Edited version of private advice

Authorisation Number: 1052383576312

Date of advice: 15 May 2025

Ruling

Subject: GST - property - mixed supply of input-taxed residential premises and vacant land

Question 1

Did You make a fully input taxed supply pursuant to section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sold the Property?

Answer

No. You made a mixed supply with the sale of the Property.

Question 2

If the answer to Question 1 is No, does the Commissioner accept that the GST payable amount has been calculated on a reasonable basis pursuant to section 9-80 of the GST Act?

Answer Yes.

This ruling applies for the following period:

DD MM YYYY

The scheme commenced on:

DD MM YYYY

Relevant facts and circumstances

On DD MM YYYY you entered into a call option with the previous owner to purchase the Property.

The previous owner has lived at the Property since YYYY. The Property was the previous owner's main residence and has only been used by them for residential purposes. The previous owner uses their large backyard for their private use and enjoyment only.

The property is held under a single title and consists of a dwelling located on a block of land as provided on the Land Use Plan, which was provided as part of your private ruling application.

No farming or income producing activities have been carried out on the property or any part of the land since YYYY.

Publicly available imagery shows that the land has, or previously had, wire farm-style fencing around the outer boundary.

Publicly available imagery shows that wire fencing internally separates, or previously separated, the residential plot on which the dwelling and its associated residential infrastructure is situated, from the larger portion of vacant land.

Sometime after entering the call option, you were approached by the Purchaser who purchased the Property from you for consideration of $amount and subject to your purchase of the Property from the previous owner and the settlement of that initial contract of sale.

On DD MM YYYY you signed the sale contract with the Purchaser, with settlement on the contract of sale scheduled for DD MM YYYY.

On DD MM YYYY you exercised the call option to purchase the property from the previous owner for consideration of $amount, with settlement on the first contract of sale scheduled within X business days of the contract date (i.e. prior to DD MM YYYY).

The contract of sale between you and the Purchaser takes the position that this sale will be a wholly input taxed supply of residential premises, subject to the outcome of this ruling.

You and the Purchaser agreed in writing that should the Commissioner find the sale to be partly taxable, you can apply the margin scheme in calculating any GST payable on the supply.

In the event that the Commissioner determines that the supply is a mixed supply of input taxed residential property and vacant land, you provided the property plan in support of the basis of your proposed GST calculation.

You further provided your proposed GST calculation which relies on an apportionment of input taxed residential property and taxable vacant land.

'Special Conditions' to the contract of sale between you and the Purchaser provides contract clauses describing exclusion zone around existing residential premises

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 9-80

A New Tax System (Goods and Services Tax) Act 1999 section 40-35

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

A New Tax System (Goods and Services Tax) Act 1999 section 40-70

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

A New Tax System (Goods and Services Tax) Act 1999 Division 38

A New Tax System (Goods and Services Tax) Act 1999 Division 40

Reasons for decision

Issue

Mixed supply of input-taxed residential premises and vacant land.

Summary

Your supply of the Property is a mixed supply. The supply is partly input-taxed (existing residential premises) and partly taxable (vacant land). GST is payable on the taxable part, where a reasonable basis for calculation of the GST payable amount would factor in existing and historical structural characteristics of the Property.

Question 1

Did you make a fully input taxed supply pursuant to section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sold the Property?

Detailed reasoning

Section 9-40 provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 further 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 Australia, and

   (d) you are registered or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case:

   • your supply of the Property was made for consideration of $amount (satisfying paragraph (a)),

   • it is uncontroversial that your supply was made in the course of your enterprise (satisfying paragraph (b)),

   • the Property is located in Australia (satisfying paragraph (c)), and

   • you are registered for GST (satisfying paragraph (d)).

There are no provisions in Division 38 under which your sale of the Property would be GST-free.

As the Property contains an existing dwelling, we first need to determine whether its sale was a supply of input taxed residential premises, under Division 40.

