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Edited version of private advice
Authorisation Number: 1012615594119
Ruling
Subject: GST and the supply of a lease of real property
Question
Will your supply of the Lease of Lot X be a taxable supply pursuant to Division 9 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
No
Relevant facts and circumstances
You, Entity A, are not registered for GST.
In March 200X, you acquired a lease of a portion of a property located within Australia's territorial boundaries. In March 200Y you renewed your lease for a further term.
The property is approximately XXX hectares in size. You lease a small portion of the property.
X houses and X sheds are located within the leased area:
The unit holders and friends and associates have used the houses for recreation. When friends have used the house they have reimbursed you for expenses eg fuel, generator use and boat use, etc.
Sometimes the houses are rented out to non-related parties. The annual rent from this activity has never exceeded $75,000 per annum.
The sheds are used by the occupants of the houses for private purposes. They do not have any separate commercial purpose apart from the leasing of the houses to third parties and associates.
You supplied copies of the original purchase contract and a copy of the lease. The lease specifies that the lessee must use the leased area for a private residence only. Further, the lease may be forfeited if the leased area is used for another purpose. You pay $X per annum for the lease and the rates of $X. You are now selling the lease.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 9-5,
A New Tax System (Goods and Services Tax) Act 1999 9-30,
A New Tax System (Goods and Services Tax) Act 1999 9-40,
A New Tax System (Goods and Services Tax) Act 1999 40-35 and
A New Tax System (Goods and Services Tax) Act 1999 195-1.
Reasons for decision
Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.
Section 9-5 of the GST Act sets out when a supply will be a taxable supply and relevantly provides that a supply will not be a taxable supply to the extent that it is input taxed.
Input taxed supply
Subsection 9-30(2) of the GST Act provides:
(2) A supply is input taxed if:
(a) it is input taxed under Division 40 or under a provision of another Act; or
(b) it is a supply of a right to receive a supply that would be input taxed under paragraph (a).
You are selling a lease of a property which contains X houses, X sheds and surrounding land.
Section 40-35 of the GST Act identifies some of the circumstances in which a supply of premises will be input taxed. Relevantly, subsection (1) provides that:
(1) A supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if:
(a) the supply is of residential premises (other than a supply of commercial residential premises or a supply of accommodation in commercial residential premises provided to an individual by the entity that owns or controls the commercial residential premises);
The expression "residential premises" is defined in s 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.
On the facts provided, the houses are residential premises that are not commercial residential premises.
However, the leased area contains a portion of land and X sheds which are used to house a generator, a cool room and other articles used by the residents.
Paragraph 46 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (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.
In addition, paragraph 78 of GSTR 2012/5 states:
78. A supply of a residential apartment in a building may include a garage, car-parking space, or storage area physically separate from the apartment, but within the building complex. The garage, car-parking space, or storage area is ancillary or incidental to the dominant component of the supply being the residential apartment. It can be therefore reasonably concluded that the garage, car-parking space, or storage area are to be used for the better enjoyment of the residential apartment. They do not form a dominant part of the supply. The supply is therefore a composite supply of residential premises to be used predominantly for residential accommodation.33 This is still the outcome where the garage, car-parking space, or storage space is separately titled to the residential apartment, if it is physically located within the building complex.
Paragraphs 46 and 78 of GSTR 2012/5 show that, where it can be concluded that land and additional buildings on a property are to be used for the better enjoyment of the residential premises and the physical characteristics of the land and buildings as a whole indicate they are to be enjoyed in conjunction with the residential buildings, the supply of the land and buildings are incidental to the supply of the residential premises on the land. We consider that the land, the sheds and the residential premises together meet the definition of residential premises. Your supply of these would be an input taxed supply.
In selling the lease of these premises, you are selling the right to receive a supply that would be input taxed under Division 40 of the GST Act.
Therefore, pursuant to paragraph 9-30(2)(b) of the GST Act, your supply of the lease will be an input taxed supply.