Edited version of private advice

Authorisation Number: 1051988355516

Date of advice: 1 June 2022

Ruling

Subject: GST and the sale of potential residential land

Question 1

Will the sale of the vacant residential land be exempt from GST withholding obligations under s14-250 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

Yes. The sale of the residential land will not be considered a taxable supply under s9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). As such, the GST withholding at settlement rules will not apply in this case.

Reasons for decision

The requirement to withhold GST on the sale of new residential premises and potential residential land is addressed in section 14-250 of Schedule 1 to the TAA and Law Companion Ruling LCR 2018/4 Purchaser's obligation to pay an amount for GST on taxable supplies of certain real property.

Paragraph 15 of LCR 2018/4 provides that a purchaser only has a GST withholding obligation when a vendor is making a taxable supply. A vendor will not be making a taxable supply where the vendor is not registered for GST and not required to be registered for GST as the sale is not in the course or furtherance of an enterprise.

Section 23-5 of the GST Act provides that you are required to be registered for GST if:

(a) you are carrying on an enterprise; and

(b) your GST turnover meets the registration turnover threshold (currently $75,000).

Section 9-20 of the GST Act defines an enterprise as an activity, or series of activities, done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property or in the form of a business.

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) paragraph 178 sets out the main indicators of carrying on a business as follows:

•         a significant commercial activity;

•         a purpose and intention of the taxpayer to engage in commercial activity;

•         an intention to make a profit from the activity;

•         the activity is or will be profitable;

•         the recurrent or regular nature of the activity;

•         the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

•         activity is systematic, organised and carried on in a businesslike manner and records are kept;

•         the activities are of a reasonable size and scale;

•         a business plan exists;

•         commercial sales of product; and

•         the entity has relevant knowledge or skill.

You purchased the land and house package with the intention of making the property your primary place of residence for you and your family. You did not purchase the property with the intention of leasing, to make a profit or as a commercial activity. You do not regularly purchase properties in a businesslike manner or in a way that would be considered as conducting an enterprise.

The intention of the purchase was of a private and domestic nature only. As the sale is not in the course of an enterprise and you are not registered or required to be registered for GST, the sale of land will not be treated as a taxable supply.

Question 2

In the event that the land sells during construction of the new residential property (as a partly constructed house), would the sale be exempt from GST withholding obligations under section 14-250 of Schedule 1 to the TAA?

Answer

Yes. GST is not payable on the sale of the land during construction (partly constructed house). The land will not be treated as a taxable supply under s9-5 of the GST Act and the GST withholding at settlement rules will not apply.

Reasons for decision

During construction, the land will continue to be exempt from GST withholding obligations upon sale in accordance with paragraph 15 of LCR 2018/4, until it meets the definition of a new residential premises.

Subsection 40-75(1) of the GST Act states when residential premises are new residential premises. The definition of 'residential premises' in section 195-1 of the GST Act refers to land or a building that is occupied as a residence or is intended to be, and is capable of being, occupied as a residence. Because of the definition, for land to be residential premises, there must be a building on the land that has the physical characteristics of a residence.

Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises outlines the characteristics of residential premises. Paragraph 15 states that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

Paragraph 20 and 22 explains that a premise must be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. Residential premises are not fit for human habitation when they are in a dilapidated condition which prevents them being occupied for residential accommodation.

A partially built building is not residential premises until it becomes fit for human habitation. Contractual or legal prohibitions against residential occupation do not prevent premises from being suitable for, and capable of, providing residential accommodation.

Therefore, if the property is only partially built, it will not be considered habitable or capable of being occupied. As such, it cannot be treated as a residential premise until such time that it is fit for living.

Please note, that even if the residential premises were completed by the time a sale takes place, the outcome of question 1 would still apply. Namely, that the GST withholding obligation would not apply as you are not conducting an enterprise.

GST Withholding - Vendor's Notice to the Purchaser

Upon sale, the land or partly constructed property will not be treated as a taxable supply according to section 14-250 of Schedule 1 to the TAA and therefore no GST is payable by the purchaser. This information can be provided to the purchaser as a notice of supply, such as:

The vendor hereby notifies the purchaser that the purchaser does NOT have a withholding obligation and at settlement, the purchaser is NOT required to withhold any amount for GST upon the sale of the land or during construction (as a partly constructed house).

The scheme commences on:

1 June 20XX

Relevant facts and circumstances

In 20XX you entered into a contract for a land and house package.

GST was withheld in relation to the land and house purchase in 20XX.

The land and house package was purchased to build a property at X (the property).

The intention was for the property to be your primary residence upon building completion.

Construction of the new residential property is yet to commence.

Due to unforeseen circumstances, you now need to sell the land.

The builder has agreed to terminate the contract and refund the X% deposit to you if a new purchaser is found prior to construction commencing.

Once a new purchaser is found, they will enter into a new contract with the builder.

If a purchaser is not found prior to the building commencement, you will proceed with the construction until a purchaser is found.

You are not registered for GST.

You have not acquired the land in the course or furtherance of an enterprise.

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 23-5

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

A New Tax System (Goods and Services Tax) Act 1999 subsection 40-75(1)

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

Schedule 1 to the Taxation Administration Act 1953 section 14-250