Private ruling: GST and sale of property
Date of advice: 25 June 2018
Published: September 2018

Ruling: Q1: Is the sale of your vacant land that, prior to the demolition of the derelict house on the land, was used solely to provide residential rent, subject to goods and services tax (GST)? | A1: No, the sale of your vacant land that, prior to the demolition of the derelict house on the land, was used solely to provide residential rent, is not subject to GST as it is input taxed under subsection 9-30(4) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant facts and circumstances: You are a not-for-profit entity that is registered for GST. You are carrying on business activities which include the leasing of residential premises. You purchased the residential property and leased it out for over a decade until the house became uninhabitable. You did not have it refurbished because it was not commercially feasible to do so. You had the house demolished because the house was in a dangerous and derelict state. The land stayed vacant after the house was demolished and it had not been used for any other purpose. You sold the vacant land as is.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 s ection 9-5 | A New Tax System (Goods and Services Tax) Act 1999 subsection 9-30(4) | A New Tax System (Goods and Services Tax) Act 1999 paragraph 40-35(1)(a)

Reasons for decision: Summary: An entity is only liable for GST if it makes a taxable supply. Section 9-5 of the GST Act provides that an entity makes a taxable supply if certain requirements are satisfied, i.e. the entity makes the supply for consideration, in the course or furtherance of its enterprise, in connection with an indirect tax zone (Australia) and the entity is registered or required to be registered for GST. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed. In your case, you made the supply of the vacant land located in Australia for consideration in the course of your residential leasing business activity and you are registered for GST. Therefore, your supply of the vacant land will satisfy the requirements of a taxable supply unless your supply is GST-free or input taxed. The GST-free supply provisions do not apply to your supply of the vacant land, therefore, we have to consider whether there is any input taxed provision that may apply. Subsection 9-30(4) of the GST Act provides that a supply is taken to be a supply that is input taxed if it is a supply of anything (other than new residential premises) that you have used solely in connection with your supplies that are input taxed but not financial supplies. In considering the application of subsection 9-30(4) of the GST Act to the supply of your vacant land, it is necessary to identify the uses to which you have put the property and whether these uses are solely in connection with your input taxed supplies. In other words, subsection 9-30(4) of the GST Act will only apply if the property has not been used in any way other than in connection with your input taxed supplies. Paragraph 40-35(1)(a) of the GST Act provides that a supply of premises that is by way of lease, hire or licence (including a renewal or extension of a lease, hire or licence) is input taxed if the supply is of residential premises. In this case, you leased out the residential property from the time that the property was acquired until the house became uninhabitable. The land stayed vacant and had not been used for any other purpose up to the time of sale. The facts show that since the acquisition of the residential property up until the house was demolished, your only use of the residential property has been in connection with making input taxed supplies by way of the lease of residential premises (paragraph 40-35(1)(a) of the GST Act). In addition, there is no indication that the holding of the property was for any separate purpose or use not related to the leasing of the property. Therefore, the sale of the vacant land is taken to be an input taxed supply under subsection 9-30(4) of the GST Act and as such, is not a taxable supply. Accordingly, the sale of the vacant land is not subject to GST.