Private ruling: GST and residential premises
Date of advice: 7 December 2017
Published: April 2018

Ruling: Q1: Is your supply of specified address a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. It is a mixed supply where: A the portion of the property that includes the house, surrounding land within the timber paling fence and the specified number acre sheep pen used for the family pets is not a taxable supply as it is not a sale in the course of any enterprise. B the balance of the Lot is a taxable supply as it meets section 9-5 and is not input taxed. | Q2: Is the payment of specified number consideration, within the meaning given by section 9-15 of the GST Act, in connection with the supply of specified address? | A2: Yes

Relevant facts and circumstances: You are a partnership. You originally purchased a property on specified date for specified amount. The purchase comprised specified number titles. The property consisted of specified number acres and had specified number homes on the property. On a specified date you moved into the house in Lot specified number. You used the property for farming and agisting cattle. You were registered for GST when farming and agisting cattle. You negotiated a fee up front when allowing other people (including your neighbour) to agist their cattle on your land. However, your neighbour was given a discount to agist their cattle, during the up-front negotiations, due to the relationship. You changed the boundaries to split off specified number acres (which included a house) from the area originally named Lot specified number. This specified number acre newly created area was called Lot specified number. The rest of the original area named Lot specified number was renamed as Lot specified number (specified number acres). Lot specified number was cancelled in this first boundary change. You sold Lot specified number on specified date for specified number. This was sold GST free as farmland. You did not live in the house on Lot specified number. Your intention then was to dispose of marshy and fairly unusable land in order to generate cash to pay off debt and to pay for stock. You bought a heritage listed house (the Heritage House). You placed it on Lot specified number in a specified year. In specified year you moved into this house. Renovations were carried out on the house and were completed by specified date. In specified date you found out that the relevant department intended to build a road through your property. Further boundary changes resulted in Lot specified number (specified number acres) being carved out of Lot specified number. This created a specified number acre property with a home on it. This is the home you were living in from the time you bought specified address. Lots specified number and specified number were cancelled. Lot specified number (specified number acres) and lot specified number (specified number acres) were created. Lot specified number was sold on specified date for $XXX,XXX. It was sold as a residence and as such no GST was imposed on the sale. Lot specified number was in a ‘flood zone’. You wanted to move from Lot specified number to the heritage listed house to avoid the risk of flooding. The heritage listed house was also closer to the sheds used in your farming enterprise. After the sale of Lot specified number you moved into the heritage listed house. At that time the renovations to the heritage listed house was not completed. After the sale of Lot specified number but before the sale of Lot specified number (mentioned below) you were offered $X.X for all of your unsold lots. However, that offer fell through once the prospective buyer found out about the relevant department’s plan to build a road through the property. You had difficulty selling the property as a whole. Therefore, you decided to sell smaller portions of the land. On specified number the specified entity purchased Lot specified number for $XXX,XXX (GST inclusive). Specified person fell ill in a specified year and by specified date they could no longer be actively involved with cattle. You stopped farming cattle on specified date and sold the balance of your stock. However, after this you commenced cultivating crops. Your crop cultivation was largely unsuccessful due to drought conditions. On specified date lot specified number was sold for specified number. This was sold as GST-free farmland. You cancelled your GST registration effective specified date as your GST turnover did not meet the registration turnover threshold. At that time you were left with specified number titles. One being Lot specified number (specified number acres) and the other being Lot specified number (specified number acres). The boundary lines were changed to make one property specified number acres (being Lot specified number) and the other specified number acres (being specified number). The heritage listed house is on Lot specified number. Lot specified number was sold on specified date for specified number. This was sold as GST–free farmland. Lot specified number You were left with Lot specified number. Your ruling application relates to this property. The address of the property is a specified address. Since the specified date you have had only minimal agistment on the property. Your neighbours needed to store their cattle on two occasions after specified date. Their cattle were only on your property for a short amount of time. Your neighbours made a few voluntary payments to you of a specified amount a few years ago. These amounts are significantly less than the amounts negotiated up front in earlier years. You had no input into the amount that was received. You re registered the partnership for GST, effective specified date. You entered into a sale contact for specified address. The contract settled on specified date. The purchaser was the specified entity. At the time of your sale of Lot specified number containing the Heritage House the area was approximately specified number acres in size. There was also a specified number acre section for a sheep pen south of the house where you kept some sheep as pets and for food. The balance of the property comprised a shed used mainly to store farming equipment, tractors and some personal items. The area around the shed was approximately specified number acres and was fenced to stop cattle from approaching the shed. The rest of the property (specified number acres) was split up into yards and paddocks for cattle. The total sale price was a specified amount. You have not been involved in any other enterprises since specified date. The purchaser of Lot specified number, the specified entity, does not intend that a farming business be carried on, on the land.

