Private ruling: GST - vendors
Date of advice: 14 November 2023
Published: 8 January 2024
Ruling period: Year ending 30June 2024 to | Year ending 30 June 2029.
Date scheme commenced: The date this ruling decision is issued

Ruling: Q1: Are the vendors (Entity 1 & 2) required to register as a partnership in relation to the sale of the property for GST purposes? | A1: No. | Q2: Is the supply by Entity 1 to the purchaser an input taxed supply of residential premises? | A2: Yes. | Q3: Is the supply by Entity 2 to the purchaser an input taxed supply of residential premises? | A3: No. The supply of the vacant lots will be a taxable supply in accordance with section 9-5. | Q4: Is the purchaser required to withhold and remit to the Commissioner of Taxation an amount under section 14-250 of Schedule 1 to the TAA in relation to the purchase of the property? | A4: No. As the purchaser is buying the property for a creditable purpose, the GST withholding provisions under section 14-250 of Schedule 1 to the TAA do not apply, and the purchaser is not required to withhold an amount in relation to the sale of the property.

Relevant facts and circumstances: • The property was created by the consolidation of three lots. Entity 1 • Entity 1 acquired a residential premises in XXXX and resides in the property as a main residence and continues to be a main residence util the present date. • Entity 1 has an Australian Business Number (ABN) and is registered for GST since XXXX reporting on an annual basis. • Entity 1 is a sole trader under the business name XXXXXX. Entity 2 • Entity 2 is a company who acquired vacant lots of land in XXXX. • When Entity 2 acquired the two lots, they were both vacant lots with no building structures and the lots have remained vacant lots until the present day. • Entity 2 has an ABN and have been registered for GST since XXXX. • In 2023, the 3 Lots, were consolidated to form the property under a dual entitlement whereby the registered owners are described as; o Entity 1 of the part formally in Lot 1, and o Entity 2 of the part formally in Lots 2 & 3. • The vendors have obtained development approval in XXXX for the demolition of the existing garage and studio, subdivision of the land to retain the heritage house, construction of XX additional seniors living townhouses and excavation and construction of basement carparking on the property. • The vendors have not formed or registered as a partnership, GST joint venture or other associated persons. • Special condition XX of the contract of sale demonstrates the expectation of the parties that the supply will be an input taxed supply of residential premises. • Special condition XX of the contract of sale includes an acknowledgement of a perpetual lease commencing on completion of the contract and continuing until 14 days after such a time as the purchaser obtains all necessary approvals and permits required for the Development and serves a Notice of Commencement to the local government authority. The lease is granted by Entity 1.

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 195-1 | A New Tax System (Goods and Services Tax) Act 1999 section 40-65 | Income Tax Assessment Act 1999 section 995-1 Schedule 1 to Taxation Administration Act 1953 section 14-250

Reasons for decision: Summary: Section 195-1 states that the term partnership, has the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). That definition states a partnership means: a) an association of persons (other then a company or a limited partnership) carrying on business as partners or in a receipt of ordinary income or statutory income jointly; or b) a limited partnership. Goods and Services Tax Ruling GSTR 2003/13 Goods and services tax: general partnerships (GSTR 2003/13) provides the ATO view on what is a general law and a tax law partnership. Paragraphs 10 to 14 of GSTR 2003/13 provide: 10. The first limb of paragraph (a) of the definition refers to an association of persons (other than a company or limited partnership) carrying on business as partners. This reflects the general law definition of a partnership, which is the relation which subsists between persons carrying on a business in common with a view to a profit. We refer to this type of partnership as a general law partnership. 11. The second limb of paragraph (a) of the definition of partnership includes as a partnership an association of persons (other than a company or limited partnership) in respect of ordinary income or statutory income jointly. This type of partnership is referred to as a tax law partnership. 12. A general law partnership is formed when persons commence carrying on business together with a view of profit under an agreement, either written or oral. The relation or the association is one that arises under an agreement. 13. Under general law, a partnership is not an entity. The general law regards the business as being carried on by the persons that are in partnership. The term partnership is merely descriptive of the relation between persons carrying on business with a view to profit. 