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Is GST payable by you under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on your sale of the property located in Australia (property A).?

Yes, GST is payable on the taxable part - that is the part of the land which due to its physical characteristics demonstrate that it is not enjoyed in conjunction with the residential building - of the mixed supply of property A under section 9-40 of the GST Act. This ruling applies for the following period : DD MM YYYY to DD MM YYYY The scheme commenced/s on: DD MM YYY

The executors for the deceased estate of X (you) are registered for GST. You sold a property located in Australia (property A) that formed part of the deceased estate. The deceased purchased property A on DD MM YYYY Property A comprises of approximately X hectares. Property A contains a residence which was on the property at the time the deceased purchased the property. The residence consists of X bedrooms, a dining room, a lounge room, a kitchen, a family room, a meals room, a games room, an office, X bathrooms, a mudroom, a laundry and a foyer. Connected to the residence a paved courtyard and patio joins to the garage. Neither the deceased nor you substantially renovated the house. The following multi-purpose sheds are also located on property A; •                     Xm x Xm powered shed with X x Xm bays and a Xm partially enclosed end for equipment storage, and contains the bore controller •                     Xm x Xm powered workshop with sliding door, high clearance and attached Xm x Xm lean-to with enclosed sides •                     Xm x Xm X-bay open faced shed.

Property A has quality stock fencing and X separated paddocks, complete with steel cattle-rail holding yards, race and crush to ramp. A portion of property A is covered by established tree groves.When the deceased purchased property A it came with a caveat protecting the existing groves of trees. The deceased respected the caveat and was always concerned they may be fined for removing trees if a tree died. There is only one entrance from the public road to property A. The property is not connected to scheme water. The house relies on rainwater tanks for its supply of water. There is a dam on the property which only held a small amount of water in winter, drying up very quickly in Spring with limited rain fall. The dam held no water in summer/autumn, so the deceased was reliant on pressing a button to feed the water through to the paddocks which limited the property's usage. Groundwater is available from a bore, and property A holds a licence for X kl per annum. The zoning of property A is 'Farmlet' (hobby farm). You did not apply for rezoning of property A. The residence is not a hotel or motel style premises or similar establishment.

The deceased was registered for GST because of their cattle farming business, which they carried on, predominantly on properties that were near property A. The deceased carried on a cattle farming business on a portion of property A. They carried on their farming business on approximately X% of property A at any one time. The farming business was predominantly carried out on nearby grazing properties, located within X kms of property A.

The cattle were not kept at property A in high volumes at any given point in time - it was usually X or less, dependant on the size of the animal as this is the maximum load the deceased could transport from the markets using his own truck, without needing to hire a transport company. When the deceased ran cattle on property A, they were only able to be kept at a specific location due to the quality of the land and extensive tree coverage. They were held either in the cattle yard at the front of property A or in one of the paddocks. The deceased used property A to transition newly purchased cattle. They would castrate and dehorn the new cattle, hold onto them for a number of days to ensure they were healthy and then transferred them to one of their other, nearby properties for grazing. He would hold an animal at property A for X to X days. The deceased brought between X to X lots of cattle to property A over the course of a year. When on holidays the deceased did not keep cattle on this property due to the issues with water as outlined above. In summary, property A was primarily used as a transit point for the cattle.

The sheds on property A were used for storage of farming equipment, machinery, fencing supplies etc. They were also used to store equipment required to maintain the property for private purposes, such as lawn mower, gardening products and tools. The sheds occupied approximately X% of the area of property A. The deceased passed away on DD MM YYYY Probate was granted on DD MM YYYY. At the time that the deceased passed away, their cattle were located at the nearby properties. You as the executors for the estate, having no ability to run the business (not being farmers in the past and with one executor living in another State) that the deceased had carried on, commenced selling the cattle stock in order to wind down the activities. While you did not purchase new stock, the cattle continued to graze on the nearby properties until such time as they were sold. Your aim was to progressively sell all livestock as they matured in order to obtain maximum value. The last item of stock was sold on DD MM YYYY.

You did not graze any cattle on property A, nor did you carry on any farming activities on that property since becoming the executors. You used property A as a base whilst managing the livestock on the nearby properties. Property A was also the most secure property to hold machinery and farming equipment/supplies. You decided to register for GST as you determined that you were required to do so due to the nature of the activities referred to above. The GST registration was a requirement based on the general business activities carried on by the deceased You reported the cattle sales in a number of your Business Activity Statements (BAS). In a particular quarter, you reported sales of plant and equipment that had been used in the business. You hired the real estate agent - (name), to market property A for sale. The marketing material promoted property A as a home and lifestyle property.

