Private ruling: GST and sale of real property
Published: January 2012

Ruling: Q1: Are you making an input taxed supply of residential premises pursuant to Section 40-65 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you supply certain lots of land following subdivision activity? | A1: Yes. The supply of these Lots will be input taxed provided that the residential premises on these Lots have not been demolished.

Relevant facts and circumstances: You are registered for GST. You have entered into an arrangement to sell your interest in two parcels of land that is currently under a single title. Pursuant to four Option Deeds, you have granted options to an unrelated third party to acquire these parcels of land. You have granted these Option Deeds to for nominal consideration. You have the option to require the third party to purchase such Lots, and the contracts for the sale of these Lots are attached to each Option Deed. These Lots will be created pursuant to various subdivisions. You will undertake all subdivision works to create the Lots. The subdivision of the land has not yet occurred. However, the subdivision of the land must occur prior to the options over the land being exercised. The supply of the Lots to the third party will not occur unless the subdivision occurs. Once the subdivision occurs, the Lots will be supplied pursuant to the sale contracts attached to each Option Deed. Three Lots currently contain three existing residences that have been used as residential accommodation during their existence. Two further Lots contain an accommodation building currently supplied by you to another entity under a long term rental arrangement. This building is used by that entity as accommodation - primarily for students of a higher education college. Accommodation at the building is primarily offered by the entity to the college students rather than being held out to the general public. Where the building is not fully occupied by these students other individuals such as students from other universities and teachers may reside there. The college is recognised as a Higher Education Provider. Two further Lots will also be created. These Lots do not contain any building or other structures other than part of a large carport and non-residential structures. You have not sought a ruling in relation to these lots.

Relevant legislative provisions: A New tax System (Goods and Services Tax) Act 1999 Section 40-65

Reasons for decision: Summary: The supply of each of the Lots in question will be input taxed provided that the residential premises on these Lots have not been demolished. | Detailed Reasoning - Detailed reasoning: The grant of an option to acquire land is a supply of a right over real property. ATO ID 2005/183 considers the GST consequences of a supply of a call option over residential premises. This considers that the option is an input taxed financial supply under section 40-5 of the GST Act, or also an input taxed supply under paragraph 9-30(2)(b) where the underlying supply would be input taxed. You will not transfer or supply the underlying real property assets until the subdivision has occurred. Therefore, we must consider the nature of each of the Lots as you have described them. These must be considered as individual assets. You have advised that the first three Lots currently contain three existing residences. Where these premises are still in place at the time of transfer of the Lots then we consider that this satisfies the definition of residential premises. This will therefore be an input taxed supply under section 40-65 of the GST Act. However, should the premises be demolished as part of the subdivision process then the transfer of vacant land is not capable of being considered residential premises. This would therefore be a taxable supply where all the other requirements of section 9-5 of the GST Act are met. The other two Lots contain an accommodation building primarily for students of a college. We consider that this does not meet the definition of commercial residential premises in the Act. This is because it is used to provide accommodation to students in connection with an education institution that is not a school, and therefore expressly excluded from being commercial residential premises (section 195-1) GST Act. Therefore, these premises will instead be considered to be residential premises. The supply of the Lots containing this building will therefore be an input taxed supply under section 40-65 of the GST Act. However, should the premises be demolished as part of the subdivision process the transfer of vacant land is not capable of being considered residential premises. This would therefore be a taxable supply where all the other requirements of section 9-5 of the GST Act are met.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.