Private ruling: GST and supply of property
Date of advice: 4 October 2018
Published: November 2018

Ruling: Q1: Is your supply of the Property a mixed supply? | A1: Yes, your sale of the Property is a mixed supply. It is partly taxable (vacant land) and partly input taxed (residential premises).

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are registered for GST. You carry on an enterprise in building and construction. In xxxx, you acquired two lots of land located at… (the Original property) for $T.00 for investment purposes. No GST was payable on the purchase. The Original property consists of: a) Lot 1, where there is a freestanding existing residential house. The house was occupied as a residence and has facilities for day to day living such as kitchen, laundry, bathroom and bedroom facilities. b) Lot 2 is vacant land. No improvements have been made to the Original property. You have applied for a Development Approval (DA) as follows: a) to subdivide Lot 1 into two lots: Lot 1A contains the freestanding existing residential house, and Lot 1B is vacant land; b) to erect a residential dwelling on the vacant land- Lot 2 The proposed contract for sale (Sale Contract) for the Property You intend to sell the Property for a single consideration, with pending DA at the exchange of the proposed contract for sale (Sale Contract). By the time of settlement, following the DA approvals, the Property will be registered as three separately titled lots. The completion of the Sale Contract is dependent on the registration of the DA. Hence the subject of the Sale Contract for the Property consists of: ● Lot 1A contains the existing residential house. ● Lot 1B is vacant land after the new subdivision. ● Lot 2 is vacant land, with Development Consent for erecting a residential dwelling. You have ticked the box on the Sale Contract: ‘input taxed because the sale is of eligible residential premises’.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 7-1 | 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 | A New Tax System (Goods and Services Tax) Act 1999 section 195-1 | A New Tax System (Goods and Services Tax) Act 1999 Division 38 | A New Tax System (Goods and Services Tax) Act 1999 Division 40

