Private ruling: GST and sale of property
Date of advice: 5 February 2020
Published: March 2020

Ruling: Q1: Will the sale by the Trustee for the Deceased Estate of the property situated at a specified location be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No

Relevant facts and circumstances: Individual A (the Deceased) passed away. The Deceased was not registered for GST. You were appointed as Trustee for the Deceased Estate. You, in your capacity as Trustee for the Deceased Estate, are not registered for GST. The Deceased owned property situated at a specified location (the Property). The Deceased purchased the Property around yyyy. The Property is approximately xha (x acres) containing a four bedroom brick veneer home consisting of lounge room, dining room, large kitchen, garage and attached colorbond workshop. The Property was used by the Deceased for various purposes during ownership. It was used as a principal place of residence for a period of time. The Deceased also vacated the residence and leased out the residential house and courtyard together with xm 2 . While it was leased out the Deceased used the unleased portion of the Property for grazing. During the process of finalising the affairs of the Deceased's estate the Property was leased. The residential house and courtyard area were leased as residential premises and the balance of the land was, and is, not used for any purpose. Neither you nor the Deceased have/had any interest in, or relationship to, the neighbouring properties bordering the Property. You, in your capacity as Trustee for the Deceased Estate, entered into a Deed of Call Option and Put Option (Deed) in relation to the Property on dd/mm/yyyy. The Property is neither commercial residential premises nor new residential premises as defined for GST purposes.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Subsection 9-17(1) | Section 9-40 | Subsection 9-30(2) | Paragraph 9-30(2)(a) | Paragraph 9-30(2)(b) | Division 40 | Section 40-65 | Subsection 40-65(1) | Section 195-1

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: (a) you make the supply for consideration (b) the supply is made in the course or furtherance of an enterprise that you carry on (c) the supply is connected with the indirect tax zone (Australia), 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. You will supply a freehold interest in land in Australia (which includes a house) for consideration. You have used the house and courtyard area together with approximately xm 2 in a residential leasing enterprise with the balance of the land not used for any purpose. As such we consider that the supply will be made in the course or furtherance of your leasing enterprise. In your circumstances, there is no provision in the GST Act whereby any portion of the Property supplied would be GST-free. In addition, you are not registered for GST. Of relevance is whether the supply of the Property is input taxed. Subsection 9-30(2) provides that a supply is input taxed if: (a) it is input taxed under Division 40; or (b) it is a supply of a right to receive a supply that would be input taxed under paragraph (a). Subsection 40-65(1) provides that a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominately for residential accommodation (regardless of the term of occupation). However, the sale is not input taxed to the extent the residential premises are commercial residential premises or new residential premises. In your case, the Property is neither commercial residential premises nor new residential premises . The term '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 and capable of being occupied as a residence or for residential accommodation (regardless of the term of occupation). Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises outlines the characteristics of residential premises. Paragraph 9 of GSTR 2012/5 explains that the requirement that the residential premises are to be used predominately for residential accommodation in section 40-65 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. Paragraph 15 of GSTR 2012/5 continues by stating that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities (bedroom, bathroom, and living facilities). The Property in this case contains a house that displays the features of shelter and basic living facilities thus satisfying the definition of 'residential premises'. Paragraph 46 of GSTR 2012/5 explains that there is no specific restriction, on 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. We consider that the physical characteristics of the land and building as a whole indicate that the balance of the land is to be enjoyed in conjunction with the house. Given the above, we consider the sale of the Property will be an input taxed supply of residential premises pursuant to section 40-65. Therefore, you will not be making a taxable supply pursuant to section 9-5 when you sell the Property. | Detailed Reasoning - Other relevant comments: Goods and Services Tax Determination GSTD 2014/2 Goods and services tax: where real property is acquired following the exercise of a call option, does the call option fee form part of the consideration for the acquisition for the purposes of subsection 75-10(2) of the A New Tax System (Goods and Services Tax) Act 1999? discusses that the supply of a right or option will be taxed when it is supplied. For the purposes of GST, the later exercise of the right or option will be another supply. That later supply will not be taxable unless there is further consideration when the right or option is exercised. In the context of a call option over real property, subsection 9-17(1) recognises that the supply of the option is a separate supply to the supply of the underlying property. As a consequence of subsection 9-17(1), the consideration for the call option is the call option fee, and the consideration for the supply or acquisition of the underlying property is limited to any additional consideration provided. As discussed above, subsection 9-30(2)(b) provides a supply is input taxed if it is a supply of a right to receive a supply that would be input taxed. Your supply of the granting of the call option in relation to the Property will be an input taxed supply pursuant to subsection 9-30(2)(b).