ATO Interpretative Decision
ATO ID 2008/82
Goods and Services Tax
GST and subdivision of common property to create a new residential lotFOI status: may be released
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With effect from 1 July 2015, the term 'Australia' is replaced in nearly all instances within the GST, Luxury Car Tax and Wine Equalisation Tax legislation with the term 'indirect tax zone' by the Treasury Legislation Amendment (Repeal Day) Act 2015. The scope of the new term, however, remains the same as the repealed definition of 'Australia' used in those Acts. For readability and other reasons, where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in subsection 195-1 of the GST Act.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Are the entities, the lot proprietors of a strata scheme registered in New South Wales, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when a new residential lot is created out of the common property of the strata scheme?
Decision
No, the entities, the lot proprietors of a strata scheme registered in New South Wales, are not making a taxable supply under section 9-5 of the GST Act when a new residential lot is created out of the common property of the strata scheme.
Facts
The entities are the lot proprietors of a strata scheme that is registered in New South Wales. The lot proprietors passed a special resolution at a general meeting of the Owners Corporation, authorising the Owners Corporation to subdivide the common property pursuant to subsection 9(1) of the Strata Schemes (Freehold Development) Act 1973 (NSW) (SSFDA 1973) to create a new residential lot. Under the arrangement, it was further agreed that a new residential apartment would be constructed by the Owners Corporation on the common property that was to be subdivided into the new residential lot.
The Owners Corporation undertakes the necessary works and has the strata plan of subdivision registered.
Pursuant to statute, the newly created lot vests in the Owners Corporation upon registration of the strata plan of subdivision.
Reasons for Decision
Section 9-5 of the GST Act provides that an entity makes a taxable supply if:
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- it makes the supply for consideration
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- the supply is made in the course or furtherance of an enterprise that it carries on
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- the supply is connected with Australia, and
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- the entity is 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.
Before an entity can make a taxable supply it must first make a supply. The term 'supply' is a broad concept for GST purposes and is defined in subsection 9-10(1) of the GST Act as 'any form of supply whatsoever'. The meaning of the term 'supply' is discussed in Goods and Services Tax Ruling GSTR 2006/9 'Goods and services tax: supplies'. The term 'supply' is considered to take its ordinary and natural meaning, being 'to furnish or to serve' or 'to furnish or provide'. At paragraphs 71 to 91 GSTR 2006/9 also states and explains the proposition that to 'make a supply' an entity must do something.
Section 20 of the SSFDA 1973 provides that the estate or interest of an Owners Corporation in common property vested in it or acquired by it shall be held by the Owners Corporation as agent for the lot proprietors as tenants in common in proportions equal to their lot entitlements. However, the common property may be subdivided by registration of a strata plan of subdivision so as to create one or more new lots (subsections 9(1) and 5(7) of the SSFDA 1973).
In this case, the registration of the strata plan of subdivision containing a lot made up in whole or in part from the common property changes the nature of that property. Since common property is the land in a parcel that is not comprised in a lot, lots and common property are mutually exclusive (Houghton v. Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 at 51 per Handley JA). Therefore, on registration of the strata plan of subdivision the subdivided property ceases to be common property and becomes a new lot. The legal and beneficial interests in the new lot are vested in the Owners Corporation.
A transfer of an interest in land, or the surrender of real property, is within the definition of supply in section 9-10 of the GST Act. However, in this case rights or interests are not transferred or surrendered. The registration of the strata plan of subdivision pursuant to the statute has the effect of extinguishing the entities' interests in the land and creates new rights in the land that vest in the Owners Corporation. The entities do not 'do something'.
Therefore, the entities are not making a supply of their interests and are not making a taxable supply under section 9-5 of the GST Act when a new residential lot is created out of the common property of the strata scheme.
Date of decision: 31 January 2008
Legislative References:
A New Tax System (Goods and Services Tax) Act 1999
section 9-5
section 9-10
subsection 5(7)
subsection 9(1)
Case References:
Houghton v. Immer (No 155) Pty Ltd
(1997) 44 NSWLR 46
Related Public Rulings (including Determinations)
Goods and Services Tax Ruling GSTR 2006/9
ATO ID 2004/694
ATO ID 2008/81
Keywords
Goods and services tax
GST body corporates
GST supply
ISSN: 1445-2782