29 March 2024

Sale of vacant ‘residential’ land
16 June 2005

The sale of vacant land can NEVER be an input taxed supply. The reason for this common error is the belief that if land is zoned residential and/or purchased to build houses thereon, it is ‘residential premises’. The truth is that vacant land can never be ‘residential premises’.
Section 40-65 of the A New Tax System (Goods and Services Tax Act) GST Act provides that:
'(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.
(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 before 2 December 1998.'
Section 40-75 of the GST Act states new residential premises are residential premises that:
(a) have not previously been sold as 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, the premises are not new residential premises if, for the period of at least 5 years the premises have been used for residential rent by way of lease, hire or licence and therefore input taxed.
Taxable supply
Under section 9-5 of the GST Act a taxable supply is made if there is:-
1. a supply for consideration;
2. in the course or furtherance of an enterprise;
3. connected with Australia;
4. the supply is by a registered entity (or entity required to be registered);
5. the supply is not input taxed or GST-free.
Subdivision and sale
Sale of new residential premises
The original property consists of one title. When the land is subdivided, more tha one new titles will be created. Therefore, the existing title is replaced by a separate title for each of the blocks created by the subdivision. If a house is built on the vacant land and sold, it would be treated as new residential premises as the separate property has not previously been sold as residential premises, and would attract GST under section 40-65 of the GST Act, if all the requirements of a taxable supply are met.
Sale of non-residential premises
Paragraphs 24 and 25 of Goods and Services Tax Ruling GSTR 2000/20) state:
'24. The definition of 'residential premises' in section 195-1 refers to land or a building that is occupied as a residence or is intended and capable of being occupied as a residence.
25. The definition 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. Vacant land of itself can never have sufficient physical characteristics to mark it out as being able to be or intended to be occupied as a residence.'

© 2024 Australian Tax College