Edited version of private advice

Authorisation Number: 1051888212858

Date of advice: 19 August 2021

Ruling

Subject: GST and sale of property

Question

Is the sale of the property a taxable supply under section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No, the sale of the property is not a taxable supply as it is an input taxed supply of residential premises.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

In 20XX you entered into a contract for the purchase of the property. The property comprises of a residential house and XX acres of land. You did not claim any input tax credits in relation to your acquisition.

Prior to your purchase, the residential house had been leased to tenants by the previous owner who had used the land to agist their horses.

After you acquired the property, you purchased eight steers on the basis of one steer to two acres, to keep the grass on the property within the requirements of the Fire Protection Authority.

During your ownership of the property, the house remained vacant and you did not use the land for farming or any other business purpose. Whilst you were deciding how to utilise the property you decided to sell it.

In 20XX you entered into a contract to sell the property to individuals A and B. The Contract of Sale of Real Estate (Contract) listed the sale price to be $XX.

In accordance with the Contract, the sale of the property is not that of a 'farming business' or a 'going concern' and the 'margin scheme' is not applicable to the sale.

The sale settled approximately XX months later. The Statement of Account at settlement showed the Sale price to be $XX plus an additional amount for GST of $YY. GST was imposed on the sale price and the net rate. adjustment amount.

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 38-325

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 38-O

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

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

Reasons for decision

Section 9-40 of the GST Act provides that you must pay the GST payable on any taxable supply you make.

Section 9-5 of the GST Act states as follows:

Taxable supplies

You make a taxable supplyif:

(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.

(All items marked with an * are defined terms in the GST Act)

Your supply of the property meets all the requirements of paragraphs (a) to (d) of section 9-5 of the GST Act. It remains to be determined if your supply of the property is GST-free or input taxed.

GST-free

Your supply of the property would be GST-free if it were a supply of a going concern under section 38-325 of the GST Act or a supply of farmland under subdivision 38-O of the GST Act.

As there was no business, farming or otherwise being conducted on the property, the requirements of section 38-325 of the GST Act are not met. Further, as the Property is not supplied as 'subdivided farmland' or 'farmland supplied for farming', the requirements of subdivision 38-O of the GST Act are not met.

Therefore, the supply of your property is not GST-free.

Input taxed

The sale of used residential premises is input taxed under section 40-65 of the GST Act. Section 40-65 states:

Sales of residential premises

(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.

Section 195-1 of the GST Act defines residential premises and states:

residential premises mean 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.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises consider how section 40-65 apply to supplies of residential premises.

Paragraph 46 of GSTR 2012/5 states:

Land supplied with a building

46. 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.

Your property does not meet the definitions of commercial residential premises or new residential premises under the GST Act.

Your property comprises a house and land that is intended to be occupied and is capable of being occupied as a residence. Therefore, your supply of the property will be input taxed under paragraph 40-65(1) of the GST Act and no GST is applicable to its sale. This will apply to both the sale price and any payments for rate adjustments in relation to your supply of the property.