Edited version of your written advice

Authorisation Number: 1012729068497

Ruling

Subject: GST and sale of property

Question

Is the transfer of the property, a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, in part. The transfer of the property is a mixed supply. The commercial part relating to the enterprise is taxable.

Please note that pursuant to section 48-40 of the GST Act the group representative of a GST group must pay the GST payable for any taxable supply made by a member of a GST group.

Relevant facts and circumstances

You were established on XX XX 19XX by Person for a family business.

On XX XX 19XX you acquired some land (the Property)

In 19XX, soon after the Property was acquired, the son of Person constructed a dwelling on it and has resided in the dwelling with their family since the construction was completed. The house includes a swimming pool.

In 19XX, as part of the family business succession plan, the business ceased being operated by you and was transferred to Entity 2 as trustee for the Trust.

You have retained the equipment and bought new equipment which you lease to the Trust to be used in the business of the Trust. The equipment is stored on the Property. A monthly hire fee is charged for the hire of the equipment.

There is no property lease in place between you and the Trust. The Trust does not pay any rent or license fee in respect of the property. The mailing address of the business conducted by the Trust is a different residential address than this property. There is no registered office or business address.

In 19XX, the property was subdivided into X lots through a subdivision with the owner of the adjoining land. One lot was retained, being the property which is the subject of this ruling request.

In 200X you registered for GST and formed a GST group with the Trust. The Trust is the representative entity for the purposes of the GST Act.

You have decided to sell the property to a child of Person as part of a family succession plan. This was pursuant to an agreement between Person and their child, in 19XX when the dwelling was constructed on the property. Child of Person will continue to use the property as their private residence. You will continue to operate the hiring business on the land.

You have contended that approximately one third of the property is used for the business. It is used to either store the equipment when it is not being used on work sites, hold stockpiled topsoil, repair and maintain the machinery and park old equipment. You have provided a map of the property outlining the commercial areas as follows:

• The top of the land including the shed used for storing equipment and maintenance.

• The bottom left corner used for storing soil.

• A section across the lower middle of the land used for storing old equipment.

You intend to sell the whole property at market value to the child of Person.

The property is zoned rural living.

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 40-65, and

A New Tax System (Goods and Services Tax) Act 1999 Division 75.

Reasons for decision

In this ruling, please note:

• All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified.

• All terms marked by an *asterisk are defined terms in the GST Act.

Goods and services tax (GST) is payable on taxable supplies. Section 9-5 states:

You make a taxable supply if:

(a) you make a 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.

You will be supplying a freehold interest in land for consideration. The supply will be connected with Australia and you are registered for GST. If the supply is made in the course or furtherance of an enterprise that you carry on, your supply will be taxable, unless it is GST-free or input taxed to any extent. In your circumstances, there is no provision in the GST Act whereby any portion of the property supplied would be GST-free.

Residential premises to be used predominantly for residential accommodation

Under subsection 40-65(1), a sale of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation. There are two exclusions to this provision which relate to commercial residential premises and new residential premises.

The term 'residential premises', as defined in section 195-1, refers to land or a building that is occupied as a residence or for residential accommodation or 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).

Goods and Services Tax Ruling GSTR 2012/5, Goods and services tax: residential premises, provides guidance on what is considered to be residential premises to be used predominantly for residential accommodation for the purposes of subsection 40-65(1).

Paragraph 9 of GSTR 2012/5 advises that the requirement in section 40-65 that premises be 'residential premises to be used predominantly for residential accommodation' 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 15 of GSTR 2012/5 outlines that the premises must provide shelter and basic living facilities. The premises must also be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation.

Paragraph 46 of GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) explains that, in considering land supplied with a building, the extent to which the land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree. The most relevant factor is the extent the land is to be enjoyed in conjunction with the relevant building.

In your case, the house and pool meets the definition of residential premises and the guidelines provided in GSTR 2012/5. The portion of the property that can be enjoyed in conjunction with the house will also form part of the residential premises.

However, the shed and the commercial areas of the property do not meet the definition of residential premises.

Apportionment

Section 9-80 provides that, where a supply is partly taxable and partly input taxed, the value of the supply is to be apportioned between the taxable and non-taxable (that is, input taxed) parts of the supply.

A supply which contains both taxable and non-taxable parts is referred to as a mixed supply. Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8), provides guidance on the GST treatment of mixed supplies, and in particular, provides methods and examples that you may use to help you work out how to apportion the consideration for a supply that contains separately identifiable taxable and non-taxable parts. The general principle provided in the ruling is that an entity can use any reasonable method of apportionment that is supportable under the circumstances. Records must be retained to support the method of apportionment that you have used.

What constitutes reasonable methods of apportionment is discussed at paragraphs 92 to 113 of GSTR 2001/8.

Supplies made in the course of the enterprise

As previously indicated, a supply of real property in Australia, by a GST registered entity in the course or furtherance of its enterprise would, subject to certain exemptions, be a taxable supply. In the context of this case, it is important that we address whether or not the disposal of the commercial part of the real property is done in the course or furtherance of the enterprise conducted by you.

The facts outline that since 19XX the plant and equipment, utilised in the business previously conducted by you, has been leased to the trust, by you. A monthly hire fee is charged for the hire of the equipment. The plant and equipment is stored on the property and maintenance activities are also carried out on the equipment at the property. You have advised that approximately one third of the property is used to store the equipment when it is not located on the sites that Entity 2 is working on.

Based on the information provided, we consider that the sale of the property is a supply in the course or furtherance of an enterprise conducted by you.

Consequently, the supply of the property to the child of Person will be a taxable supply to the extent that it is not input taxed as outlined above. That is, the supply of the commercial part of the property will be a taxable supply.

We note that the Trust is the group representative and will be required to report the supplies and obligations

Further information

You may wish to consider whether the application of the margin scheme is suitable for this transaction. More information on the margin scheme can be found in Goods and Services tax Ruling GSTR 2006/7 Goods and services tax: how the margin scheme applies to a supply of real property made on or after 1 December 2005 that was acquired or held before 1 July 2000. The relevant section of the GST Act is Division 75.