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You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of private advice

Authorisation Number: 1052205607390

Date of advice: 19 December 2023

Ruling

Subject: GST - mixed supplies of property

Question

Will the sale of <address> (the Property) be a taxable supply made by Entity A (the Partnership) under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, the Partnership's sale of the Property will be a taxable supply, to the extent that it is not input taxed.

This ruling applies for the following periods:

DDMMYYYY to DDMMYYYY

The scheme commenced on:

DDMMYYYY

Relevant facts and circumstances

Person A and Person B acquired <address> (the Property) in MMYYYY.

Person A and Person B purchased the Property to continue the family farming operations that were operating on the Property prior to their acquisition.

Person A and Person B are registered on the title as joint tenants.

The Property contains farmland, cattle yards, sheds and two residential dwellings.

The first residential dwelling is a cement brick house with a corrugated iron roof situated on <land area>. The house contains bedrooms, a bathroom, kitchen, lounge and laundry. The dwelling is in good condition and has been occupied by Person A and Person B as their private residence since they acquired the Property.

The second dwelling is a cement brick house with a corrugated iron roof situated on <land area>. The house contains bedrooms, a bathroom, kitchen, lounge and laundry. The dwelling is in fair condition and was occupied by Person B's relative as their private residence until <date>. Person B's relative resided in this dwelling since the Property was acquired by Person A and Person B in YYYY. The dwelling is currently vacant.

Person A and Person B have been registered for GST as a partnership with ABN XX XXX XXX XXX since DDMMYYYY (the Partnership).

The Partnership conducts a Farming Business on the Property.

The Partnership began conducting the Farming Business on, or around, the purchase of the Property in YYYY.

The Property is listed as a non-current asset on the Partnership's Balance Sheet.

The Partnership pays for all outgoings related to the Property including rates, land tax and maintenance. These outgoings have all been claimed as an expense in the accounts of the Partnership.

On DDMMYYYY, Person A and Person B executed a Sales Contract for the sale of the Property. The Sales Contract provides:

•         the supply will be for consideration of <amount>

•         GST (if any) must be paid in addition to the price

•         the sale is not being treated by the Vendor and Purchaser as a supply of a going concern

•         the margin scheme will not apply.

The Vendors named on the Sales Contract are Person A and Person B.

The Purchaser does not intend to use the Property for farming.

Person A and Person B are planning to retire following the sale of the Property.

No subdivision or development activities will be undertaken on the Property prior to the sale.

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 9-10

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-80

A New Tax System (Goods and Services Tax) Act 1999 section 38-325

A New Tax System (Goods and Services Tax) Act 1999 section 38-480

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

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

A New Tax System (Goods and Services Tax) Act 1999 section 184-1

A New Tax System (Goods and Services Tax) Act 1999 section 184-5

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

Income Tax Assessment Act 1997 section 995-1

Reasons for decision

Goods and services tax (GST) is payable on taxable supplies. Section 9-5 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)

(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.

The term 'supply' is defined in section 9-10 and includes any form of supply whatsoever. Paragraph 9-10(2)(d) further clarifies that a 'supply' includes a grant, assignment or surrender of *real property. Accordingly, the sale of <address> (the Property) will come within the definition of a supply.

In this case, the supply of the Property will be for consideration of <amount> and is connected with the indirect tax zone.

Section 9-5 has a primary step requiring identification of the entity making the supply, as it states that "you make a taxable supply if...".

'You' appears in paragraph 9-5(a): 'you make a supply' and 'you' is also connected to any identifiable enterprise and in the course or furtherance of whose enterprise are the supplies being made under paragraph 9-5(b). Additionally, 'you' is tied to the entity that is registered or required to be registered.

'You' is defined in section 195-1:

if a provision of this Act uses the expression you, it applies to entities generally, unless its application is expressly limited.

Note: The expression you is not used in provisions that apply only to entities that are not individuals.

The meaning of entity as defined in section 184-1 includes an individual and a *partnership.

