Private ruling: GST and the sale of real property
Date of advice: 13 April 2018
Published: June 2018

Ruling: Q1: To what extent will the supply of the property by you, located in Australia (the Property) be a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 ( GST Act)? | A1: The Property will be fully taxable except for the portion of the property that contains the house and the associated land around the house.

Relevant facts and circumstances: In 19XX you, acquired a vacant property (20 acres in size) in Australia. In 19XY you built a house on the land and lived in it up until the present day. In 19YZ you developed and operated a business from the property. The business infrastructure included a workshop, kiosk, eating facilities and public car park. On DDMMYYYY you registered for GST as a partnership. You entered into a sale contract for the whole property and settlement is intended to be MMYYYY. The sale of the business will not be included in the sale but all of the plant and infrastructure associated with the miniature train park will be sold as inspected. The sale contract provides under the ‘Particulars’ that the price includes GST.

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 9-80 | A New Tax System (Goods and Services Tax) Act 1999 Section 40-65 and | A New Tax System (Goods and Services Tax) Act 1999 Division 75.

Reasons for decision: Summary: In this reasoning, 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 ● all legislative terms of the GST Act marked with an asterisk are defined in section 195-1 of the GST Act ● Goods and services tax (GST) is payable on taxable supplies. Section 9-5 provides that you make a taxable supply if: ● You make a 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 (Australia) and ● 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. You will be supplying the whole property for consideration. The supply is connected with Australia and you are registered for GST and the supply is made in the course or furtherance of an enterprise that you are carrying on. Therefore your supply of the whole property will be taxable, unless it is GST-free or input taxed to any extent. In your circumstances, there is no provision in the GST Act whereby any portion of the property supplied would be GST-free. | Detailed Reasoning - Residential premises to be used predominantly for residential accommodation: Under subsection 40-65(1), a sale of real property is input taxed to the extent that the property is residential premises to be used predominantly for residential accommodation. There are two exclusions to this provision which relate to commercial residential premises and new residential premises. No portion of your property meets the definition of new residential or commercial residential premises. The term ‘residential premises’, as defined in section 195-1, refers to 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 (regardless of the term of the occupation or intended occupation). Goods and Services Tax Ruling GSTR 2012/5, Goods and services tax: residential premises (GSTR 2012/5), provides guidance on what is considered to be residential premises to be used predominantly for residential accommodation for the purposes of subsection 40-65(1). Paragraph 9 of GSTR 2012/5 provides that the requirement in section 40-65 that premises be ‘residential premises to be used predominantly for residential accommodation’ 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 outlines that the premises must provide shelter and basic living facilities. The premises must also be fit for human habitation in order to be suitable for, and capable of, being occupied as a residence or for residential accommodation. 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 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. In your case, the house and associated land enjoyed in conjunction and collocated with the house meets the definition of residential premises and the guidelines provided in GSTR 2012/5. You supplied a map of the property and contended that a number of areas on your property separate to the house including portions within the area of the business would be private. We consider that any area that is not collocated with the house and not enjoyed as part of the residential premises will not be included in the input taxed supply of residential premises and will therefore be taxable. The infrastructure associated with the business and the area used and enjoyed as part of this business, including land around the commercial areas of the property, will be part of the taxable supply and does not meet the definition of residential premises. | 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. Paragraph 40 for GSTR 2012/5 provides that The value of a supply of premises that includes residential premises to be used predominantly for residential accommodation needs to be apportioned to the extent that part of the premises is not residential premises to be used predominantly for residential accommodation. 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. Example 15 C in GSTR 2001/8 paragraph 103Fprovides the following example. | Detailed Reasoning - Example 15C - commercial and residential premises: 103F. Hilary is registered for GST. She sells a property that consists of commercial premises and residential premises. The property is on a single title and is currently untenanted, although the commercial part was recently rented for $1,000 per week and the residential part for $500 per week . [55A] Hilary may reasonably apportion two thirds of the consideration for the sale (the same proportion the rent for the commercial premises bears to the total rent of $1500) to the commercial part and one third to the residential part to ascertain the value of the taxable part . 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.