Input taxed residential premises

Residential premises is defined in section 195-1 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;

(regardless of the term of occupation) and includes a floating home.

The Commissioner's view on whether premises are considered residential premises is provided in Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5).

The terms 'residence' and 'residential accommodation' are not defined in the GST Act and each term takes its ordinary meaning in context.

Paragraphs 9 and 10 of GSTR 2012/5 explain the single test that examines the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation, as follows:

9. The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' 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.

10. The requirement for residential premises to be used predominantly for residential accommodation does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office).

Paragraphs 14 to 24 of GSTR 2012/5 discuss the requirements of shelter, basic living facilities, and that premises must be fit for human habitation.

15. 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.

...

20. 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. Residential premises are not fit for human habitation when they are in a dilapidated condition which prevents them being occupied for residential accommodation.

Further, section 40-65 provides:

   (1) 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).

   (2) However, the sale is not input taxed to the extent that the residential premises are:

      (a) commercial residential premises; or

      (b) new residential premises other than those used for residential accommodation (regardless of the term of occupation) before 2 December 1998.

It is uncontroversial in this case, that the dwelling supplied with the land purchase is residential premises used predominantly for residential accommodation.

Further, the dwelling is neither commercial residential premises, nor is it new residential premises, and so is not excluded under subsection 40-65(2) from being input taxed residential premises.

Therefore, the next issue to be determined is whether the entire block that comprises the Property under a single title, is properly categorised as 'land supplied with the dwelling' (pursuant to paragraph 46 of GSTR 2012/5), or whether you have made a mixed supply of input taxed residential premises and taxable vacant land.

We turn first to the question of whether the entire block has been 'supplied with the dwelling'.

Land supplied with a building

The basic principles around categorising a supply of land which includes an existing residential premises, are provided in paragraphs 91 and 92 of GSTR 2012/5, as follows:

Land supplied with a building

91. The GST Act does not restrict the area of land that can be included in residential premises. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is enjoyed in conjunction with the residential building. Just because land is used privately does not mean that the land necessarily has the physical characteristics to indicate that the land is to be enjoyed in conjunction with the residential building.

Vacant land

92. Vacant land cannot be residential premises. In Vidler v. Federal Commissioner of Taxation, Sundberg, Bennett and Nicholas JJ stated that 'vacant land is not land that is capable of being occupied as a residence or for residential accommodation'. This is because vacant land, of itself, does not provide shelter and basic living facilities, and cannot, therefore, be occupied as a residence or for residential accommodation.

Where a residential building is located on an ordinary 'town', suburban or inner-city block, the land supplied with those residential premises will generally be easier to identify. The difficulty tends to arise more often with classifying the larger-sized blocks that are more common to rural, regional or industrial areas.

Regarding the extent to which the land supplied with a building forms part of residential premises, GSTR 2012/5 provides the following at paragraphs 46 and 47:

46. There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is to be enjoyed in conjunction with the residential building. The use of the land is not a determining factor in deciding if the land forms part of the residential premises.

Vacant land

47. 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.

The words 'to the extent' from section 9-5 indicate that the supply of a property could be partly taxable and partly non-taxable. Per paragraph 46 of GSTR 2012/5, the extent to which 'land forms part of residential premises to be used predominantly for residential accommodation' will be a question of fact and degree in each case.

According to paragraph 46 of GSTR 2012/5, the test is not what the land has actually been used for, but whether the physical characteristics of the land and the residential building as a whole indicate that they are to be enjoyed in conjunction with one another.

In this case, an examination of the characteristics of the Property as a whole indicate that the residential premises and its associated outbuildings and infrastructure are located in one corner of the Property.

Publicly available imagery shows that there was wire farm-style fencing to the rear of the dwelling in YYYY, that was still in place in YYYY.

