Edited version of your written advice

Authorisation Number: 1051325225680

Date of advice: 10 January 2018

Ruling

Subject: Goods and Service Tax (GST) and sale of commercial and residential property

Question

Is the sale of your property, a farm with one or more residences (Property) a taxable supply?

Answer

You are making a mixed supply of farmland and residential premises. The supply of the farmland will be taxable but the residential premises will not be as this is an input taxed supply. You will need to apportion the consideration of the sale of the property to the taxable part upon which the GST payable is calculated.

Relevant facts and circumstances

You operate a farm and are registered for GST.

Your main residence is also located on this Property. Your main residence is not newly built residential premises for GST purposes and no substantial renovations have been carried out on your main residence.

You are planning to sell the Property and have engaged a real estate agent to advertise the property for sale.

The advertisement contains photos of the Property which show areas used for farming and your main residence and states there are two residences.

You will engage a professional surveyor to measure the area of your residences and the area used for farming.

You have received interest from a purchaser and have agreed to a sale price of $$$. No sale contract has been entered into as the purchaser wants confirmation regarding the GST implications before any formal exchange takes place.

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 subsection 40-65(1)

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(2)

A New Tax System (Goods and Services Tax) Act 1999 subparagraph 40-75(1)

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

Reasons for decision

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) you make a taxable supply if:

(a) you make the 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 the indirect tax zone; 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.

Residential premises

Subsection 40-65(1) of the GST Act provides that a sale of real property is input taxed to the extent that it is residential premises to be used predominantly for residential accommodation.

However, subsection 40-65(2) of the GST Act provides that the sale of real property is not input taxed to the extent that it is commercial residential premises; or new residential premises other than those used for residential accommodation before 2 December 1998.

Subsection 40-75(1) of the GST Act provides that residential premises are 'new residential premises' if they:

(a) have not previously been sold as residential premises and have not previously been the subject of a long-term lease; or

(b) have been created through substantial renovations of a building; or

(c) have been built, or contain a building that has been built, to replace demolished premises on the same land.

Your main residence is not new residential premises as it is not a new building and you have not carried out substantial renovation to the current building. Thus, the sale of your main residence is input taxed. This will also apply to any other residential premises on the property under the same circumstances.

Taxable supply

You are planning to sell the Property and have agreed to a sale price of $$$ so there is consideration for the supply.

Section 195-1 of the GST Act defines indirect tax zone to mean Australia and as the sales of your Property occurs in Australia, this supply is connected with the indirect tax zone.

You are carrying on an enterprise of farming and are registered for GST. You are planning to sell the Property in which you carried on your enterprise. Thus, the sale of your Property is made in course or furtherance of an enterprise that you carry on.

Therefore, the sale of the Property meets all the criteria of section 9-5 of the GST Act, and is a taxable supply to the extent that it is not GST-free or input taxed. There are no provisions that would result in the sale of the Property being GST-free. However, the sale of your main residence, being part of the Property, is input taxed.

Apportionment

Paragraph 12 of 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 states that where you make a supply that contains taxable and non-taxable parts, you need to identify the taxable part of the supply. You then apportion the consideration for the supply and work out the GST payable on the taxable part of the supply.

Paragraph 26 and 27 of GSTR 2001/8 provide that:

● Apportionment must be undertaken as a matter of practical common sense. You can use any reasonable basis to apportion the consideration. Depending on the facts and circumstances of the supply, a direct or indirect method may be an appropriate basis upon which to apportion the consideration and ascertain the value of the taxable part of the supply. The basis you choose must be supportable in the particular circumstances.

● You should keep records that explain the basis used to apportion the consideration between the taxable and non-taxable parts of a supply.

The taxable and non-taxable parts will have to be apportioned. The residential premises includes their curtilage which is the grounds or area surrounding a house or other place such as the front, back and side yards belonging to a house.

If you proceed with the sale of the Property containing a mixed supply of taxable and non-taxable parts, evidence should be kept as to how the apportionment was calculated

GSTR 2001/8 contains guidance on the types of methods that can be used for apportionment.