Edited version of private advice

Authorisation Number: 1051596423569

Date of advice: 17 October 2019

Ruling

Subject: Supply of premises

Question

Are you making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sell the specified property to specified entity?

Answer

Yes, except to the portion of the property that is input taxed.

Relevant facts and circumstances

You are registered for goods and services tax (GST). You are not an endorsed charity or a gift deductible entity. You were incorporated under the Associations Incorporation Act 1984. You are the owner of a property.

You acquired the property in YYYY. It was used as a farm and contained a house. The farm house was demolished and you constructed some residential premises and a church and community hall.

You were established by an unincorporated entity. You granted the members of the unincorporated entity the right to use the property for no charge.

You do not employ any staff. Your Constitution provides for volunteers. Your objectives are non-profit making.

You permit, by way of an informal arrangement, the residential premises to be used by a specified entity. It is used by the entity to accommodate volunteers on an irregular basis. You charge $X.00 for the use of the flat. The charge is to cover utility bills for the premises.

You also allow a priest to occupy the other residential premises

You have decided to sell the property and provided a copy of the proposed Contract of sale. The Purchaser is the owner and occupier of adjoining land and is registered for GST.

The purchaser intends to demolish the buildings on the property and to further develop the property.

You have agreed to sell the property to the purchaser for $X.00. The GST inclusive market value of the property is $Y.00.

You signed a memorandum of understanding with the purchaser that allows you to access the new facilities following the sale to the purchaser.

You are controlled by a committee. The purchaser is controlled by a board. There is only one person on your committee who is also on the purchaser's board.

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-65(1)

A New Tax System (Goods and Services Tax) Act 1999 subdivision 40-C

Reasons for decision

·   All legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) unless otherwise specified.

·   All terms marked by an *asterisk are defined terms in the GST Act.

Section 9-5 provides that:

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 (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.

You intend to sell the property for consideration and the sale will be in the course of your enterprise. Your supply is connected with Australia you are registered for GST and the supply will not be GST-free.

Therefore, your supply will be a taxable supply unless it is input taxed.

Sale of the Property

We note for your information that subsection 40-65(1) states:

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).

'Residential premises' is defined in section 195-1 as land or a building that:

·   is occupied as a residence or for residential accommodation, or

·   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).

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the Australian Tax Office's view of the factors to consider and the characteristics of residential premises.

Paragraph 7 of GSTR 2012/5 explains that the physical characteristics of the premises will determine whether the property is residential premises. It states that the definition of residential premises 'refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises'.

Paragraphs 9 and 15 of GSTR 2012/5explain that a single test looking at the physical characteristics of the property will determine the premises' suitability and capability for residential accommodation. To satisfy the definition of residential premises, the premises must provide shelter and basic living facilities.

From the facts provided, a portion of your property which contain the residential premises meets the definition of an input taxed supply of residential premises

The church and associated structures do not meet the definition of residential premises and are not input taxed.

Mixed supply

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) discusses mixed and composite supplies.

GSTR 2001/8 paragraphs 43 and 44 state:

A mixed supply is a single supply made up of separately identifiable parts, where one or more of the parts is taxable and one or more of the parts is non-taxable, and these parts are not integral, ancillary or incidental in relation to a dominant part of the supply. On the other hand, a composite supply is a single supply made up of one dominant part and other parts that are not treated as having a separate identity as they are integral, ancillary or incidental to the dominant part of the supply.

In working out whether you are making a mixed or composite supply, the key question is whether the supply should be regarded as having more than one separately identifiable part, or whether it is essentially a supply of one dominant part with one or more integral, ancillary or incidental parts.

GSTR 2001/8 paragraph 70 states:

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. The supply of the commercial part is taxable. Roberto is making a mixed supply that is partly taxable and partly input taxed.

We consider that your sale of the Property is a mixed supply made up of an input taxed component and a taxable component.