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Edited version of your written advice
Authorisation Number: 1013068518668
Date of advice: 9 August 2016
Ruling
Subject: GST and sale of real property
Question
Would it be acceptable to use the proposed apportionment provided by the registered valuer, to determine the value of the actual supply of the property and the value of the taxable proportion of the supply, in accordance with section 9-80 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Yes.
Relevant facts and circumstances
• You are an entity. You have been conducting a business and you are registered for the goods and services tax (GST).
• You are selling the specified property to a purchaser.
• The specified real property is a business asset and consists of commercial and residential areas.
• As you are registered for GST, the sale of the property consists of a taxable part (the commercial portion) and an input taxed part (the residential portion).
• A registered valuer has provided advice on an apportionment between the residential and commercial use parts of the property for the purpose of working out the GST on the sale of the property.
• The valuer has provided an apportionment of the property, based on rentals of comparable residential and commercial use properties that have been leased in the immediate and surrounding localities. The valuer considered that a fair apportionment of the value of the property would be: X% commercial and Y%.residential.
• You propose to use the taxable proportion of X% to work out the value of the taxable supply part of the supply of the property.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-70;
A New Tax System (Goods and Services Tax) Act 1999 section 9-80.
Reasons for decision
Goods and services tax (GST) is payable on a taxable supply to the extent that it is neither GST-free nor input taxed. No GST is payable on GST-free or input taxed supplies. Therefore, where you make a supply that is a combination of separately identifiable taxable and non-taxable parts that are GST-free or input taxed (mixed supply), you need to identify the taxable part of the supply. Then you can apportion the value for the supply and work out the GST payable on the taxable part of the supply.
Under section 9-70 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) the amount of GST payable on a taxable supply is 10% of the value of the taxable supply. Hence, the GST payable on a mixed supply is10% of the value of the taxable part of the supply.
In this case, you are making a supply of property that consists of identifiable commercial and residential parts. The sale of the commercial part is a taxable supply and the sale of the residential part is input taxed.
For a supply that is partly taxable and partly input taxed, the value of the taxable part is calculated in accordance with section 9-80 of the GST Act. Pursuant to subsection 9-80(1) of the GST Act, the value of the taxable supply part of the supply, upon which GST is payable, is the proportion of the value of the actual supply that the taxable supply represents. This requires an apportionment to determine the proportion of the value of the actual supply of the property that the taxable commercial part represents.
The Commissioner's view in Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning consideration for a supply that includes taxable and non-taxable parts is that you may use any reasonable method to apportion the consideration to the taxable part of a mixed supply. What is a reasonable method of apportioning the consideration for a mixed supply depends on the circumstances of each case. However, the apportionment must be supported by the facts in the particular circumstances and be undertaken as a matter of common sense.
Sometimes it may be appropriate to ascertain the value of the taxable part of the supply of a property having regard to the difference in the relative value of commercial and residential rental returns. In this case, the valuer has provided an apportionment of the property, based on rentals of comparable residential and commercial use properties that have been leased in the immediate and surrounding localities. The valuer considered that a fair apportionment of the value of the property would be: X% commercial and Y% residential.
We consider that you may reasonably apportion X% of the consideration/price for the whole property to the commercial part and Y%.to the residential part to ascertain the value of the taxable part of the property. Therefore, the taxable proportion would be X%.
Subsection 9-80(2) of the GST Act sets out the formula for working out the value of the actual supply, as follows:
Value of the actual supply = Price of the actual supply x 10
10 + Taxable proportion
where the taxable proportion is the proportion of the value of the actual supply that represents the value of the taxable supply (expressed as a number between 0 and 1)
The value of the taxable commercial part is the proportion of the value of the actual supply that the taxable commercial part represents. The amount of GST payable is 10% of the value of the taxable commercial part.