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Edited version of private advice
Authorisation Number: 1051907305683
Date of advice: 7 October 2021
Ruling
Subject: GST and sale of vacant land
Question
Will the sale of a subdivided vacant block of residential land located in Australia (Lot 2) be subject to the goods and services tax (GST)?
Answer
Yes. The sale of Lot 2 will be subject to GST as it will be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).
Relevant facts and circumstances
The entity is carrying on an enterprise of leasing residential houses and is registered for GST.
In late 20XX, the entity purchased a property for the purpose of renting it out. The property, which contains a house and a carport, was tenanted since it was purchased.
A subdivision approval for the property was sought in early 20XX and was obtained in early 20XX.
The property was subdivided into two blocks, Lot 1 and Lot 2.
As a condition of the subdivision approval, concrete driveways, storm water connections, telecommunications and energy provisions were installed.
The entity did not borrow more funds to cover the cost of the subdivision.
Lot 1 contains the existing house and carport. It was sold in late 20XX. The lease ended when Lot 1 was sold.
Lot 2 is a vacant block of land.
The entity initially planned to build a second dwelling for rental purposes but was unable to do so due to its financial limitations.
The entity has not been involved in any other subdivisions or development activities.
The entity owns another property which is currently leased.
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 section 195-1
Reasons for decision
GST is payable on a taxable supply.
Section 9-5 of the GST Act states:
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.
(* denotes a term defined under section 195-1 of the GST Act).
The sale of Lot 2 will be made for consideration. The sale will be made in the course of the entity's enterprise as Lot 2 is an asset used in that enterprise. The sale will be connected with Australia as Lot 2 is situated in Australia. The entity is registered for GST. All the requirements in paragraphs 9-5(a) to 9-5(d) of the GST Act will be satisfied. Therefore, the sale will be a taxable supply unless it is GST-free or input taxed.
There is no provision in the GST Act under which the sale of Lot 2 will be GST-free. What remains to be determined is whether the supply will be input taxed.
Under section 40-65 of the GST Act, 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 of the GST Act as 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.
To satisfy the definition of residential premises, premises must provide shelter and basic living facilities. Premises that do not have the physical characteristics to provide these are not residential premises to be used predominantly for residential accommodation.
Vacant land is not capable of being occupied as a residence or for residential accommodation as it does not provide shelter and basic living facilities. Vacant land is not residential premises.
Lot 2 is not residential premises as it is a vacant land. The sale will not be input taxed under section 40-65 of the GST Act.
As the sale of Lot 2 will neither be GST-free nor input taxed, the sale will be a taxable supply under section 9-5 of the GST Act. Accordingly, the sale will be subject to GST.