14. The position under the GST Act is different. The definition of an entity includes a partnership. A consequence of this is that the GST Act applies to partnership transactions, in particular dealings between partners and the partnership, in a manner that does not reflect the general law treatment of those transactions. Against this background, we have applied the GST law to general law partnerships. In a way that best promotes the purpose or object of the GST Act and produces a sensible result. Given the facts of this case, the vendors of the property have not formed a partnership and are not carrying on a business as partners in relation to the sale of the property. They have not entered into a partnership agreement in relation to the sale of the property. Although the contract of sale is in relation to the whole newly combined property, the vendors are selling their respective interests in the property in their own right. Therefore, the vendors do not meet the requirements of a general law partnership as detailed under the first limb of the definition, paragraph a), in section 995-1 of the ITAA 1997. As the individual vendors of the property are selling their own interests in the property, as detailed in the contract of sale, they will not be in receipt of joint income. As a result, the second limb, paragraph b) of the definition under 995-1 of the ITAA 1997, will not be satisfied and as a result the vendors will not qualify as a tax law partnership under the Act. | Detailed Reasoning - Conclusion:: As both limbs of the definition of a partnership under section 995-1 ITAA 1997 have not been satisfied, the vendors are not required to form a partnership in relation to the sale of the property. | Detailed Reasoning - Question 2: Section 40-65 states that a supply of residential premises 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 is not input taxed to the extent that the residential premises are either commercial residential premises or new residential premises. In this case Lot 1 does not meet the definitions of new residential premises or commercial residential premises under the GST Act. Section 195-1 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. Lot 1 is owned by Entity 1 and has a residential premises situated on it. This residential premises is a heritage listed property. The residential premises was purchased by Entity 1 in XXXX. This property has been, and continues to be, Entity 1's residential home. This residential premises does not qualify as a new residential premises. Although lot 1 has now been combined under 1 title with Lots 2 & 3, this does not change the characteristics of Lot 1 as a residential premises. | Detailed Reasoning - Conclusion: As a result, the sale by Entity 1 of Lot 1, to the vendor will qualify as an input taxed sale of a residential premises. | Detailed Reasoning - Question 3: The facts of this case raise issues of whether land supplied with a building forms part of residential premises to be used predominately for residential accommodation, or whether it is to be treated separately as vacant land. To satisfy the requirements of section 40-65, not only must the property being sold meet the definition of residential premises, but it also needs to be residential premises that is predominately 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. Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the ATO view in relation to residential premises. Paragraphs 9,10 and 11 of GSTR 2012/5 provides: 9. The requirement in sections 40-35, 40-65 and 40-70 that premises be residential premises to be used predominately 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 property to determine the premises suitability and capability for residential accommodation. 10. The requirement for residential premises to be used predominately 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. The facts relating to the sale of Lots 2 & 3 by Entity 2 to the purchaser also raises the issue of whether land supplied with a building forms part of residential premises to be used predominately for residential accommodation or whether it is to be treated separately as vacant land. The Commissioner's view on these issues, are set out in paragraphs 46, 47, 91 and 92 of GSTR 2012/5: | Detailed Reasoning - 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. | Detailed Reasoning - Land supplied with a building: 91. The GST Act does not restrict the area of land that can be included in residential premises. 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 enjoyed in conjunction with the residential building. Just because land is used privately does not mean that the land necessarily has the physical characteristics to indicate that the land is to be enjoyed in conjunction with the residential building. | Detailed Reasoning - Vacant land: 92. Vacant land cannot be residential premises. In Vidler v. Federal Commissioner of Taxation , 38 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. The above principles of GSTR 2012/5 will now be applied to the circumstances in this case. We will consider the application of section 40-65 and GSTR 2012/5 with respect to the vacant lots 2 & 3. Given that section 40-65 applies to make a supply of real property input taxed only to the extent that it is residential premises to be used predominately for residential accommodation, we consider the application in section 40-65 and GSTR 2012/5 separately with respect to the dwelling area and the vacant lots. | Detailed Reasoning - Dwelling Area: The dwelling area contains a residential premises, with surrounding infrastructure of a shed and studio. These provide, at a minimum, basic living facilities that demonstrate the dwelling is designed and intended to be used predominately for residential accommodation. As provided in question 