ATO ID 2004/807: GST and supply of a fractional interest in land by a tenant in common
Date of decision: 25 July 2003
Business line: Indirect Tax

Issue
Is the entity, a property developer that owns a fractional interest in vacant land as a tenant in common, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells its fractional interest in the land and the entity and co-owner are not carrying on an enterprise in partnership?

Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it sells its fractional interest in the land that it owns as a tenant in common and the entity and co-owner are not carrying on an enterprise in partnership.

Facts
The entity is a property developer that owns a fractional interest in vacant land, in Australia, as a tenant in common. The entity carries on an enterprise as a property developer and is registered for goods and services tax (GST). The entity acquired the fractional interest in the land from a deceased estate (the co-owner). The acquisition resulted from the settlement of a debt owed by the deceased estate to the entity in respect of its enterprise activities. The entity and co-owner are now selling their respective interests in the land at an auction. The entity and its co-owner are not carrying on an enterprise in partnership. There have been no improvements or any development activities carried out on the land before the sale. The land is not farm land and the supply of the land does not fall under any provision of Division 38 of the GST Act.

Reasons for decision
Summary: Under section 9-5 of the GST Act, an entity makes a taxable supply if: However, a supply is not taxable to the extent that it is input taxed or GST-free. The entity owns a fractional interest in vacant land as a tenant in common. The entity and co-owner are now selling the land at an auction. The Butterworths Australian Property Law Dictionary , 1997, P E Nygh & P J Butt Eds, Butterworths, Sydney defines 'tenancy in common' as: A type of co-ownership where two or more persons own distinct interests in the same piece of property. The tenants in common hold undivided shares, possessing the property in common and without exclusive possession of any part of it. The shares may be in different proportions. Tenants in common may deal with their respective shares as they wish during their lifetime, and usually may devise them by will... Accordingly, as tenants in common, the entity and the co-owner are making separate supplies of their respective interests in the vacant land in their own capacities. Further, the entity and co-owner are not carrying on an enterprise in partnership. Thus, they are not making a single supply of the whole land. Rather, each is supplying its individual interest in the vacant land. As the entity acquired the fractional interest in the vacant land as the settlement of a debt in respect of its enterprise, the supply of its fractional interest in the vacant land in Australia is in the course or furtherance of its enterprise as a property developer. The entity is registered for GST and the entity's supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells its fractional interest in the vacant land that it owns as a tenant in common and the entity and co-owner are not carrying on an enterprise in partnership.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 Division 40
Related public rulings and determinations: GSTR 2003/3 | GSTR 2004/6 | GSTR 2006/8 | GSTR 2009/2
Other references: Butterworths Australian Property Law Dictionary, 1997, P E Nygh & P J Butt Eds, Butterworths, Sydney
Subject references: Goods and services tax GST property & construction GST sale of real property GST supplies & acquisitions Taxable supply