Edited version of private advice

Authorisation Number: 1051585003868

Date of advice: 23 October 2019

Ruling

Subject: GST and sale of property with development approval

Question

Is the supply of your rural land with a development approval where a portion of the land has been used for residential premises, a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the supply of your rural land with a development approval is a taxable supply under section 9-5 of the GST Act. However, to the extent the land is residential premises, your supply will be input taxed under section 40-65 of the GST Act.

Relevant facts and circumstances

You are registered for GST.

You acquired a block of rural land with a house on it.

From the time of acquisition to date, the house on the land had been used as a principal place of residence.

You carry out a cattle business on your property.

Due to drought conditions and poor grazing land, you thought of selling your property with a development approval in order to maximise the potential of the sale value of your property.

You applied for a DA for a subdivision of lots with your local council.

Your local council approved your application and issued you the DA Decision Notice.

You intend to sell the land including the house and the DA.

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 9-40

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

Reasons for decision

All legislative references in this ruling are to the A New Tax System (Goods and Services Tax) Act 1999 unless otherwise stated.

Under section 9-40, you are liable to pay GST on any taxable supply that you make.

Section 9-5 provides that 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 (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.

In your case, you are registered for GST and your supply of your property including the DA will meet requirements (a) to (c). The GST-free provisions would not apply to your supply of your property including the DA. Therefore, it will be a taxable supply, except to the extent that it is input taxed.

Input taxed supply of residential premises

Subsection 40-65(1) 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 (regardless of the term of occupation).

The term 'residential premises' is defined in section 195-1 to include land or a building that is occupied as a residence or for residential accommodation or is intended to be, and is capable of being, occupied as a residence or for residential accommodation.

Paragraph 91 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises states:

The GST Act does not restrict the area of land that can be included in residential premises. 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 enjoyed in conjunction with the residential building. Just because land is used privately does not mean that the land necessarily has the physical characteristics to indicate that the land is to be enjoyed in conjunction with the residential building.

The house on the property meets the definition of residential premises as it was occupied as the residence since its acquisition. However, you have to assess the extent to which portion of the land area is enjoyed in conjunction with the house.

In this regard, your supply of the portion of the property with the house will be an input taxed supply, to the extent that that portion is residential premises that had been used predominantly for residential accommodation.

The balance of the property, that is the land excluding the residential premises, will be a taxable supply under section 9-5 and therefore, you are liable to pay GST on this taxable supply.

Mixed supply

Your supply of the property will be a mixed supply, consisting of:

·        an input taxed supply of the residential premises, and

·        a taxable supply of the balance of the property.

Section 9-80 provides that where a supply is partly taxable and partly non-taxable, the value of the taxable supply is worked out on a proportional basis.

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 explains how to identify the taxable and non-taxable parts of a supply under the GST Act.

Paragraph 16 of GSTR 2001/8 provides that the term 'mixed supply' is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised.

Your supply of the property is a mixed supply and you will need to apportion the sale price between the input taxed supply of the residential premises and the balance of the property.

Paragraphs 25 to 27 of GSTR 2001/8 provide that you can use any reasonable basis to apportion the consideration and calculate the value of the taxable and non-taxable parts of your supply. You should keep records that explain and support whichever method you choose.