ATO ID 2009/40: GST and lease of vacant land after removal of a demountable dwelling used solely in connection with input taxed supplies
Date of decision: 19 May 2009
Business line: Indirect Tax

Issue
Is the entity, a residential property owner, making an input taxed supply under subsection 9-30(4) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when it leases its property as vacant land after the removal of a demountable dwelling from the land that together had been used by the entity solely to make input taxed supplies by way of lease?

Decision
No. The entity is not making an input taxed supply under subsection 9-30(4) of the GST Act when it leases the vacant land in these circumstances.

Facts
The entity is a residential property owner and is registered for GST. The entity carries on an enterprise of leasing and selling residential premises, and developing land for sale. The entity owned and leased land with a demountable dwelling affixed to the land. This property was residential premises for the purposes of the GST Act. The entity no longer required this property for its activities of making supplies of residential premises by way of lease and the existing lease had terminated. The entity sold the demountable dwelling to a purchaser who removed the demountable dwelling from the land. The entity then leases the vacant land to a third party immediately after the removal of the demountable dwelling. Before the removal of the demountable dwelling from the land, the entity had used the land solely in connection with its supplies by way of lease of residential premises that were input taxed supplies under section 40-35 of the GST Act. The lease of the vacant land is for consideration, is made in the course or furtherance of the entity's enterprise and is connected with Australia. The lease of the land is not an input taxed supply or a GST-free supply under any other provision of the GST Act.

Reasons for decision
Summary: Subsection 9-30(4) of the GST Act states: A supply is taken to be a supply that is *input taxed if it is a supply of anything (other than *new residential premises) that you have used solely in connection with your supplies that are input taxed but are not *financial supplies. In considering the application of subsection 9-30(4) of the GST Act to the lease of the vacant land it is necessary to identify the uses to which the entity has put the land and whether these uses are solely in connection with the entity's input taxed supplies (other than financial supplies). This requires that the land, whether by itself or as part of the residential premises, has not been used in any way other than in connection with the entity's input taxed supplies. The Commissioner's view is that 'used' has a broad meaning in the context of subsection 9-30(4) of the GST Act (see the interpretation of 'use' in other statutory contexts in Council of the City of Newcastle v. Royal Newcastle Hospital (1959) 100 CLR 1; Ryde Municipal Council v. Macquarie University (1978) 139 CLR 633; and Lennard v. Jessica Estates Pty Ltd (2008) NSWCA 121). The Macquarie Dictionary, 2005, 4th edn, The Macquarie Library Pty Ltd, NSW, defines 'use' as including 'to employ for some purpose'. In considering whether land has been used solely in connection with input taxed supplies, it is important to consider throughout the period of ownership by the entity: It is necessary to look at the surrounding circumstances to determine if the entity's activities can be said to be connected with the entity's input taxed supplies, or whether they instead should be regarded as having a separate purpose. In this case, before the removal of the demountable dwelling from the land by the purchaser, the entity had used the land solely in connection with its input taxed supplies of residential premises by way of lease. In arranging the sale of the demountable dwelling to the purchaser, the entity still used the land in connection with its input taxed supplies of residential premises by way of lease as the sale of the demountable dwelling was for the purpose of bringing an end to the residential leasing activities. (The sale of the demountable dwelling in these circumstances is taken to be an input taxed supply under subsection 9-30(4) of the GST Act: see ATO ID 2009/20.) However, in devoting the land to the purpose of leasing it in its vacant state to the third party, the entity is using the land for a separate purpose. This is because, unlike the disposal of the ownership of the land by way of sale, the entity continues to hold the land while leasing it to the third party. The entity is devoting the land to a separate on-going activity of the entity's enterprise (that is, leasing of the vacant land) which is not connected with bringing to an end the earlier residential leasing activities. For this reason, the entity is no longer using the land solely in connection with the entity's earlier input taxed supplies of residential premises by way of lease. Therefore, subsection 9-30(4) of the GST Act does not apply to the lease of the vacant land. The lease of the vacant land by the entity is a taxable supply as it satisfies all the requirements of a taxable supply under section 9-5 of the GST Act.

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 subsection 9-30(4) section 40-35
Case references: Council of the City of Newcastle v Royal Newcastle Hospital (1959) 100 CLR 1
Related public rulings and determinations: Goods and Services Tax Ruling GSTR 2003/3
Related ATO interpretative decisions: ATO ID 2009/18 | ATO ID 2009/19 | ATO ID 2009/20
Other references: The Macquarie Dictionary, 2005, 4th edn, The Macquarie Library Pty Ltd, NSW
Subject references: Goods and services tax GST lease and real property GST property & construction GST residential premises GST supply Input taxed supplies