Meaning of ‘potential residential land’
In relation to the supply of potential residential land, the GST withholding rules only apply where the land is included in a property subdivision plan and does not contain any building that is in use for a commercial purpose. In addition, any acquisition made by a GST-registered buyer who acquires the land at least partly for a creditable purpose is excluded from these rules.
‘Potential residential land’ is defined (in S.195-1 of the GST Act) as land that it is permissible to use for residential purposes, provided it does not contain any buildings that are residential premises.
Land is permissible to use for residential purposes (and therefore may be potential residential land) even where that use is subject to local government requirements (e.g., where an approval or permit is required to construct a dwelling). In addition, the fact that land is zoned for commercial, business or agricultural use does not preclude it from being potential residential land, provided residential use is also permitted under the zoning conditions. On the other hand, whether it is permissible to use land for residential purposes is not determined by any restrictions imposed by a land owner (e.g., by way of a permitted use under a lease). Refer to paragraphs 23 to 29 of LCR 2018/4.
For a supply of potential residential land to be included in a property subdivision plan, it must be included in a plan for the division of real property that is registered (however described) under an Australian law (e.g., under a strata title plan or a plan to subdivide land). Refer to S.195-1 of the GST Act. This generally covers the supply of a house and land package, for which a buyer acquires a vacant block of land which is the subject of a plan of subdivision. Refer to paragraph 5.14 of the EM to the Bill introducing the GST withholding rules, and paragraphs 32 to 34 of LCR 2018/4.