Private ruling: GST and mixed supplies of property
Date of advice: 21 August 2018
Published: October 2018
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will your supply of Lots A to E, at XX address to a Developer pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: The supply of lots A and E will be taxable supplies. The supplies of lots B, C and D will be mixed supplies of taxable land and input taxed residential premises. You may use any reasonable method of apportionment that is supportable under the circumstances. Records must be retained to support the method of apportionment that you have used.

Relevant facts and circumstances: The Entity Partnership is registered for GST in the business of primary production. The Entity Partnership own the following adjoining lots: ● Entity Partnership: Lot A, C and E ● Partner 1: Lot B ● Partner 2: Lot D In an email, your representative confirmed that the Lot B and Lot D are Partnership assets however a balance sheet has never been prepared. The land is currently used as farmland for the purpose of primary production. All lots are used in the business as farmland except where in: ● Lot B, ½ acre of the 3 acres is a private residence of one of the partners and the balance of the land is used for the primary production enterprise ● Lot C, ½ acre of the 3 acres is a rented house and the balance of the land contains primary production activity and sheds, and ● Lot D, ½ acre of the 3 acres is a private residence on one of the partners and the balance of the land is used in the primary production enterprise. You are now proposing to dispose the blocks each under separate title and contract but as one sale. You expect to sell the land to a Developer who will not be an associate nor will intend to conduct a primary production enterprise. You do not expect to subdivide your land and sell any portion to an associate for a value that is less than the GST inclusive market value or; Sell all the lots to an entity who intends to carry on a primary production enterprise.

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 40-65 | A New Tax System (Goods and Services Tax) Act 1999 section 38-475 | A New Tax System (Goods and Services Tax) Act 1999 section 38-480 | A New Tax System (Goods and Services Tax) Act 1999 section 184-1(1)(e) | A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Reasons for decision: Summary: In this ruling we are considering whether you, the Entity are making a taxable supply of the X lots identified in the facts. Section 9-5 provides that 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 (ie Australia); and (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. For the supply of your property to be a taxable supply, all of the requirements in section 9-5 must be satisfied. The supply of Lot A and Lot E are for consideration, in the course of your primary production enterprise and connected with Australia as they are located in Australia. The supply of Lot B and Lot D, with the exception of ½ acre per Lot being the private residences, is for consideration, in the course of your primary production enterprise and connected with Australia as they are located in Australia. The supply of Lot C, with the exception of ½ acre being the house used for residential rent, is for consideration, in the course of your primary production enterprise and connected with Australia as they are located in Australia. You are registered for GST. Therefore paragraphs 9-5(a), to 9-5(d) are satisfied and your supplies will be taxable supplies unless they are GST free or input taxed. | Detailed Reasoning - Input taxed: Section 40-65 provides that a sale of real property is input taxed but only to the extent the property is residential premises to be used for residential accommodation regardless of the term of occupation unless it is a supply of commercial residential premises or new residential premises. In your case the houses on Lots B, C and D do not meet the definition of new residential premises or commercial residential premises. ‘Residential premises’ is defined in section 195-1 as land or a building that: ● is occupied as a residence or for residential accommodation, or ● is intended to be occupied, and is capable of being occupied, as a residence or for residential accommodation. Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises considers how Subdivision 40-B and Subdivision 40-C of the GST Act apply to supplies of residential premises. Paragraph 9 GSTR 2012/5 provide that: 9. The requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' is to be interpreted as a single test that looks to the physical characteristics of the property to determine the premises' suitability and capability for residential accommodation. 2 Paragraph 46 of GSTR 2012/5 explains that, in considering land supplied with a building, the extent to which the land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree. The most relevant factor is the extent the land is to be enjoyed in conjunction with the relevant building. In your case, the houses located across the 3 Lots, B, C and D meet the definition of residential premises and the guidelines provided in GSTR 2012/5. The portion of the property that can be enjoyed in conjunction with the house will also form part of the residential premises. You have stipulated that this is limited to ½ an acre in each case. The balance of the land does not meet the definition of residential premises as it has been used for primary production enterprise. | Detailed Reasoning - 38-475: For a supply of subdivided farmland to be GST-free, under section 38-475, it must satisfy a number of conditions. One of the conditions is that the supply must be made to an associate of the supplier of the land. You do not satisfy this requirement as the proposed supply is to an arms-length party. Therefore, your supply is not GST-free under section 38-475. | Detailed Reasoning - 38-480: The supply of a freehold interest in land is GST free under section 38-480 if two conditions are satisfied. The conditions are as follows: (a) the land is land on which a farming business has been carried on for at least the period of 5 years preceding the supply; and (b) the recipient of the supply intends that a farming business be carried on, on the land. In your case the land is land on which a primary production business has been carried on for at least the period of 5 years, however the recipient of the supply of the land does not intend that a primary production business be carried on, on the land. Therefore, your supply will not be GST-free under section 38-480. | Detailed Reasoning - Supplies of going concerns: (1) The supply of a going concern i s GST-free if: (a) the supply is for consideration; and (b) the recipient is registered or required to be registered; and (c) the supplier and the recipient have agreed in writing that the supply is of a going concern. | Detailed Reasoning - (2) A supply of a going concern is a supply under an arrangement under which:: (a) the supplier supplies to the recipient all of the things that are necessary for the continued operation of an enterprise; and (b) the supplier carries on, or will carry on, the enterprise until the day of the supply (whether or not as a part of a larger enterprise carried on by the supplier). In your case, you are not proposing to supply the land and the primary production enterprise that satisfies the above conditions for a supply of a going concern, therefore your supply will not be GST Free under section 38-325. | Detailed Reasoning - Conclusion: As you, the Entity Partnership are registered for GST and your supply of the lots are in the course of your partnership enterprise, the supply is for consideration the supply of the lots will be taxable supplies pursuant to section 9-5 of the GST Act except to the extent they are input taxed supplies of residential premises. | Detailed Reasoning - Supply to a purchaser who is not a Developer: Where the supply as set out above is to a purchaser who is not a Developer, the supply will be a taxable supply except to the extent they are input taxed supplies or unless the supply satisfies 38-475 (subdivided farmland to an associate) or 38-480 (supply of farmland) or 38-325 (supply of a going concern). | Detailed Reasoning - Apportionment: Section 9-80 provides that, where a supply is partly taxable and partly input taxed, the value of the supply is to be apportioned between the taxable and non-taxable (that is, input taxed) parts of the supply. A supply which contains both taxable and non-taxable parts is referred to as a mixed supply. Goods and Services Tax Ruling GSTR 2001/8 Goods and services tax: Apportioning the consideration for a supply that includes taxable and non-taxable parts (GSTR 2001/8), provides guidance on the GST treatment of mixed supplies, and in particular, provides methods and examples that you may use to help you work out how to apportion the consideration for a supply that contains separately identifiable taxable and non-taxable parts. The general principle provided in the ruling is that an entity can use any reasonable method of apportionment that is supportable under the circumstances. Records must be retained to support the method of apportionment that you have used. What constitutes reasonable methods of apportionment is discussed at paragraphs 92 to 113 of GSTR 2001/8.