Private ruling: GST and sale of residential premises and land
Date of advice: 5 April 2022
Published: June 2022

Ruling: Q1: Are you, Xxxx, liable for GST pursuant to section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) for the sale of property? | A1: No. | Q2: If the answer to Question 1 is yes, can you use the margin scheme to account for GST on the sale of property? | A2: Not necessary to answer.

Relevant facts and circumstances: You are a company incorporated since DD/MM/YYYY. You have held an ABN since this date. You registered for GST on DD/MM/YYYY and remained registered up until and including DD/MM/YYYY. You cancelled your GST registration effective from DD/MM/YYYY. Purchase of the Property On DD/MM/YYYY you entered into a contract (the Purchase Contract) under your previous company name to purchase the whole of xxxx (the Property). The purchase price was $X, exclusive of GST. Settlement of your purchase of the Property took place on DD/MM/YYYY. You did not pay any GST on the purchase of the Property. Neither you nor the vendor were registered for GST when settlement occurred. Description and features of the Property The total area of the Property is approximately X ha. The Property was subdivided on DD/MM/YYYY into x lots under a plan of subdivision. The Property is zoned Rural Conservation. The Property is also heritage listed. It is also subject to a significant landscape overlay and a restructure overlay. The zoning, listings and overlays all restrict the permitted use and development of the Property. In particular, the restructure overlay identifies the plan of subdivision of the Property as inappropriate. Informal recreation and enjoyment of the Property is permitted by the owner without a planning permit. Only one residential dwelling may be constructed on the Property without a planning permit. The Property contains a dilapidated dwelling (Dwelling) that is currently not being used, as well as one shed to the north of the Dwelling and a second shed on the east. The remainder of the Property remains in its natural state and does not contain any fixtures. The Property has historically been used at times for farming and cattle agistment. Description and features of the Dwelling situated on the Property The Dwelling is a three bedroom, two-storey dilapidated house. There is no floor plan available to describe the interior features and total area of the Dwelling. The Dwelling shows signs of previously having a solar hot water system installed. There are no other utilities servicing the Dwelling. Aerial mapping of the Property shows that the Dwelling is situated within Lots X and Y. The total area of Lots X and Y is X square metres, with a perimeter of X metres. The Dwelling is not weathertight due to damage to most of the windows. Wild animals lived in the Dwelling over several years, causing extensive damage to it. No one is residing in the Dwelling and it remains unused due to its current dilapidated state. While the damage to the Dwelling is extensive, you consider the damage is repairable. The Dwelling has not been condemned by the relevant government authority. Your use of the Property and other business activities You originally acquired the Property with the goal of future development as part of an ongoing property development and investment business you carried on. During the period of your GST registration you investigated proposals for the development, re-zoning of the Property either solely or in a joint venture but none of these materialised. You never derived income from use of the Property. You determined that you would sell the Property given you considered that your original plans for the Property would not be achieved. You used the Property once for a social function since acquiring it. Thereafter the Property was left vacant and remained unused during your period of ownership, except for infrequent sporadic visits for minor maintenance and checking the on-site situation, and for inspections by prospective buyers. Sale of the Property You attempted to sell the Property by way of auction in late YYYY, however this was unsuccessful. You considered a number of proposals to sell the property from prior to YYYY until the auction in late YYYY, however each of these sale proposals was unsatisfactory either due to the price being offered or unsatisfactory sale terms and conditions. You engaged various agents to assist with selling the Property and you personally also approached various land developers and other parties with a view to procuring offers. You subsequently advertised the Property for private sale and entered into a contract on DD/MM/YYYY (the Sale Contract) to sell the Property to X private buyers for $X, plus GST. Sale of the Property to the Purchaser settled on DD/MM/YYYY.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 9-5 | A New Tax System (Goods and Services Tax) Act 1999 9-40 | A New Tax System (Goods and Services Tax) Act 1999 40-65 | A New Tax System (Goods and Services Tax) Act 1999 195-1

Reasons for decision: Summary: The entirety of the Property is residential premises to be used predominantly for residential accommodation, and therefore the sale of the Property is input taxed. GST is not payable on the sale to the Purchaser. | Detailed Reasoning - Detailed reasoning: Section 9-40 provides 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. As the Property contains an existing Dwelling, it will be first considered whether the sale of the Property can be considered to be a supply of residential premises, and therefore input taxed. Section 40-65 provides that the 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). However, the sale will not be input taxed to the extent the residential premises are commercial residential premises or new residential premises. In this case the Property does not meet the definitions of new residential premises or commercial residential premises under the GST Act. Section 195-1 of the GST Act defines 'residential premises' 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. The ATO's position on what constitutes residential premises to be used predominantly for residential accommodation under section 40-65 is set out in the public ruling Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5). Paragraphs 6 and 7 of GSTR 2012/5provide that: 6. Premises, comprising land or a building, are residential premises under paragraph (a) of the definition of residential premises in section 195-1 where the premises are occupied as a residence or for residential accommodation, regardless of the term of occupation. The actual use of the premises as a residence or for residential accommodation is relevant to satisfying this limb of the definition. 