Further, the aerial photographs labelled as images 3 and 4, above, indicate that the land falling within the fenced (or previously fenced) portion on which the residential premises and its associated outbuildings and infrastructure are situated, has been cultivated to some degree; whereas the land falling outside the fenced (or previously fenced) residential portion does not appear to have been cultivated.

It is clear that if the vacant land portion of the Property was considered in isolation, it would have no characteristics to support its use 'predominantly for residential accommodation'. The vacant land portions do not have the physical characteristics that provide the basic facilities for day to day living and are therefore not 'residential premises to be used predominantly for residential accommodation', and so are not input taxed.

However, we also considered whether when viewed in its entirety, it would be right to characterise the dwelling and its associated residential infrastructure as the dominant part of the supply and the vacant parts of the Property as being integral, incidental or ancillary to that dominant, input taxed part, as provided by GSTR 2001/8.

Mixed and composite supplies

GSTR 2001/8 explains how to identify the taxable and non-taxable parts of a supply and the difference between a mixed supply and a composite supply.

GSTR 2001/8 provides that where a supply consists of more than one part, the supply could be either a mixed or a composite supply. Where a supply contains a dominant part and also something that is integral, ancillary or incidental to that part, the supply is composite. A composite supply is treated as a single supply and takes its GST status from the dominant component of the supply.

However, where the supply has separately identifiable parts, that require individual recognition due to their relative significance in the supply, then the supply is a mixed supply. A supply is also a mixed supply where the GST Act requires you to treat a part of a supply in a particular way. GST status of the component parts of a mixed supply is determined separately.

We noted paragraph 56 of 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), where the Commissioner points out that in Customs and Excise Commissioners v. Madgett and Anor (t/a Howden Court Hotel), the European Court of Justice described the term 'ancillary' in terms of scale and connection, as follows:

'... a service is ancillary if, first, it contributes to the proper performance of the principal service and second, it takes up a marginal proportion of the package price compared to the principal service. It does not constitute an object for customers or a service sought for its own sake, but a means of better enjoying the principal service.

Comparing the judicial analysis in the case cited in paragraph 56 of GSTR 2001/8, in terms of whether the scale and connection of the vacant portions of land were 'integral, incidental or ancillary' to a 'dominant, input taxed residential part', we concluded that the vacant land portions at the Property do not affect the ability of the residential portion 'to be used predominantly for residential accommodation', one way or the other. The residential land portion that falls within the internal fencing comprises a reasonably large area that could, of itself, arguably be viewed as providing 'a means of better enjoying' the residential premises, absent the vacant land portions.

While the additional vacant land portions may enhance the enjoyment of the residential portion, they are physically identifiable in their own right. Moreover, these parts of the Property do not form merely a 'marginal proportion' of the entire land area, comprising as they do some approximate percentage of the Property's area.

Based on the facts of this case and given that the non-residential part of the Property is not considered to be ancillary, integral or incidental to the input taxed residential part, your sale of the Property will be characterised as a mixed supply.

Therefore, you will need to apportion the consideration received for the sale of the Property between the taxable and input taxed parts, in accordance with subsection 9-80(2) and the guidance provided in GSTR 2001/8.

Question 2

If the answer to Question 1 is No, does the Commissioner accept that the GST payable amount has been calculated on a reasonable basis pursuant to section 9-80 of the GST Act?

Apportionment of the consideration of a mixed supply

Paragraph 16 of 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. On this basis, reasonable apportionment is required under section 9-80 to distinguish between the value of the taxable and non-taxable parts of a supply.

GST is payable on a mixed supply that you make, but only to the extent that the supply is taxable.

Under paragraphs 25 to 27 of GSTR 2001/8, you can use any reasonable basis to apportion the consideration and calculate the value of the taxable and non-taxable parts of a supply. Whichever method you choose should be supported by your business records.

In this case, the Property comprises a block of land which is fenced, or was previously fenced into portions, of which are vacant land that is not considered to be integral, ancillary or incidental to the supply of the residential portion which contains a dwelling and its associated residential infrastructure.

