GST FAQs – Vacant Land
Search for GST frequently asked questions relating to vacant land. Click on the question below to view answer.
Whether the sale of vacant land is subject to GST depends entirely on whether the supply satisfies the conditions set out in section 9-5 of the GST Act as the essential elements of a taxable supply.
Section 9-5 provides that a taxable supply is a supply:
- made for consideration
- made in the course of an enterprise that the supplier carries on
- connected with Australia and
- made by a supplier who is registered, or required to be registered, for GST purposes
Note that vacant residential land can never be regarded as being “residential premises” and, accordingly, input taxed treatment under s.40-65 is not available.
A client is selling vacant land zoned residential; will the supply be treated as a supply of existing residential premises and input taxed?
No. Vacant land is not considered to possess the characteristics essential to residential premises.
We act for a vendor of land who is currently registered for GST, but it appears they are not required to be registered as they no longer meet the revenue threshold requirement. The client is selling vacant land which is zoned ‘general residential’. Based on this scenario the sale is a taxable supply as vacant land does not meet the existing residential land exemption. If the vendor was to deregister for GST purposes, would that mean the sale is no longer a taxable supply and thus not subject to GST?
An entity is required to be registered if its GST turnover is at or above the GST registration threshold ($75,000 p.a.). GST turnover consists of current GST turnover and projected GST turnover and includes turnover from all sources other than salaries and input taxed turnover. Practitioners often incorrectly look at this issue on a property-by-property basis as if there could only be a requirement to be registered if the turnover generated by the subject property were at or above the registration turnover threshold.
A lot depends on the purpose of the clients in acquiring the land. If their intention was to acquire it for later resale, then it is trading stock. Its value when marked for sale would form part of projected GST turnover and, presumably, take the client’s turnover over the registration threshold. If their operations have involved dealings with land, then it would be wrong for them to cancel their registration and then sell.
If a vendor is registered for GST because they run a business such as a car wash but are selling vacant residential land, would this be considered “in the furtherance of an enterprise”?
If the land was not acquired for the purpose of resale (e.g. to subdivide, build units on and sell) or for use in connection with the business (e.g. for expansion of the car wash) but was only ever intended to be used for private or domestic use (e.g. the land was bought with the intention of building a home on it but for various reasons the owners changed their minds and decided to sell it) that would not be in the course or furtherance of an enterprise.
When considering whether a supply is in the course or furtherance of an enterprise, it is important not to assume that, if a person has a car wash business (as an example), only supplies related to that business will be considered to be in the course or furtherance of the person’s enterprise. An entity can only have one enterprise and only one GST registration (if you exclude trustee activities) and all business activities will be considered to be connected to that enterprise and activities could include dealings with land and any other business activities that are not input taxed (such as financial supplies or residential lettings).
A subdivider of residential land sells a number of lots to a builder who intends to construct houses on the lots and on sell to domestic consumers. Can the margin scheme be applied in these circumstances?
Yes. Where land is sold to a builder who intends to resell to private individuals for residential purposes, the builder will need to buy on the margin scheme if intending to sell on the margin scheme. The ultimate purchaser will then only pay GST on the excess of the total sale consideration over the cost of land to the builder.