7. Premises, comprising land or a building, are also residential premises under paragraph (b) of the definition of residential premises if the premises are intended to be occupied, and are capable of being occupied, as a residence or for residential accommodation, regardless of the term of the intended occupation. This limb of the definition refers to premises that are designed, built or modified so as to be suitable to be occupied, and capable of being occupied, as a residence or for residential accommodation. This is demonstrated through the physical characteristics of the premises. To satisfy the requirements of section 40-65, not only must the Property meet the definition of 'residential premises', but it also needs to be residential premises that is predominantly used for residential accommodation (regardless of the term of occupation). This limb of section 40-65 is a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. Paragraphs 10 and 11 of GSTR 2012/5 look at this aspect of section 40-65 in more detail: 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). 11. Premises that do not display physical characteristics demonstrating that they are suitable for, and capable of, being occupied as a residence or for residential accommodation are not residential premises to be used predominantly for residential accommodation, even if the premises are actually occupied as a residence or for residential accommodation. For example, someone might occupy premises that lack the physical characteristics of premises suitable for, or capable of, residential accommodation (such as a squatter residing in a disused factory). Although the premises may satisfy paragraph (a) of the definition of residential premises in section 195-1, the premises are not residential premises to be used predominantly for residential accommodation. A premise must provide, at the very least, shelter and basic living facilities to satisfy the definition of residential premises. This is discussed in detail in paragraph 15 of GSTR 2012/5: 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. On these facts, the Dwelling is a house designed and intended to be used predominantly for residential accommodation. The Dwelling's design and features provide shelter and basic living facilities. The Dwelling's current dilapidated state raises issues of its fitness for human habitation and whether it is still capable of providing residential accommodation. This is addressed in paragraphs 20 and 21 of GSTR 2012/5: Fit for human habitation 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. 21. Residential premises that are either: • in a minor state of disrepair; or • subject to a temporary legal prohibition for occupation pending minor repairs; are still suitable for, and capable of, being occupied as a residence or for residential accommodation. You have advised that all of the defects with the Dwelling repairable. Furthermore, the Dwelling has not been condemned. Defects that are repairable or capable of remediation do not prevent a premise from being suitable for, and capable of, being occupied as a residence or for residential accommodation under the GST Act - even if the defects and hazards are material. Example 3 contained in paragraphs 23 and 24 of GSTR 2012/5 is relevant: Example 3 - temporary disruption to occupation 23. Ashlea is registered as a hairdresser and owns and rents residential premises that she formerly resided in at a coastal town in northern Australia. The premises are not new residential premises . 24. A tropical cyclone crosses the coast leading to windows being shattered and damage to the roof. The damage is readily repairable but Ashlea fails to make the repairs resulting in the local Council issuing a notice stating that the premises are not fit for habitation. As a result, the tenant's occupation of the premises is temporarily disrupted. Ashlea sells the premises before making the repairs. Despite the damage to the premises and the action taken by the Council, the physical characteristics of the premises show that it is suitable for, and capable of, being occupied as a residence or for residential accommodation. The sale of the premises is therefore an input taxed supply of residential premises to be used predominately for residential accommodation . Example 3 demonstrates that even where repairs have failed to be made, and the building is declared to be unfit for human habitation, the premises will still be residential premises to be used predominantly for residential accommodation if the premises is repairable. This is because it is the physical characteristics and design of the premises that determine whether it is residential premises to be used predominantly for residential accommodation. Structural or safety defects that are repairable to do not change the fundamental nature of a premise. In your case, the fundamental nature of the Dwelling is that of a home. While the Dwelling is dilapidated, the fact that you have chosen to not repair it does not change its fundamental nature of a premise intended to be used predominately for residential accommodation. It is therefore a residential premise within the meaning of section 40-65. Given the Dwelling is a residential premise to be used predominantly for residential accommodation, it remains to be determined whether the sheds and the Property's remaining land can be considered to form part of the premise that is to be used predominantly for residential accommodation. In relation to the Property's remaining land, it needs to be determined whether this constitutes land supplied with the Dwelling, or vacant land. The relevant principles are discussed in paragraphs 46 and 47 of GSTR 2012/5: Land supplied with a building 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. | Detailed Reasoning - 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. Paragraph 46 GSTR 2012/5 shows that, where it can be concluded that land on a property is to be used for the better enjoyment of the residential premises and the physical characteristics of the land as a whole indicate they are to be enjoyed in conjunction with the residential premises , the supply of the land is incidental to the supply of the residential premises on the land. As noted in the facts, the Dwelling is situated in Lots X and Y. However, the entirety of the Property is subject to a restructure overlay which identifies the Property's plan of subdivision as inappropriate. The plan of subdivision, therefore, cannot be used as a basis for determining the boundaries of the Dwelling's curtilage, and consequently the amount of the Property's surrounding open space that forms part of the premise that is to be used predominantly for residential accommodation. Goods and Services Tax Ruling 2006/6 Goods and services tax: improvements on the land for the purposes of Subdivision 38-N and Division 75 (GSTR 2006/6) contains principles relating identifying the nature and extent of the land that is supplied under an arrangement. These principles are capable of general application and are not limited to Subdivision 38-N and Division 75. The relevant principles are contained in paragraphs 47B and 47C and are extracted below: | Detailed Reasoning - Supply of a piece of land with multiple titles: ... 