You provided no basis for a proposed apportionment of your supply of the Property as having been input taxed residential property and taxable vacant land, apart from an aerial photograph marked 'Land Use' and the assertion that the previous owner used the Property for their private use and enjoyment.

The fenced (or previously fenced) residential portion comprises a percentage of the total land area of the Property. Also potentially relevant to apportioning the supply of the Property, is the 'Occupation Arrangement' provision that:

... the Resident ... acknowledges, agrees and consents to and will not object in any way to the Buyer undertaking (or permitting to be undertaken) any site excavation or filling works on the Property prior to the Vacation Date, so long as no fill is placed within X distance of the dwelling located on the Land.

An exclusion zone around 'the dwelling located on the Land' for the term of the Occupation Agreement, would cover an area very similar in size to the fenced (or previously fenced) residential portion of the Property.

However, we do not consider your proposed apportionment of the mixed supply to have been made on an unreasonable basis, such as would not satisfy the section 9-80 provisions or be consistent with the guidance provided in GSTR 2001/8.

The GST status of the supply of the apportioned vacant land is determined separately from the supply of the input taxed residential portion. The supply of vacant land is not GST-free under any provisions of the GST Legislation. As all the requirements in section 9-5 are satisfied, and neither of the exceptions apply, your supply of the apportioned vacant land portions is a taxable supply.

Section 9-80 of the GST Act prescribes a statutory method for calculating the value of a taxable supply that is part of a mixed supply.

GSTR 2001/8 provides the following advice at paragraphs 93 to 97, and paragraphs 117 and 118, in relation to what would constitute a 'reasonable method of apportionment':

Reasonable methods of apportionment

93. What is a reasonable method of apportioning the consideration for a mixed supply depends on the circumstances of each case. In some cases, there will be only one reasonable method you may use.

94. Depending on your circumstances, you may use a direct or indirect method when apportioning the consideration for a mixed supply.

95. The method you choose should be based on a consideration of all the circumstances and not because it gives you a particular result. You may need to use different methods, or a combination of methods, for different supplies to ensure the appropriate amount of GST is payable. You need to keep records that explain all transactions and other acts you engage in that are relevant to supplies you make, including supplies that are GST-free and input taxed.

96. Where consideration is apportioned in a manner that cannot be justified in terms of reasonableness, the general anti-avoidance provisions of the GST Act may have application.

97. Direct methods use relevant variables that measure the connection between what is supplied (the taxable and non-taxable parts) and the consideration for the actual supply. A direct method usually gives you the most accurate measure of the consideration for (and therefore, the calculation of the value of) the taxable part of the supply you make (that is, the value of the taxable supply). Such methods may include:

   • the price allocation as agreed between the parties to the supply (see paragraphs 97A to 97M of this Ruling)

   • the comparative price of each part if it were supplied on its own, relative to the whole payment received (see paragraphs 98 to 103D of this Ruling)

   • the relative amounts of rental consideration (see paragraph 103E to 103F of this Ruling)

   • the relative amount of time required to perform the supply (see paragraphs 104 to 105 of this Ruling), and

   • the relative floor area in a supply of property (see paragraphs 106 to 108 of this Ruling).

...

117. Section 9-80 provides the method for working out the value of the taxable part of a mixed supply that consists only of taxable and GST-free or input taxed parts. The section refers to such a supply as the actual supply.

118. To work out the taxable proportion a conclusion as to the value of the taxable part of the supply has to be made (see paragraphs 81F to 81O of this Ruling). Once that conclusion is made and you have established the value of the taxable part of the supply, you can simply calculate the GST payable as either:

   • 10% of the GST-exclusive value of the taxable part; or

   • 1/11 of the GST inclusive value for the taxable part.

In your situation, you need to determine the values of the residential portion of the Property and the apportioned vacant land. Once you have determined the consideration for the taxable component of the supply of the Property, you can work out your GST liability.