Private ruling: GST and sale of subdivided land
Date of advice: 27 October 2016
Published: February 2017

Ruling: Q1: Is the sale of the subdivided blocks of land a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes.

Relevant facts and circumstances: You purchased a large parcel of vacant urban land (the Property) on a specified date. The purchase price included GST. You intended to subdivide the land and sell the smaller blocks at a profit. The Property was subsequently rezoned residential and subdivided into a number of blocks of land on separate titles. The subdivided blocks of land are currently on the market for sale as vacant residential land. You are registered for GST and have claimed GST credits on the purchase and subdivision of the Property.

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 9-20. | A New Tax System (Goods and Services Tax) Act 1999 section 23-5. | A New Tax System (Goods and Services Tax) Act 1999 section 40-65. | A New Tax System (Goods and Services Tax) Act 1999 section 195-1. Summary | The sale of the subdivided blocks of land is a taxable supply because all the requirements of section 9-5 of the GST Act are satisfied.

Reasons for decision: Summary: GST is payable on the sale of the subdivided blocks of land if you are making a taxable supply. Section 9-5 of the GST Act sets out the requirements of a taxable supply and it states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with the indirect tax zone; 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. (* denotes a term defined in section 195-1 of the GST Act.) The sale of the subdivided blocks of land satisfies the requirements of paragraphs 9-5(a), 9-5(b), 9-5(c) and 9-5(d) of the GST Act because: ● the sale is for consideration ● the sale is in the course or furtherance of your property subdivision enterprise ● the sale is connected with the indirect tax zone as the subdivided blocks of land are located in Australia, and ● you are registered for GST. The sale of the subdivided blocks of land in the circumstances described is not GST-free. It remains to be determined whether the sale of the subdivided blocks of land is input taxed. Residential premises Section 40-65 of the GST Act considers the sale of residential properties. Subsection 40-65(1) of the GST Act states: 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). The term 'residential premises' is defined in section 195-1 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; (regardless of the term of occupation or intended occupation) and includes a *floating home. Goods and Services Tax Ruling GSTR 2012/5 (GSTR 2012/5) considers how the GST Act applies to supplies of residential premises. Paragraphs 6 and 7 of GSTR 2012/5 consider the definition of residential premises and state: 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 definition of residential premises, premises must provide shelter and basic living facilities. Paragraphs 47 and 92 of GSTR 2012/5 consider whether vacant land is 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. 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. As outlined in GSTR 2012/5, for land to be residential premises, there must be a building on the land that has the physical characteristics of a residence. Vacant land, of itself, can never have sufficient physical attributes to characterise it as being able to be, or intended to be, occupied as a residence. As you are selling vacant residential land, you are not selling residential premises. As such the sale of the subdivided blocks of land is not an input taxed supply under section 40-65 of the GST Act. Furthermore, the sale of the subdivided blocks of land is not an input taxed supply under any other provision of the GST Act or under a provision of another Act. Therefore, as all the requirements of section 9-5 of the GST Act are satisfied, the sale of the subdivided blocks of land is a taxable supply.