47B. The subject matter of the supply is identified as a matter of substance not form. It is not determined simply on titles to the land. ... Nor is the subject matter of the supply determined simply on whether there is a single contract or multiple contracts. 47C. Ordinarily, the subject matter of the supply will be the totality of the land, even if it is under more than one title. This will be the case if that land: • is contiguous • has physical attributes that identify it as a single piece of land • is supplied to a single recipient, and • is supplied under a single arrangement. There will be separate supplies where land on one or more titles is objectively separate from the rest of the land by reference to physical attributes, historical and current usage, prior dealings, commercial context and legal status. Example 1 contained in paragraphs 47E to 47G of GSTR 2006/6 illustrate the application of the above principles: Example 1 - supply of land comprising separately titled lots used as a single site 47E. Land described in ten certificates of title has been used as a school site. The land on seven of the titles is cleared, with the school buildings being constructed across five of these titles and the school oval and facilities established on the other two titles. The remaining three titles are in their natural state. The entire school site is marketed for sale as the XYZ School. A single contract for sale is drawn up in which the land is described as XYZ School . 47F. In this instance, notwithstanding that the single piece of land is described in ten certificates of title, the whole of the land being supplied, namely the school site, is the subject matter of the supply. In this case, the land is contiguous and it is physically identified as a single school site. It is supplied to a single recipient under a single arrangement. The historical usage and legal status each confirm that the subject matter of the supply is the whole school site.... 47G. Even if the land was described in the contract by reference to the site components (the school buildings, the oval and the reserved land), the whole of the land being supplied would still be the subject matter of the supply . In your case, there is a history of the Property being used, owned and sold as a single parcel of land, despite the subdivision taking place in YYYY. The Property has remained in its same, largely undeveloped state prior to the YYYY subdivision. You acquired the Property in its entirety under a single sale contract, and sold the Property in the same way. At no point has any of the individual Lots ever been sold to different entities. Furthermore the sole ownership of the entirety of the Property appears to be the intended planning outcome, as evidenced by the fact that only one residential dwelling may be constructed on the Property without a planning permit. The facts therefore suggest that the supply of the Property, and the nature of the Property, should be considered as a single parcel of land and not a bundle of subdivided lots, for the purposes of the GST Act. There are no planning restrictions on the owner's use of any part of the Property for quiet enjoyment and private recreational activities. The entirety of the Property is, and has historically been, private property belonging to the owner, and not public land for general community use. There are no fences or other erected boundaries on the Property which would serve to limit the extent of the curtilage of the Dwelling. Only the natural physical boundaries of the Property itself limit the extent of the Dwelling's curtilage. Therefore, we consider the entirety of the Property's remaining land to form part of the premise (the Dwelling) that is to be used predominantly for residential accommodation. Regarding the sheds situated on the Property, the principles applicable to such structures are outlined in paragraph 78 of GSTR 2012/5: 78. A supply of a residential apartment in a building may include a garage, car-parking space, or storage area physically separate from the apartment, but within the building complex. The garage, car-parking space, or storage area is ancillary or incidental to the dominant component of the supply being the residential apartment. It can be therefore reasonably concluded that the garage, car-parking space, or storage area are to be used for the better enjoyment of the residential apartment. They do not form a dominant part of the supply. The supply is therefore a composite supply of residential premises to be used predominantly for residential accommodation. This is still the outcome where the garage, car-parking space, or storage space is separately titled to the residential apartment, if it is physically located within the building complex. While paragraph 78 relates to residential apartments in a building, its principles have equal application where there is a home with separately located storage facilities, such as on these facts. The facts show that the sheds situated on the Property are to be used in conjunction with, and for the better enjoyment of, the Dwelling and the surrounding open space. They are ancillary to the supply of the Property and are not a separate thing to be supplied on the sale of the Property. | Detailed Reasoning - Conclusion: The entirety of the Property, comprising of the land, the Dwelling, and the sheds together meet the definition of residential premises under section 40-65. Your sale of the Property is input taxed and therefore not a taxable supply under section 9-5. It is therefore not necessary to address the other elements of section 9-5. GST is not payable on the sale to the Purchaser.

Reasons for decision: In this reasoning, please note: | • unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | • all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act | • all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO's website ato.gov.au.