2 above, we accept that the dwelling area, being sold by Entity 1 in its entirety, is residential premises to be used predominately for residential accommodation, and the sale of the dwelling area part of the property is input taxed under section 40-65. | Detailed Reasoning - Vacant lots: Paragraph 46 of GSTR 2012/5 quoted above, shows that, where it can be concluded that the 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 that 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. In this case, we consider that there are no factors which point towards the vacant lots forming part of the residential premises on the land. We consider the following factors point towards the vacant lots not being intended to be used predominately for residential accommodation. • Entity 2 acquired the two vacant lots of land in XXXX. The lots have remained undeveloped during the time Entity 2 have owned the two lots. This has remained the case to date. • Following the acquisition of the two lots, Entity 2 have not developed the lots. • Although the vacant lots adjoin the residential property, they did not form part of the residential premises to be used predominately for residential accommodation. • The two properties have access from two different streets. • Development approval was sought and obtained in XXXX, in relation to all 3 Lots. • The property subject to this ruling was created by the consolidation of three lots. This was done in XXXX. • The combining of the properties does not change the fact that the vacant lots do not and have never been enjoyed in conjunction with the residential property to be used predominately for residential accommodation. • The combining of the two vacant lots with lot 1 was done as a result of the development approvals and the sale of the property to the purchaser of the property. You have submitted in your private ruling application that the characteristics of the property's residential premises, and vacant lots indicate that the physical characteristics of the property, as a whole parcel of land, is of residential premises as defined in section 195-1. You state further that although the contract of sale involves two separate transactions, there can only be one transfer of title to the purchaser. We disagree with your submission in relation to the vacant lots. Based on the facts above, the vacant lots were never intended to form part of the residential premises because, at all material times including following entry into the contract of sale, the vacant lots have remained in the same state that they were prior to combining onto one title, that is surplus vacant land. The physical characteristics of the property as a whole show distinctly where the residential premises area and vacant lots begin and end. The physical characteristics of the property do not show that the residential premises area and the vacant lots are designed and intended to be occupied as a single residential space. As a result, lots 2 & 3 are vacant lots that do not form part of the residential premises situated on the property to be used predominately for residential accommodation. The sale of Entity 2's portion of the property to the vendor will not be an input taxed supply of residential premises under section 40-65. Under section 9-5, an entity makes a taxable supply where the supply: 1. is made for consideration; and 2. is made in the furtherance of an enterprise that you carry on; and 3. is connected with the indirect tax zone; and 4. is made by a supplier who 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. | Detailed Reasoning - Conclusion: In this case, all of the requirements of section 9-5 are satisfied. Therefore, the sale of lots 2 & 3 by Entity 2 will be a taxable supply. | Detailed Reasoning - Question 4: Section 14-250 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that recipients of certain taxable supplies of real property must pay amounts to the Commissioner. Liability to pay an amount 1) You must pay to the Commissioner an amount if: a) you are the recipient (within the meaning of the GST Act) of a taxable supply that is or includes, a supply to which subsection 2 applies and; b) in a case where a supply is a supply of potential residential land - either: i. you are not registered (within the meaning of the Act); or ii. you do not acquire the thing supplied for a creditable purpose. Law Companion Ruling LCR 2018/4 Purchasers obligation to pay an amount for GST on table supplies of certain real property (LCR 2018/4) provides further guidance in relation to GST notification and withholding requirements for vendors and purchasers of residential premises and potential residential land. Paragraph 21 of LCR 2018/4 states: 21. A purchaser acquires the potential residential land for a creditable purpose if they have a creditable purpose to any extent. That is, if a purchaser acquires the potential residential land for a partly creditable purpose they do not have a GST withholding obligation. What this means is that where an entity is purchasing a property for a creditable purpose, the GST withholding provisions under section 14-250 of Schedule 1 to the TAA do not apply. | Detailed Reasoning - Conclusion: The purchaser is acquiring the property for a creditable purpose and as a result section 14-250 of Schedule 1 to the TAA does not apply. As such, the purchaser is not required to withhold an amount and remit this to the Commissioner of Taxation.