Relevant legislative provisions: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 9-15 of the A New Tax System (Goods and Services Tax) Act 1999 | Subsection 9-15(1) of the A New Tax System (Goods and Services Tax) Act 1999 | Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999

Reasons for decision: Summary: Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 provides you make a taxable supply if: ● you make the supply for consideration ● the supply is made in the course or furtherance of an enterprise that you carry on ● the supply is connected with the indirect tax zone, and ● 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. A supply is taxable provided, among other things, the supply is made in the course or furtherance of an enterprise that you carry on. Although the term enterprise is defined widely in the GST Act, a private activity is not an enterprise. We consider that living in a house is a private activity and the sale of that house is a private activity. Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the Commissioners view on what constitutes residential premises. Paragraph 46 relevantly provides that: 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. We consider that the supply of the house and surrounding area including the sheep pen was private in nature as this area of the property is land to be used in conjunction with the residential building. These supplies are not made in the course or furtherance of an enterprise that you carry on. Accordingly, such supplies are not taxable supplies. The balance of Lot specified number cannot be said to be part of the residential premises as it is not to be enjoyed in conjunction with the residential premises. Therefore your supply of the balance of Lot specified number will be a taxable supply where the supply is made in the course or furtherance of an enterprise that you carry on, as you satisfy the other conditions to section 9-5. Section 195-1 states that carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise. Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides the ATO view on, among other things, the termination of an enterprise. Paragraphs 147 and 148 of MT 2006/1 state that: 147. The question of whether the activities are done in terminating the enterprise or at some later point (and do not have a connection with the termination activities) is one of fact and degree depending on the circumstances of each particular case. Example 13 – an enterprise that has not terminated 148. Joel, who has been farming cotton for a number of years, decides to retire, sell up everything and move to town. All assets are sold with the exception of a number of bales of cotton. Joel expects to sell the cotton at some future time and pays to have it stored in a commercial warehouse. The enterprise has not terminated until the cotton is sold or is determined to be worthless or of little value. We consider that the sale of the balance of Lot specified number is in the course of the termination of your enterprise. Therefore, the supply is made in the course or furtherance of an enterprise that you carry on. In addition, your supply is not GST-free nor input taxed. It follows that, your supply of this portion of Lot specified number is a taxable supply under section 9-5. Is the payment of specified number consideration, within the meaning given by section 9-15, in connection with the supply of specified address? Subsection 9-15(1) states that: Consideration includes: (a) any payment, or any act or forbearance, in connection with a supply of anything; and (b) any payment, or any act or forbearance, in response to or for the inducement of a supply of anything. The subsection 9-15(1) definition of consideration is broad. We consider that the payment of specified amount was a consideration provided by the specified entity to induce you to supply the property. Therefore it is consideration, pursuant to section 9-15, paid in connection with the supply of specified address. We note for your information that the payment of specified number is to be appropriately apportioned between the taxable and non-taxable components of the supply of specified address.

● unless otherwise stated, all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), | ● all terms marked by an *asterisk are defined terms in the GST Act, and | ● all reference materials, published by the Australian Taxation Office (ATO), that are referred to are available on the ATO website ato.gov.au