the property, a sale of residential premises and therefore an input taxed supply under section.40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes

Relevant facts and circumstances

• You are a company registered for goods and services tax (GST)

• You acquired a property from a non-associated vendor company.

• You also purchased two other adjoining properties from the vendor in the same transaction which are not residential in nature.

• The vendor is also registered for GST.

• The property is a number of hectares in area and consists of a house and shed and mostly cleared land with a small earth dam.

• The land has no structures other than the house and nearby shed which are for the use of the occupants. The whole property is available for the use of the occupants in connection with their residential occupancy.

• There is no disused factory or other structure which may restrict their use of the land in connection with their residential occupancy.

• The house is occupied by your caretaker and his wife and is not used for any other purpose.

• The house consists of 2 bedrooms, one with ensuite, a bathroom, a kitchen, a laundry, a lounge room, a dining area and a sunroom.

• The caretaker's duty is to maintain the property as well as other adjoining properties also owned by you and to prevent unauthorised access to the land.

• The property was purchased by the vendor prior to 1 July 2000 with the intention of subsequent development. No work was done on the property and a voluntary planning agreement was entered into between the vendor and the local Council prior to the sale.

• The voluntary planning agreement now operates between you and local Council.

• You intend to develop the property in the future.

• You have advised that the vendor company treated the property as part of the trading stock of the company.

Relevant legislative provisions

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

Section 40-65

Section 40-75

Section 195-1

Reasons for decision

Issue 1

Question 1

Summary

The sale of the property was the sale of residential premises and therefore an input taxed supply under section.40-65 of the GST Act.

Detailed reasoning

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

(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.

(Note: asterisked terms are defined in section 195-1 of the GST Act).

Based on the facts provided the premises are not considered to be new residential premises.

The term 'real property' is defined in section 195-1 of the GST Act to include:

(a) any interest in or right over land; or

(b) a personal right to call for or be granted any interest in or right over land; or

(c) a licence to occupy land or any other contractual right exercisable over or in relation to land.

The term 'residential premises' is defined in section 195-1 of the GST Act as being 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.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the Tax Office view of the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 provides in part that the requirement in section 40-35 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 for residential accommodation.

Paragraph 10 of GSTR 2012/5 continues stating that the requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person.

As such, we need to consider the property as it was at the time of sale. The intended use of the property is not taken into account when determining whether the premises are considered residential premises.

In order to satisfy the definition of residential premises, premises must provide shelter and basic living facilities (paragraph 15 of GSTR 2012/5).

In this case the premises are currently being used as a home for the caretaker and his wife. In this respect the premises consists of 2 bedrooms, one with ensuite, a bathroom, a kitchen, a laundry, a lounge room, a dining area and a sunroom. And therefore satisfy the definition of residential premises.

However the use of the phrase 'only to the extent' in subsection 40-65(1) of the GST Act contemplates that in some cases there may be the need to apportion a part of some premises to the extent that those premises are not residential premises to be used predominately for residential accommodation.

Paragraphs 68 of GSTR 2012/5 discuss comments of Edmonds and Gilmour JJ in Sunchen Pty Ltd v. Federal Commissioner of Taxation [2010] FCAFC 138 that the phrase 'to be used predominantly for residential accommodation' does not refer to use by any particular person, but to the attributes of the property to which its use is suited.

In this case the property consists of an area of 8.15 hectares of which a small percentage contains the premises.

However, in this instance, the properties are being sold with an area of land that is in excess of what would normally be considered the size of a normal residential block. We therefore need to consider if this land make's up part of the residential premises.

Paragraph 46 of GSTR 2012/5 states:

46. 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 to which 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. The use of the land is not a determining factor in deciding if the land forms part of the residential premises.

You have advised that the property consists of a house and shed and mostly cleared land with a small earth dam. The property has no structures other than the house and nearby shed which are for the use of the occupants. The whole property is available for the use of the occupants in connection with their residential occupancy.

You further advise that there is no disused factory or other structure which may restrict the use of the land in connection with their residential occupancy.

Additionally you have advised that the sale of the property included a voluntary planning agreement between the vendor and the relevant Council.

In some cases development consents issued by local authorities in effect run with the property. The consents usually remain current for a set period of time. If the property changes ownership during the currency of the consent then the new owner may well be able to proceed with the relevant development provided that all of the development conditions imposed by the local authority are satisfied. This may happen without any formal assignment of rights in respect of the development consent from the vendor to the purchaser as it is provided for in the relevant state legislation.

In such a case any assignment or similar provision in a contract purporting to transfer these rights may be achieving nothing more than the situation which results from the transfer of the property itself. In such a case there will only be a single supply of the property, as the rights which run with the property are not a separately identifiable part of the supply. If however the assignment referred to in the contract effects a transfer of something more than that resulting from the transfer of the property itself, the additional assignment may be a separately identifiable part of the supply.

If the additional assignment is a separately identifiable part of the supply, it will be taxable and the consideration for the whole supply must be apportioned on a reasonable basis to determine the value of the taxable part.

A development consent that is attached to the property and which runs with the property is not considered a separate supply of the development consent in its own right when a property is sold. A sale of a residential property with the attached development consent would, in the circumstances of this case, be a single, input taxed supply as per section 40-65 of the GST Act.

On the information supplied, we consider the premises are residential premises that are not commercial residential premises or new residential premises as defined in sections 195-1 and 40-75 of the GST Act

In conclusion the sale of the property was the sale of residential premises and therefore an input taxed supply under section.40-65 of the GST Act.