Edited version of private advice

Authorisation Number: 1051907835577

Date of advice: 8 October 2021

Ruling

Subject: GST and sale of property

Question 1

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

Answer

No, the sale of the property by you is not a taxable supply under section 9-5 of the GST Act.

Section 9-40 of the GST Act provides that you are liable for GST on any taxable supplies 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; 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 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.

Under section 40-65 of the GST Act the sale of residential premises is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation (regardless of the term of occupation). However, the sale is not input taxed to the extent that the residential premises are:

• Commercial residential premises; or
• New residential premises other than those used for residential accommodation (regardless of the term of occupation) before DD MMM 19YY.

Section 195-1 of the GST Act explains that 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.

You purchased the property with an existing residential premises on it. You rented out the premises and the property will be sold with the residential premises in its original form and occupied by a tenant.

The property meets the definition of residential premises and therefore its sale by you will be input taxed under section 40-65 of the GST Act. As such, in accordance with section 9-5, your sale of the property will not be a taxable supply as it is input taxed. No GST liability arises on the sale of the property by you.

Question 2

If the sale of the property is a taxable supply, can you apply the margin scheme in working out the amount of GST?

Answer

The question is not relevant as the sale of the property is not a taxable supply.

Question 3

Is GST applicable on the supply of the whole of the property or only on the part that can be developed which is the R3 portion?

Answer

The question is not relevant as the sale of the property is not a taxable supply.

This ruling applies for the following period:

1 July 2021 to 30 June 2022

The scheme commences on:

1 July 2021

Relevant facts and circumstances

You are registered for GST effective from XXXX.

On XXXXXX, a Put and Call Option agreement to purchase the property was entered into by Entity A (the vendor) and Entity B. The sale price for the property was $XXXX.

A Notice of Nomination of Call Option was issued to the vendor on XXXX in which Entity B nominated you as nominee for the purpose of exercising the Call Option for the sale of the property for $XXXX.

The property comprises 5 acres of land of which 2 acres is zoned R3 - Developable and 3 acres is zoned RU4 - Not Developable. There is a residential premises on the property which is currently tenanted.

The Call Option agreement allows you to apply for future developments with local council.

On XXXX, you applied for development application on the R2 portion of the property with the local council and DA was approved on XXXX. The costs incurred by you in relation to the DA amounted to $XXXX.

You exercised the Call Option and entered into a contract of sale of land dated XXXX for the purchase of the property.

The sale of the property settled on XXXX. The zoning of the land remained the same as it was at the time of the original purchase.

You did not pay or claim any GST in relation to your purchase of the property as the vendor's sale to you was that of a residential premises.

You intend to sell the property in its entirety without undertaking any development on the property. The property will be sold with the residential premises in its original form and occupied by a tenant.

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 40-65

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