Private ruling: GST and the sale of real property
Date of advice: 21 November 2017
Published: April 2018

Ruling: Q1: Was your supply of land shown as Reserve X on the subdivision plan to the Government department a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes | Q2: By owning and leasing out the balance of the Property, ● Are you, carrying on an enterprise pursuant to section 9-20 of the GST Act and ● if so, are you required to be registered for GST? | A2: ● Yes, leasing is included in the definition of enterprise and ● Yes, however, as you are already registered for GST, you are not required to register again in relation to any additional enterprise.

Relevant facts and circumstances: You acquired a particular licence in or about YYYY and carried on a particular licence enterprise. You operated the enterprise through a partnership. In 2000, you added a GST registration role to the partnership as required by the GST Act. On ddmmyyyy, you purchased the property located in Australia for $XX.00. The Property is X hectares in size. It contains residential premises and commercial infrastructure including a training track. The majority of the property is taken up with the fields including the training track. Under the Council’s Precinct Structure Plan, part of the Property (now known as Reserve X) was designated as land which will be required by a Government Department. This area comprises Y hectares and is located on the opposite side of the property from the houses. The houses are separated from the fields including the training track by fencing. Reserve X is not yet fenced off separately. You leased the property to an individual who used the residences for private purposes and the balance of the property for animal keeping and agistment purposes. Following negotiations, the Government Department entered into a contract with you to acquire Reserve X for $XX.00 on ddmmyyyy. The land was not compulsorily acquired under any statute but was acquired by way of agreement under a standard land contract. The Particulars of the sale contract provide that the price includes GST (if any) unless the words ‘Plus GST’ appear in this Box. The Box referred to has the words ‘Plus GST’ printed in it. Clause X of the contract provides that the purchaser must pay to the vendor any GST payable in respect of a taxable supply made under this contract in addition to the price if the particulars of the sale specify that the price is ‘plus GST.’ The special conditions at clause XX provide that: ● the Vendor has granted a lease over its entire site for training and agistment purposes and ● the purchaser agrees to offer to the Tenant a license over the land following settlement and expiring on ddmmyyyy. The Government Department was required, at its own cost, to prepare and to procure registration of the required Section 35 Plan of Subdivision by the Registrar of Titles to create Reserve X, with the balance of the land to be retained by you (and on which the houses and the fields, including the training track, were still located). In anticipation of settlement of the Contract of Sale for Reserve X, you arranged for the tenants of the Property to enter into a replacement residential tenancy agreement for the balance of the property.

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 Paragraph 9-20(1)(c) | A New Tax System (Goods and Services Tax) Act 1999 Division 23 | A New Tax System (Goods and Services Tax) Act 1999 Division 144, and | A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decision: Summary: Under section 9-5 of the GST Act, you make a taxable supply if: ● you make the 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 for GST. However, the supply is not taxable to the extent that it is GST-free or input taxed. Your supply of the Property satisfies all the requirements of 9-5 in that: ● You will receive consideration ● Both the particular license enterprise and the lease of the property meet the requirements of an enterprise and the land you are selling is part of your property leasing enterprise. Therefore the supply of Reserve 1 is made in the course of your leasing enterprise ● The supply is connected with Australia and ● You are registered for GST. In addition the supply will not be GST-free to any extent. Therefore it remains to be determined if the supply is input taxed to any extent. Under section 40-65 a sale of real property consisting of residential premises, other than commercial or new residential premises, is input taxed. Residential premises are land and buildings that are occupied, or capable of being occupied, as a residence or for residential accommodation. To satisfy the definition of residential premises, Reserve X must provide shelter and basic living facilities. The Drainage reserve is located on a portion of the Property used for training and agistment and is located some distance from either of the two houses. 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. You are supplying Reserve X to the Government Department. Reserve X consists of vacant land. Therefore you are not supplying residential premises. It follows that your supply of the Reserve X is a taxable supply. | Detailed Reasoning - Is the leasing of the Property an enterprise?: Section 9-20 states that an enterprise relevantly includes an activity or series of activities done in a regular or continuous basis in the form of a lease. By owning and leasing out the balance of the Property, you were, and still are, in fact carrying on an enterprise for GST purposes. | Detailed Reasoning - Are you required to be registered for GST in relation to that enterprise?: As you are already registered for GST (in your capacity as a partnership), there is no need to determine separately your requirement to register for GST in relation to this enterprise. It is stated in the note to section 23-5 that it is the entity that carries on the enterprise that is required to be registered for GST, (and not the enterprise) (emphasis added). In your case, the entity in question is the partnership (you) and this entity is already registered for GST. Therefore you are not required to register anew in relation to your leasing enterprise. The ATO website’s publication ‘ How GST Works ’, explains that you only register once for GST, even if you operate more than one business.

Reasons for decision: Note: In these reasons for decision, unless otherwise stated, | ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) | reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au