The marketing material on a website goes into very extensive detail on the desirability of property A as a place to live. The website marketing material also outlines the property's historical land use and highlights a number of features that demonstrate its suitability for purposes beyond residential living. In addition to the website advertisement, 'other forms of marketing' including pamphlets etc advertised property A as a lifestyle block. These 'other forms of marketing' did not advertise the property as a base for farming operations. The property description contained in the marketing material was noted as part of the background information. You entered into a contract to sell property A on DD MM YYYY with settlement taking place on DD MM YYYY. The buyer purchased the property to use for lifestyle purposes only. You did not treat your sale of property A as being subject to GST. You have not reported GST on the sale of the property in any BAS.

For income tax reporting purposes, the portion of repairs and maintenance costs incurred in relation to specific areas of the property A that were directly connected to the business use of the property were claimed as business deductions. Examples of expenses for which deductions were claimed include fencing, road repairs undertaken as required, and general maintenance.

A New Tax System (Goods and Services Tax) Act 1999 section 9-5 A New Tax System (Goods and Services Tax) Act 1999 section 9-40 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 40-75 A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Question Is GST payable by you under section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) on your sale of the property located in Australia (property A)? Summary GST is payable on your sale of property A because: •                     you sold the property for consideration; and •                     the sale was connected with Australia; and •                     you were registered or required to be registered at the date of settlement of sale of the property; and •                     your sale of the property was not GST-free; and •                     only part of the supply of the property (by way of sale) was input taxed. GST is payable on the taxable part - that is the part of the land which due to its physical characteristics demonstrate that it is not enjoyed in conjunction with the residential building- of the mixed supply of property A. Detailed reasoning In accordance with section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), GST is payable by you on any taxable supply that you make. Section 9-5 of the GST Actprovides that you make a taxable supply if: (a)          you make the supply for consideration

(b)          the supply is made in the course or furtherance of an enterprise that you carry on (c)          the supply is connected with the indirect tax zone, and (d)          you are registered or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. Division 38 and 40 provide for certain supplies to be GST-free and input taxed respectively. GST may apply to a sale of an asset even if the prior sale of the asset was not subject to GST (for example, because of reason X). In this case you meet the requirements of paragraph 9-5(a), 9-5(c) and 9-5(d) of the GST Act. That is: •                     you sold property A for consideration (the price) (paragraph 9-5(a) of the GST Act); and •                     the sale of the property was connected with the indirect tax zone as it was located in Australia (paragraph 9-5(c) of the GST Act); and •                     you were registered or required to be registered for GST at the time of the sale of the property (paragraph 9-5(d) of the GST Act)

We shall now determine whether the sale of property A was made in the course or furtherance of an enterprise that you caried on. In accordance with paragraph 9-20(1)(a) of the GST Act, enterprise includes an activity or series of activities done in the form of a business. Section 195-1 of the GST Act provides that carrying on an enterprise includes doing anything in the course of the termination of an enterprise. The deceased carried on an enterprise on a portion of property A and claimed a portion of its repair, maintenance and upkeep costs as business expenses. ATO Interpretative Decision ATO ID 2001/779 Goods and Services Tax GST and the sale of farmland under the administration of a deceased estate states: Taxation Ruling IT 2622 explains that upon the death of a person, the property of the deceased passes to their estate, the legal control over which is exercised by an executor or an administrator. The executor or administrator, in effect, steps into the shoes of the deceased and winds up the deceased's personal affairs.

Therefore, it is considered that the winding up of a farming business, whether performed by the business operator themselves, or by an executor or administrator upon the death of the business operator, will still be part of carrying on the farming business. Therefore, as executors of the deceased estate, you stood in the shoes of the deceased and wound up the deceased's personal affairs. Your sale of property A was something done in the course of the termination of the deceased's enterprise as the property was partly used as a capital asset in the deceased's enterprise and selling this asset was part of the process of winding up the deceased's enterprise. Hence, the requirement of paragraph 9-5(b) of the GST Act is met in respect of the sale of property A. There are no provisions of the GST Act under which the sale of property A was GST-free. Therefore, what remains to be determined is whether the sale of the property was input taxed. A sale of residential premises may be input taxed under section 40-65 of the GST Act, which states: (1)          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 (regardless of the term of occupation). (2)          However, 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 those used for residential accommodation (regardless of the term of occupation) before 2 December 1998. Goods and Services Tax RulingGSTR 2012/5 Goods and services tax: residential premises (GSTR 2012/5) provides the Commissioner's view on the characteristics of residential premises.