A partnership is defined in section 195-1 by reference to the definition of a partnership in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). That definition states:

partnershipmeans:

(a)  an association of persons (other than a company or a *limited partnership) carrying on business as partners or in receipt of *ordinary income or *statutory income jointly; or

(b)  a limited partnership.

Goods and Services Tax Ruling GSTR 2003/13 Goods and services tax: general law partnership (GSTR 2003/13) contains the ATO view regarding the treatment of general law partnerships for GST purposes.

Paragraph 10 of GSTR 2003/13 provides that the first limb of paragraph (a) of the definition refers to 'an association of persons (other than a company or limited partnership) carrying on business as partners'. This reflects the general law definition of a partnership, which is 'the relation which subsists between persons carrying on a business in common with a view of profit'. We refer to this type of partnership as a general law partnership.

Paragraph 17 of GSTR 2003/13 explains that a partnership is formed when two or more entities commence carrying on a business as partners.

As set out in the facts, Person A and Person B began conducting the Farming Business on the Property on, or around, the time of their purchase of the Property in YYYY. Consequently, Person A and Person B formed a partnership when they commenced the Farming Business on the Property (the Partnership).

We will now consider whether the sale of the Property will be made in the course or furtherance of an enterprise that the Partnership carries on (paragraph 9-5(b)).

The term enterprise is defined for GST purposes in subsection 9-20(1) and includes, among other things, an activity or series of activities done (a) in the form of a business, or (b) in the form of and adventure or concern in the nature of trade.

The definition of 'carrying on' an enterprise can be found in section 195-1:

carrying on an *enterprise includes doing anything in the course of the commencement or termination of the enterprise.

This definition ensures that activities done in the course of the commencement or termination of the enterprise are included in determining whether the activities of the entity amount to an enterprise.

Based on the facts, the Partnership's Farming Business constitutes an 'enterprise' in accordance with paragraph 9-20(1)(a).

For the sale of a thing to be made in the course or furtherance of your enterprise, the sale of the thing must have a connection with your enterprise. Whether a connection between the sale of the thing and your enterprise exists will depend on the facts and circumstances.

Goods and Services Tax Ruling GSTR 2004/8 Goods and services tax: when does an entity have a decreasing adjustment under Division 132? (GSTR 2004/8) discusses decreasing adjustments on supplies. It also considers the meaning of 'in the course or furtherance' in relation to an enterprise. Paragraphs 29 to 31 of GSTR 2004/8 state:

29. Given the broad meaning of 'in the course or furtherance', a sale of a thing is capable of being made in the course or furtherance of an enterprise regardless of the extent to which it has a connection with the enterprise, so long as it has some connection. The GST Act does not require that the thing must be applied primarily or principally in carrying on the enterprise for the supply of the thing to be in the course or furtherance of an enterprise. Accordingly, a connection between the sale of the thing and your enterprise exists even if, at the time of its sale, the thing is applied in carrying on the enterprise to a minor or secondary extent.

30. Each of the following characteristics of a thing indicates strongly that the sale of the thing has a connection with your enterprise:

•         at the time of sale it formed part of the assets of your enterprise (for example, it is trading stock or a depreciable asset for income tax purposes);

•         at the time of sale it was applied in carrying on your enterprise to at least some extent; and

•         it is sold as a transaction of your enterprise.

31. Factors that tend to indicate that a sale is a transaction of the enterprise include the following:

•         the sale is made from enterprise premises;

•         payment is accepted using enterprise facilities such as a cash register or a credit card facility;

•         the proceeds of sale are deposited into an enterprise bank account; and

•         enterprise book accounts are used to record the transaction.

The list in this paragraph is not exhaustive or conclusive. All the facts and circumstances must be considered and balanced.

Subsection 184-5(1) provides that a supply made by a partner of a partnership in their capacity as a partner is taken to be a supply made by the partnership.