Reasons for decision: Summary: Your supply of the Property is a mixed supply. The supply is partly taxable (vacant land) and partly input-taxed (residential premises). GST is payable on the taxable part. | Detailed Reasoning - Detailed reasoning: Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies. Section 9-5 of the GST Act states: You make a taxable supply if: a) you make the supply for consideration; and b) the supply is made in the course or furtherance of an enterprise that you carry on; and c) the supply is connected with the indirect tax zone; and d) you are registered, or required to be registered. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed. In your case, you intend to: ● supply the Property for one single consideration, ● the supply is made in the course or furtherance of the building and construction enterprise you carry on, ● the supply is connected with the Indirect Tax Zone as the Property is located in Indirect Tax Zone; and ● you are registered for GST. Furthermore there are no provisions in the GST Act that will make your supply of the Property GST-free. | Detailed Reasoning - 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 that where a supply consists of more than one part, the supply could be either a mixed or a composite supply. Where a supply contains a dominant part and also something that is integral, ancillary or incidental to that part, the supply is composite. A composite supply is treated as a single supply and takes its GST status from the dominant component of the supply. However, where the supply has separately identifiable parts, that require individual recognition due to their relative significance in the supply, then the supply is a mixed supply. A supply is also a mixed supply where the GST Act requires you to treat a part of a supply in a particular way. The GST status of the component parts of a mixed supply is determined separately. The subject of the Sale Contract for the Property consists of three separately titled lots on the settlement date as follows: 1) Lot 1A contains the existing residential house. 2) Lot 1B is vacant land after the new subdivision. 3) Lot 2 is sold with Development Consent for erecting a residential dwelling You are selling the Property, which comprises of one lot of residential premises and two lots of vacant land as at the date of settlement, for one single consideration. You have ticked the box on the Sale Contract: ‘input taxed because the sale is of eligible residential premises’. However we consider that the supply of the two lots of vacant land is not integral, ancillary or incidental to the supply of the lot containing the residential premises. Therefore, your supply is a mixed supply and the GST status of the supply of the two lots of vacant land is determined separately from the supply of the lot containing the residential premises. | Detailed Reasoning - Residential premises: Subsection 40-65 (1) of the GST Act provides that a sale of real property is input taxed, but only to the extent that the property is residential premises to be used predominantly for residential accommodation. Section 195-1 of the GST Act defines ‘residential premises’ to mean land or a building that: ● is occupied as a residence, or ● is intended to be occupied, and is capable of being occupied, as a residence; and includes a floating home. Subsection 40-65(2) provides that the sale is not input taxed to the extent that the residential premises are: a) commercial residential premises; or b) new residential premises other than used for residential accommodation (regardless of the term of occupation) before 2 December 1998 Goods and Services Tax Ruling GSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) in paragraphs 6-7, provides that the definition of residential premises requires that land must have a building affixed to it and that the building must have the physical characteristics that enable it to be occupied or be capable of occupation as a residence or for residential accommodation. Paragraph 15 of GSTR 2012/5, provides that the physical characteristics common to residential premises are premises that provide the occupants with shelter and basic facilities for day to day living. From the facts you provided, at the time you purchased the Original property there was a freestanding existing house which was used for residential accommodation. The existing house on the Property is described as a house containing bedrooms, bathroom and a kitchen and is fit for human habitation. Therefore, the existing house on the Property satisfies the definition of ‘residential premises’. As the house is neither commercial residential premises, nor new residential premises (defined in section 40-75 of the GST Act), the supply of the lot containing the residential premises is input taxed under section 40-65 of the GST Act. Therefore, no GST is applicable on the portion of the supply of the Property consisting of the lot containing the residential premises. | Detailed Reasoning - The vacant land:: At settlement, the Property contains the following two separately titled lots of vacant land: a) Lot 1B is vacant land after the new subdivision. b) Lot 2 is vacant land, sold with Development Consent for erecting a residential dwelling The supply of the two lots of vacant land is not integral, ancillary or incidental to the supply of residential premises. The supply of vacant land is not GST-free under any provisions of the GST Legislation. In addition, paragraphs 47 and 92 of GSTR 2012/5 provide that vacant land will not meet the definition of ‘residential premises’. | Detailed Reasoning - Vacant land: 92. Vacant land cannot be residential premises. In Vidler v. Federal Commissioner of Taxation , 38 Sundberg, Bennett and Nicholas JJ stated that 'vacant land is not land that is capable of being occupied as a residence or for residential accommodation'. This is because vacant land, of itself, does not provide shelter and basic living facilities, and cannot, therefore, be occupied as a residence or for residential accommodation Given the above we do not consider the supply of the 2 lots of vacant land to be an input taxed supply of residential premises. As the supply of the two separately titled lots of vacant land satisfies the positive limbs of section 9-5 and is neither GST-free nor input-taxed supply, the portion of the supply of the Property consisting of the two lots of vacant land will be a taxable component of the supply of the Property. | Detailed Reasoning - Development Consent: You advised that the Property will be supplied with Development Consent attached. The ATO provides a series of publications called ATO Interpretative Decisions or ATO ID’s which provide the ATO view on particular factual situations. ATO ID 2004/303 discussed this issue: Is the entity, a property developer that is making an input taxed supply of residential premises, making a separate taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when under a contract of sale, it assigns to the purchaser a development consent that runs with the premises? It provides the following answer No, the entity is not making a separate taxable supply under section 9-5 of the GST Act when under a contract of sale it assigns to the purchaser a development consent that runs with the premises. The entity is making a single input taxed supply of the residential premises, which includes the development consent. Although your supply of the Property is a mixed supply of residential premises and vacant land with different GST treatments, the principles contained in this ATO ID are relevant. Therefore when you supply the Property with the Development Consent attached, the Development Consent is automatically transferred to the purchaser as a natural consequence of the sale. Therefore, you are not supplying the purchaser with anything more than the Property. | Detailed Reasoning - Apportionment of the consideration of a mixed supply: As the supply of the Property is a mixed supply, where there is a single consideration for the sale of the Property, you will need to apportion the consideration for the supply between the taxable and input taxed components on a fair and reasonable basis. You must keep records on how the calculation was made. Section 9-80 of the GST Act prescribes a statutory method for calculating the value of a taxable supply that is part of a mixed supply. Paragraph 26 of GSTR 2001/8 provides that you can use any reasonable method to apportion the consideration for a mixed supply. As explained in paragraph 92 of GSTR 2001/8, where there is no legislative provision specifying a basis for apportionment you may use any reasonable method to apportion the consideration to the parts of a mixed supply. However, the apportionment must be supportable by the facts in the particular circumstances. Depending on those circumstances, you may use either a direct or indirect method when apportioning the consideration for a mixed supply. The Commissioner has identified a direct and an indirect method that may be used to apportion the consideration for a mixed supply. Paragraph 97 of GSTR 2001/8 states: 97. Direct methods use relevant variables that measure the connection between what is supplied (the taxable and non-taxable parts) and the consideration for the actual supply. A direct method usually gives you the most accurate measure of the consideration for (and therefore, the calculation of the value of) the taxable part of the supply you make (that is, the value of the taxable supply). Such methods may include: ● the price allocation as agreed between the parties to the supply (see paragraphs 97A to 97M of this Ruling); ● the comparative price of each part if it were supplied on its own, relative to the whole payment received (see paragraphs 98 to 103D of this Ruling); ● the relative amounts of rental consideration (see paragraph 103E to 103F of this Ruling); ● the relative amount of time required to perform the supply (see paragraphs 104 to 105 of this Ruling); and ● the relative floor area in a supply of property (see paragraphs 106 to 108 of this Ruling). Paragraphs 106-108A discusses the relative floor area in a supply of property: 106. In some cases, it is reasonable for you to allocate the consideration for a mixed supply by reference to the relative floor area of the property being supplied. To make an allocation on this basis, you also need to consider the relative price of different types of floor space (for example, floor space in residential, retail and industrial property are often priced differently). That is, you may simply work out the proportionate floor area if the value per square metre does not vary. However, if the value per square metre is variable, then you can reasonably apportion on a basis of each area and its relative value. You may also need to take into account external features, such as the value of recreational areas. In your situation, you need to determine the values of the residential premises and the two lots of vacant land. Once you have determined the consideration for the taxable component of the supply of the Property, you can choose to apply margin scheme and work out your GST liability. | Summary: Your supply of the Property is partly taxable (the two lots of vacant land) and partly input-taxed (the lot containing the residential premises). GST is payable on the taxable component. You will be required to apportion the price of the land between the taxable and input taxed components. Once an appropriate method of apportionment has been established and applied to the consideration of the mixed supply, the GST payable is calculated as either: ● 10% of the value of the taxable portion of the supply or ● 1/11of the price (or consideration) for the taxable portion. | Detailed Reasoning - Further Information: You may be eligible to apply the margin scheme to calculate the GST payable on the taxable portion of your supply. For further information you can refer to the information about ‘GST and the Margin Scheme’ which is available on our web site ato.gov.au.