Edited version of your written advice

Authorisation Number: 1012976302828

Date of advice: 8 March 2016

Ruling

Subject: Goods and Services Tax (GST) and mixed supplies

Question 1

Is your acquisition of a property which consists of commercial and residential premises partly taxable and partly input taxed?

Answer

Yes, your acquisition of the property is partly taxable and partly input taxed.

This ruling applies for the following periods:

1 October 20XX to 31 December 20XX

Relevant facts and circumstances

You are an individual registered for GST.

You purchased the property from the joint vendors X and Y.

The property contains a residential premise and a commercial premise in which the GST registered vendor conducted a business.

The vendors lived in the residential premises.

The business was not sold as a going concern. All parties agreed that the sale of the commercial portion of the property would attract GST.

A surveyor who attended the site estimated the commercial portion to be A% and residential portion to be B%.

The residential premises are old and not substantially extended.

The values of the residential premises and commercial premises are essentially the same.

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 9-80

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

A New Tax System (Goods and Services Tax) Act 1999 Division 38

A New Tax System (Goods and Services Tax) Act 1999 Division 40

Reasons for decision

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 that where a supply consists of more than one part, the supply could be either a mixed or a composite supply. Where a supply contains a dominant part and also something that is integral, ancillary or incidental to that part, the supply is composite. A composite supply is treated as a single supply and takes its GST status from the dominant component of the supply. 

However, where the supply has separately identifiable parts, the supply is a mixed supply, and the GST status of the component parts of a mixed supply is determined separately. 

In your case, you are purchasing a property which comprises both residential and commercial premises. The supply of commercial premises is not integral, ancillary or incidental to the supply of residential premises. Therefore, the supply of property to you, the purchaser, is a mixed supply and the GST status of the supply of the commercial premises is determined separately from the supply of the residential premises.  

GSTR 2001/8 gives an example of a mixed supply involving residential and commercial premises:

Example 2 - commercial and residential premises

70. Roberto owns a building comprising both residential and commercial premises. He leases the building to Lawrence who operates a small recruitment agency from the commercial premises and lives in the residential part. The supply of the residential part is input taxed.³⁷ The supply of the commercial part is taxable. Roberto is making a mixed supply that is partly taxable and partly input taxed.

Residential premises 

Section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that 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. However, the sale is not input taxed to the extent that the residential premises are new residential premises other than those used for residential accommodation before 2 December 1998. 

Section 195-1 of the GST Act defines 'residential premises' to mean land or a building that:

is occupied as a residence, or

is intended to be occupied, and is capable of being occupied, as a residence; and includes a floating home. 

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides that the definition of residential premises requires that land must have a building affixed to it and that the building must have the physical characteristics that enable it to be occupied or be capable of occupation as a residence. The characteristics of residential premises are set out in GSTR 2012/5. 

From the facts you provided, the residential premises satisfies the definition of 'residential premises' and as the premises is not 'new residential premises' under section 40-75 of the GST Act, the supply of the premises is input taxed under section 40-65 of the GST Act. 

Therefore, no GST is applicable on the supply of the residential premises part of your purchase of the property. 

Commercial Premises

Under section 9-5 of the GST Act, an entity makes a taxable supply if:

it makes a supply for consideration;

the supply is made in the course or furtherance of an enterprise that it carries on;

the supply is connected with Australia; and

the entity is registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

The supply of commercial premises is not input taxed under Division 40 of the GST Act, nor is it GST-free under Division 38 of the GST Act. The vendor is registered for GST and the supply of commercial premises satisfies the other positive limbs of section 9-5 of the GST Act. Therefore the vendor is making a taxable supply under section 9-5 of the GST Act, when it supplies the commercial premises to you, and GST is payable on this supply.

Apportionment of the consideration of a mixed supply 

As the supply of the property is a mixed supply, it is necessary to apportion the consideration for the supply between the taxable and input taxed components. 

Section 9-80 of the GST Act prescribes a statutory method for calculating the value of a taxable supply that is part of a mixed supply. 

Paragraph 26 of GSTR 2001/8 provides that you can use any reasonable method to apportion the consideration for a mixed supply. The method you use must be supportable in the particular circumstances. 

The Commissioner has identified a direct and an indirect method that may be used to apportion the consideration for a mixed supply. Paragraph 97 of GSTR 2001/8 states:

97. Direct methods use relevant variables that measure the connection between what is supplied (the taxable and non-taxable parts) and the consideration for the actual supply. A direct method usually gives you the most accurate measure of the consideration for (and therefore, the calculation of the value of) the taxable part of the supply you make (that is, the value of the taxable supply). Such methods may include:

• the price allocation as agreed between the parties to the supply (see paragraphs 97A to 97M of this Ruling);

• the comparative price of each part if it were supplied on its own, relative to the whole payment received (see paragraphs 98 to 103D of this Ruling);

• the relative amounts of rental consideration (see paragraph 103E to 103F of this Ruling);

• the relative amount of time required to perform the supply (see paragraphs 104 to 105 of this Ruling); and

• the relative floor area in a supply of property (see paragraphs 106 to 108 of this Ruling).

Paragraphs 106-108A discusses the 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.

In your situation, on the basis that the values of the residential premises and commercial premises are essentially the same, the proportions arrived at by floor space would be reasonable. The sale of each portion of property separately would reflect the percentages assessed by the surveyor - A% commercial and B% residential.

Therefore $xx is the consideration for the creditable acquisition of the commercial property for which the supplier would have a GST liability to remit 1/11^th and the recipient an entitlement to claim 1/11^th as GST credits.