Paragraphs 9 and 10 of GSTR 2012/5 explain that the requirement in sections 40-35, 40-65 and 40-70 that premises be 'residential premises to be used predominantly for residential accommodation (regardless of the term of occupation)' 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. The test does not require an examination of the subjective intention of, or use by, any particular person. Premises that display physical characteristics evidencing their suitability and capability to provide residential accommodation are residential premises even if they are used for a purpose other than to provide residential accommodation (for example, where the premises are used as a business office). Paragraph 15 of GSTR 2012/5 continues to explain that to satisfy the definition of residential premises, premises must provide shelter and basic living facilities. These characteristics will be inherent in the design and fabrication of the premises and typically include areas for sleeping, eating and bathing.

Paragraph 20 of GSTR 2012/5 provides that 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. The residence in your case has X bedrooms, a dining room, a lounge room, a kitchen, a family room, a meals room, a games room, an office, X bathrooms, a mudroom, a laundry and a foyer. These features demonstrate the property possesses the essential elements needed to provide shelter and basic living facilities required to be residential premises. Therefore, your sale of the residence is a sale of residential premises to be used predominantly for residential accommodation, and so the requirements of subsection 40-65(1) of the GST Act are met. However, even if a sale of premises is a sale of residential premises to be used for residential accommodation, the sale is not input taxed if it is a sale of: (a)          commercial residential premises or (b)          (b) new residential premises (other than those used for residential accommodation before 2 December1998). Commercial residential premises

Commercial residential premises are defined in section 195-1 of the GST to include a hotel, motel or similar establishment. In this case property A is not commercial residential premises. Therefore, the exclusion (from the input taxed treatment) under paragraph 40-65(2)(a) of the GST Act does not apply. New residential premises The term 'new residential premises' is defined under subsection 40-75(1) of the GST Act, and provides that residential premises are new residential premises if they: (a)          have not previously been sold as residential premises (other than commercial residential premises) and have not previously been the subject of a long term lease or (b)          have been created through substantial renovations of a building or (c)           have been built, or contain a building that has been built, to replace demolished premises on the same land. However, subsection 40-75(2) of the GST Act provides an overriding rule. It states: (2) However, the *residential premises are not new residential premises if, for the period of at least 5 years since:

(a)          if paragraph (1)(a) applies (and neither paragraph (1)(b) nor paragraph (1)(c) applies) --the premises first became residential premises; or (b)          if paragraph (1)(b) applies--the premises were last * substantially renovated; or (c)          if paragraph (1)(c) applies--the premises were last built; the premises have only been used for making supplies that are *input taxed because of paragraph 40 - 35(1)(a). In your case the residential premises were not new residential premises at the time you sold property A as the premises had previously been sold as residential premises other than commercial residential premises, had not been substantially renovated since the deceased purchased the property and had not been built by the deceased or you to replace demolished premises on the same land. As your sale of property A, to the extent of the residence, was a sale of residential premises to be used predominantly for residential accommodation and it was not new residential premises or commercial residential premises when you sold it, the sale of the property was input taxed under section 40-65 of the GST Act.

Property A consists of X hectares, which is a very large land area. We need to determine whether or not all of the land formed part of the residential premises. Paragraph 46 of GSTR 2012/5 provides the following guidance for scenarios where there is a large land area which also contains a house: 46. There is no specific restriction, in the definition of residential premises, on the area of land that can be included with a building. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this 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. The use of the land is not a determining factor in deciding if the land forms part of the residential premises. Further guidance is also provided in paragraph 91 of GSTR 2012/5:

91. The GST Act does not restrict the area of land that can be included in residential premises. The extent to which land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree in each case. A relevant factor in determining this is the extent to which the physical characteristics of the land and building as a whole indicate that the land is enjoyed in conjunction with the residential building. Just because land is used privately does not mean that the land necessarily has the physical characteristics to indicate that the land is to be enjoyed in conjunction with the residential building.

Determining whether land forms part of residential premises to be used predominantly for residential accommodation is a question of fact and degree. A key factor is the extent to which the physical characteristics of the land and buildings as a whole indicate that the land is to be predominantly enjoyed in conjunction with the residential building. In this case, the land size of property A, the following physical characteristics and operational factors indicate that a portion of the land is not to be predominantly 'enjoyed in conjunction with the residential building': •                     Separated paddocks which delineates areas for livestock use •                     Extensive pasture areas used for grazing animals, with pasture fertility maintained through a history of fertiliser application and certain other practices •                     There is a stock yard which includes steel cattle rail holding yards, race and crush to ramp •                     X large sheds suitable for storing tractors, farm machinery and other agricultural related equipment •                     Stock fencing throughout the property •                     Dam and water licence

•                     Equipment such as pipes for distributing water to the pastures etc. •                     The zoning of the property permits farming use •                     The deceased used part of the property to operate their business. Your sale of the property was something done in the course of terminating that business and therefore, the sale was something done in the course of carrying on that business. These factors collectively demonstrate that a portion of property A possesses the physical characteristics and functional use that are not consistent with the land being predominantly enjoyed in conjunction with the residential building. Therefore, for GST purposes we consider that part of the property was not residential premises at the time of sale.

