Edited version of private advice

Authorisation Number: 1051904264674

Date of advice: 28 September 2021

Ruling

Subject: GST and supply of property

Question

Is the supply of the Property under the contract of sale (Contract) by the Vendor to the Purchaser a wholly taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

The supply of the Property is considered a mixed supply. Consequently, to the extent the Property consists of:

•        residential premises that have been used by the Vendor as their private residence, it does not satisfy the requirements of section 9-5 of the GST Act,

•        commercial premises used by the Vendor in carrying on their enterprise, it will satisfy the requirements of section 9-5 of the GST Act and is a taxable supply.

Relevant facts and circumstances

Individual X (the Vendor) carries on an enterprise and is GST registered since 1 July 20XX as an Individual/Sole Trader.

The Vendor owns a property (the Property) which was acquired several years ago after a prolonged estate administration.

The Property consists of a street frontage shop with areas converted by the Vendor into a residence. The Property also has a carport/garage that finishes at the rear with access via a laneway.

Although a Certificate of Occupancy was received by the previous owner, the Vendor was required to finalise repairs to the conversion done by of the previous owner of some of the premises' rooms. These areas can be accessed through the rear carport/garage or from the street frontage of the shop.

A further renovation was undertaken by the Vendor to the Property where a third bedroom and en-suite was built above the garage. The drawings in respect of this development were submitted to council in 20XX and the renovations completed in 20XX.

Access to the main residence is through the shopfront or through the garage area via a lane way.

The Property has not generated any income from a commercial or residential rental perspective since it was acquired by the Vendor. Rather, the Vendor has used the rear of the premises as the residence (living with the family) and the shopfront has been used by the Vendor to run the business activity.

The Vendor has subsequently listed the Property for sale and found a purchaser.

The Property is zoned Commercial and was marketed as a mixed-use property when the Property was advertised for sale.

The Vendor and a Purchaser entered into a contract of sale (Contract) for the sale of the Property.

The sale contract was executed with the terms "Plus GST". The property is not being sold as a GST-free going concern.

The Purchaser has applied to local council for the Property to be assessed as residential and was successful.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 9-5

Reasons for decision

Summary

The supply of the Property is considered a mixed supply. Consequently, to the extent the Property consists of:

•         residential premises that have been used by the Vendor as their private residence, it does not satisfy the requirements of section 9-5 of the GST Act,

•         commercial premises used by the Vendor in carrying on their enterprise, it will satisfy the requirements of section 9-5 of the GST Act and is a taxable supply.

Detailed reasoning

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

Section 9-5 of the GST Act 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.

Paragraph 16 of GSTR 2001/8, Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (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.

In this case the features of the Property consist of commercial premises together with the residential premises. As such the Property is considered a mixed supply in accordance with the view in GSTR 2001/8. Therefore, what remains to be determined is whether the requirements for a taxable supply are met for each part of the mixed supply.

The supply of the Property by the Vendor is made for consideration, is connected with Australia and the Vendor is registered for GST. As such the requirements of paragraphs 9-5(a), (c) and (d) of the GST Act are met. However, in the case of the:

•         commercial premises, this part of the Property has been used in the course or furtherance of an enterprise that the Vendor carries on. Consequently, as this supply in not GST-free not input taxed, the supply of the commercial premises is considered a taxable supply,

•         residential premises, this part of the Property has been used by the Vendor to live in with family. Notwithstanding that the residential premise may be considered new residential premises, it has not been held by the Vendor in the course or furtherance of their enterprise and as such is not a taxable supply.

As the supply of the Property is a mixed supply and you will need to apportion the sale price between the residential premises and the commercial premises.