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Edited version of your written advice
Authorisation Number: 1051207766660
Date of advice: 28 March 2017
Ruling
Subject: Sale of Property
Question
Will your supply of the property located at a specified address in Australia (the Property) be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?
Answer
Your supply of the Property will be a mixed supply, comprising a taxable and an input taxed part. That is, your supply of the Property:
(1) in relation to the residential premises is an input taxed supply under section 40-65 of the GST Act and GST is not payable.
(2) in relation to the premises used in the operation of the mixed business is a taxable supply under section 9-5 of the GST Act and GST is payable.
Relevant facts and circumstances
You, as the Trustee for the specified Family Trust, are registered for GST.
You entered into a contract with the purchaser (the Purchaser) for the sale of the Property for the specified sale price.
Where GST is payable in relation to the sale the Purchaser must pay to you the GST payable in addition to the price.
The sale is scheduled to be settled in a few months.
The sale is not the sale of a going concern.
The Property comprises your business premises and your Director's home.
There are x number of separate buildings on the land. The buildings are more than 10 years old. They were not built by you.
The buildings include:
● a home with bedrooms, bathrooms and car spaces.
● a building to the rear of the house with a kitchenette and a shower. It is used as a private workshop and personal storage area.
● a building to the front of the house which is your business premises from which you have operated a Shop for many years. The Shop consists of a display area, an office and a storeroom.
The sale does not include the sale of the business.
The Section 32 Vendor's Statement in relation to the sale of the Property indicates a separate insurance cover for the Shop that expired before settlement date.
You do not own any other property.
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
Reasons for decision
In this ruling, unless otherwise stated, all legislative references are to the GST Act.
Under section 9-5, you make a taxable supply if:
(a) you make the supply for consideration
(b) the supply is made in the course or furtherance of an enterprise that you carry on
(c) the supply is connected with the indirect tax zone
(d) you are registered, or required to be registered.
However, a supply is not a taxable supply to the extent that it is GST-free or input taxed.
On the facts supplied, your supply of the property (other than the residential premises) satisfies requirements of paragraphs 9-5 (a) to (d). Further, it is not a GST-free supply.
The Property includes a house and the other buildings on the land. Accordingly, we will consider how the GST Act applies to each of these identifiable parts.
Sales of residential premises
Section 40-65 states:
(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.
The terms marked with an asterisk are defined in the GST Act.
Subsection 40-65(2) does not apply to your supply of the Property.
In subsection 40-65(1), the term '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.
The Commissioner's view on the phrase 'Residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is explained in Goods and Services Tax Ruling, Goods and services tax: residential premises (GSTR 2012/5).
Paragraphs 9 and 10 of GSTR 2012/5 state:
9. The requirement in sections 40-35, 40-65 and 40-70 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.2
10. 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. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).
GSTR 2012/5 further explains that 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.
On the facts provided, we consider:
● the house on the land, used as a residence, will have the typical physical characteristics suitable for and capable of providing residential accommodation.
● the building to the rear of the house that is being used as your private workshop and personal storage area would form part of the residential building.
Accordingly, subsection 40-65(1) is satisfied. The supply of this part of the Property, comprising the residential buildings and land to be enjoyed in conjunction with the residential buildings, is an input taxed supply and GST is not payable.
Sale of premises that are not residential premises to be used predominantly for residential accommodation
GSTR 2012/5 states:
11. Premises that do not display physical characteristics demonstrating that they are suitable for, and capable of, being occupied as a residence or for residential accommodation are not residential premises to be used predominantly for residential accommodation, even if the premises are actually occupied as a residence or for residential accommodation. For example, someone might occupy premises that lack the physical characteristics of premises suitable for, or capable of, residential accommodation (such as a squatter residing in a disused factory). Although the premises may satisfy paragraph (a) of the definition of residential premises in section 195-1, the premises are not residential premises to be used predominantly for residential accommodation.
…
25. Not all premises that possess basic living facilities are residential premises to be used predominantly for residential accommodation. If it is clear from the physical characteristics of the premises that their suitability for living accommodation is ancillary to the premises' prevailing function, the premises are not residential premises to be used predominantly for residential accommodation.
The property has a building to the front of the house which consists of a display area, an office and a storeroom. This is your business premises from which you carry on a mixed business.
The physical characteristics of the shop display the suitability to function as a business premises rather than for residential accommodation purposes.
Accordingly, the supply of this part of the Property, being the shop building and the land to be enjoyed in conjunction with the premises, do not satisfy section 40-65 to be an input taxed supply. As such, your supply of this part of the Property is a taxable supply and GST is payable.
Summary
Your supply of the Property will be a mixed supply, comprising a taxable and an input taxed part. That is, your supply of the Property:
(1) in relation to the residential premises is an input taxed supply under section 40-65 of the GST Act and GST is not payable.
(2) in relation to the premises used in the operation of the mixed business is a taxable supply under section 9-5 of the GST Act and GST is payable.
Additional information:
Supplies requiring apportionment
The value of a supply of premises that includes residential premises to be used predominantly for residential accommodation needs to be apportioned to the extent that part of the premises is not residential premises to be used predominantly for residential accommodation. Additional information and guidelines on apportionment are available on the ATO website www.ato.gov.au