Although the deceased's business activities on property A were limited and the relevant area primarily served as a transition point for cattle before they were moved to the other properties where the deceased's business activities were predominantly carried out, we do not consider this to be fatal to the conclusion that part of property A does not have the character of residential premises. We consider that the limited use of property A for business purposes in combination with the physical features of the property and its zoning are sufficient to class part of the property as not being residential premises. The purchaser's intention to use property A solely for private purposes is not a relevant factor in determining its character for GST purposes. In accordance with paragraph 91 of GSTR 2012/5, just because an area of land is used privately does not mean that the land necessarily has the physical characteristics to indicate that the land is to be enjoyed in conjunction with the residential building. Furthermore example 1 in GSTR 2012/5 confirms that the buyer's intended use of the premises is not relevant in determining the character of the premises.

Some supplies are partly taxable and partly input taxed. Paragraph 16 of 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) discusses mixed supplies. It states: 16. In this Ruling the term 'mixed supply' is used to describe a supply that has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. Paragraph 12 explains how to work out the GST on a mixed supply. It states: 12. However, where you make a supply that is a combination of separately identifiable taxable and non-taxable parts, you need to identify the taxable part of the supply. Then you can apportion the consideration for the supply and work out the GST payable on the taxable part of the supply.

The supply of property A (by way of sale) has to be separated or unbundled as it contains separately identifiable taxable and non-taxable parts that need to be individually recognised. That is, it contains a separately identifiable taxable component (the part of the land that is not to be predominantly enjoyed in conjunction with the residential building and which was used in the deceased's enterprise) and a separately identifiable non-taxable residential premises component. GST is payable on the non-residential component of the supply as it is the taxable component of the supply. Section 9-80 of the GST Act provides the formula for calculating the value of the part of the actual (mixed) supply that is a taxable supply. It states: (1)          If a supply (the actual supply ) is: (a) partly a *taxable supply; and (b) partly a supply that is *GST-free or *input taxed; the value of the part of the actual supply that is a taxable supply is the proportion of the value of the actual supply that the taxable supply represents. (2)          The value of the supply, for the purposes of subsection (1), is as follows: *Price of the actual supply × 10 10 + Taxable proportion where: "

taxable proportion " is the proportion of the value of the actual supply that represents the value of the *taxable supply (expressed as a number between 0 and 1) Paragraph 30B of GSTR 2001/8 explains how to calculate the GST on the taxable part of a mixed supply. It states: 30B. Paragraphs 114 to 118 of this Ruling explain how you calculate the GST payable on the taxable part of a mixed supply, and illustrate that, once the GST-exclusive value of the taxable part of the supply is determined, the GST payable is simply 10% of that value. Alternatively the GST payable on the taxable part is 1/11 of the GST-inclusive value of the taxable part of the supply. Paragraphs 106 to 108A of GSTR 2001/8 discuss methods of apportionment which may be appropriate for mixed supplies of real property. These methods involve taking into account market values of different areas of a property. They state: 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. Example 17 - commercial and residential premises 107. Warren rents out a property to Josef for $2,000 per month. The property is comprised of residential and commercial premises. The floor area of the residential part is 160 square metres and the commercial part is 80 square metres. In the locality, the rental of commercial space is worth twice as much as residential space.

108. It would be reasonable for Warren to base the taxable proportion of the supply on the floor area of the commercial part as a proportion of the combined floor area of the commercial and residential parts. However, he also needs to take into account the difference in the relative value of the commercial and residential floor space. Warren may reasonably apportion the consideration equally between the commercial and the residential parts. 108A. The taxable proportion is therefore 50%. Applying the formula in section 9-80, the taxable value of the actual supply is calculated as ($2000 x 10)/(10 + 0.5). The value of the taxable part is $952.38 and the GST payable is $95.23. In this case you will need to reasonably apportion the consideration for your supply of property A and retain records that explain the basis used to apportion the consideration between the taxable and non-taxable portions of the sale of the property. Once you have established the value of the taxable part of the supply, you can calculate the GST payable.