Paragraph 29 of GSTR 2003/13 sets out factors that may assist in determining whether a partner makes a supply in the capacity as a partner in the partnership, including:

•         the consideration for the supply is paid to a common fund, or to all the partners;

•         the supply is of a kind typically made in the type of enterprise carried on by the partnership; and

•         the invoice or tax invoice shows the firm or business name, or the names of all the partners as supplier.

In this case, Person A and Person B acquired the Property as joint tenants in YYYY for farming and living. As discussed above, Person A and Person B formed the Partnership to operate the Farming Business on the Property. The Property is recorded as an asset in the accounts of the Partnership, and all outgoings related to the Property are claimed as an expense in the accounts of the Partnership. The Partnership registered for GST in MMYYYY and has continued to carry on the Farming Business on the Property.

As the Property is held as a Partnership asset and has been used by the Partnership in order to carry on the Farming Business, it is considered that the disposal of the Property will be made in the course or furtherance of the Partnership's enterprise, to the extent that the Property was used to carry on the Farming Business.

Accordingly, the sale of that part of the Property used by the Partnership to carry on the Farming Business will satisfy the positive limbs of section 9-5. As such, the sale of that part of the Property will be a taxable supply to the extent that the supply is not GST-free or input taxed.

To the extent that the Property was used by Person A and Person B as their private residence, then this is not connected with the Partnership's enterprise. Therefore, paragraph 9-5(b) is not satisfied with respect of this part of the Property. As all the requirements of section 9-5 have not been met, then this part of the Property is not a taxable supply and will not be subject to GST.

GST-free

The sale of property may be GST-free if it is sold as a GST-free supply of a going concern and all the requirements of section 38-325 are met. In this case, you will not sell the Property as a going concern. As such, the sale of the Property will not be GST-free under section 38-325.

The sale of farmland may be GST-free under section 38-480 where the recipient of the supply intends that a farming business will be carried on, on the land. In this case, the purchaser does not intend to use the Property for farming. As such, the sale of the Property will not be GST-free under section 38-480.

There are no other provisions in the GST Act under which the Partnership's supply of the Property will be GST-free.

Input taxed

There are no provisions in the GST Act under which the Partnership's supply of that part of the Property used to carry on the Farming Business will be input taxed.

Subsection 40-65(1) provides that a sale of *real property is input taxed, but only to the extent that the property is *residential premises to be used predominately for residential accommodation (regardless of the term of occupation).

However, subsection 40-65(2) provides the sale of real property 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 2 December 1998.

Based on the information supplied, the characteristics of the two dwellings on the land, and how those premises have been used do not meet the requirements of commercial residential premises as defined in section 195-1, or the requirements of new residential premises as defined in section 40-75.

The term 'residential premises' is defined in section 195-1 to 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 (GSTR 2012/5) outlines the characteristics of residential premises.

Paragraph 9 of GSTR 2012/5 explains the requirement that the residential premises are to be used predominately for residential accommodation in section 40-65 is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. Paragraph 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities.

Paragraph 20 of GSTR 2012/5 provides that premises must be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. An objective consideration of the relevant facts and circumstances determines whether residential premises are fit for human habitation.

In this case, those parts of the Property that contain the two residential dwellings satisfy the definition of 'residential premises' for the purposes of section 195-1. As such, the sale of those parts of the Property will be input taxed under section 40-65 and are excluded from being a taxable supply.

Mixed supply

Section 9-80 provides that, where a supply is partly taxable and partly input taxed, the value of the supply is to be apportioned between the taxable and non-taxable (input taxed) parts of the supply.

A supply which contains both taxable and non-taxable parts is referred to as a mixed supply.

Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8) provides guidelines on how to apportion consideration that includes taxable and non-taxable parts and provides methods and examples that may be used to apportion the consideration for a mixed supply.

Paragraphs 26 and 27 of GSTR 2001/8 provide that any reasonable method can be used to apportion the consideration for a mixed supply. Furthermore, the method used must be supportable in the particular circumstances and you should keep records that explain the method used and you should keep records that explain the basis used to apportion the consideration between the taxable and non-taxable parts of a supply.