Private ruling: GST and the sale of land
Published: February 2015

Ruling: Q1: Will your supplies of the property be taxable supplies pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 ? | A1: Yes


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 40-65 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: Note: In this ruling, unless otherwise stated, • all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) • all reference materials referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au Under section 9-5, an entity makes a taxable supply if: • it makes a supply for consideration; and • the supply is in the course or furtherance of an enterprise that it carries on; and • the supply is connected with Australia; and • the entity is 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. You supply of property located in Australia will be for consideration and you are registered for GST. Therefore, if your supplies are made in the course or furtherance of an enterprise that you carry on, they will be taxable supplies. Enterprise, as defined in paragraph 9-20(1)(a), includes an activity, or series of activities, done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. 'Licence' is not defined in the GST Act. Therefore, it takes its ordinary meaning. The Macquarie Dictionary definition of licence includes 'formal permission or leave to do or not to do something'. Your granting of permission to Mr X to use the dwelling meets this definition of licence. As stated in ATO Interpretative Decision ATO ID 2003/701 Goods and Services Tax GST and sale of an asset that was purchased for, but not used in, an entity's business , the phrase, 'in the course or furtherance of' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of those words. The Australian Concise Oxford Dictionary (1997) defines the phrase 'in the course of' as 'during'. The word 'furtherance' is defined to mean 'furthering or being furthered; the advancement of a scheme etc'. The Explanatory Memorandum relating to the A New Tax System (Goods and Services Tax) Bill 1998 confirms this ordinary meaning at paragraph 3.10 which states: ''In the course or furtherance' is not defined, but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise.' You are selling an asset that you initially purchased to use in your enterprise. The sale is connected with your enterprise. Therefore the sales are made in the course or furtherance of your enterprise. Under section 40-65, 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). With the construction of the dwelling, the original property became residential property. As the dwelling was constructed in yyyy, the premises are not new residential premises. The Class B lot contains the house. As explained at paragraph 34 of Goods and Services Tax Ruling GSTR 2003/3 Goods and services tax: when is a sale of real property a sale of new residential premises? (GSTR 2003/3), this reduced land area and building, as a 'package', is residential premises. You are now in the process of selling the Type A lots. As stated at paragraph 35 of Goods and Services Tax Ruling GSTR 2003/3 these lots are not residential premises. The Type A lots are newly created vacant land, which have not previously been sold as part of a larger package. As explained in paragraph 47 of Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises , vacant land is not residential premises because it 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. Your supplies of the Type A lots will satisfy the requirements for a taxable supply set out in section 9-5. Further, they will be neither GST-free nor input taxed. Therefore, they will be taxable supplies.

On ddmmyyyy, you acquired a property. | In yyyy, you constructed a dwelling on the property. | From the completion of construction until yyyy, and from yyyy until now, the dwelling was occupied by X. | On ddmmyyyy, you obtained approval for development of the property into xx Type A lots and one Type B lot. | This ruling relates to the sale of the Type A lots only. | The Type A lots are vacant land. | Subdivision works commenced in mmyyyy and titles were registered in mmyyyy. | Total costs were about $xx. | The first sales were settled in mmyyyy.