GST Q&A – GST and sale of vacant land by a Council
Whether GST applies to a Council’s sale of vacant land and whether the Council can claim input tax credits in respect of the conveyancing costs and real estate agent’s commission.
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Council has sold a 1000 m2 parcel of land which settled in March 2018.
The parcel of land is vacant land and was sold as freehold land. There were no buildings/structures on the land when sold.
Council as the seller is registered for GST and the purchaser is not registered for the GST. Council was not holding this in its asset register as land held for sale. Council engaged both a solicitor and agent to effect the sale, who have charged professional fees and agents commission respectively.
Does this sale of vacant land constitute a taxable supply, meaning Council should remit GST to the ATO?
Council’s solicitor has provided a tax invoice for the professional fees incurred by Council in effecting the sale. Should the real estate agent, acting for Council as the seller’s agent, also provide Council with a tax invoice?
In response to your first question:
As Council is registered for GST purposes, a sale of vacant land would generally be treated as a taxable supply in the first instance, as all the conditions of taxable supply would be met.
However, if the land meets certain conditions (i.e. no improvements on the land) it is possible it could be GST-free (refer to section 38-455 of the GST law and GSTR 2006/6).
By way of example, s.38-445(1)(a) provides that a supply by the Commonwealth, a State or a Territory of a freehold interest in land on which there are no improvements is GST-free. The GST ruling referred to above provides guidance on what constitutes improvements on the land.
In response to your second question:
Assuming the real estate agent is GST-registered, and their services are a taxable supply, they should be providing a Tax Invoice.
Whether Council’s sale of the land is a taxable supply or GST-free supply, Council will be entitled to claim GST credits for the legal costs and real estate sales commission, provided Council holds a valid tax invoice from these suppliers.
Disclaimer: This article is based upon information available as at the time of publishing and may be subject to change.