ATO ID 2003/701: GST and sale of an asset that was purchased for, but not used in, an entity's business
Date of decision: 5 June 2002
Business line: Indirect Tax

Issue
Is the entity, a business operator, making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it sells a business asset that it initially purchased to use in its enterprise, but which it never actually used prior to sale?

Decision
Yes, the entity is making a taxable supply under section 9-5 of the GST Act when it sells a business asset that it initially purchased to use in its enterprise, but which it never actually used prior to sale.

Facts
The entity is a business operator. The entity sells an asset that it initially purchased to use in its enterprise. The asset was not actually used by the entity prior to sale. The asset was not used for a private or domestic purpose. The entity is registered for goods and services tax (GST) and the supply of the business asset is for consideration and is connected with Australia. The supply of the business asset is neither GST-free nor input taxed.

Reasons for decision
Summary: Under section 9-5 of the GST Act, an entity makes a taxable supply if: However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. The sale of the asset is for consideration, is connected with Australia, and the entity is registered for GST. As such the first, third and fourth requirements of section 9-5 of the GST Act are met. The second requirement in section 9-5 of the GST Act is that the supply is made in the course or furtherance of the enterprise carried on by the entity. The phrase, 'in the course or furtherance of' is not defined in the GST Act. Accordingly, it is appropriate to examine the ordinary meaning of those words. The Australian Concise Oxford Dictionary (1997) defines the phrase 'in the course of' as 'during'. The word 'furtherance' is defined to mean 'furthering or being furthered; the advancement of a scheme etc'. The Explanatory Memorandum relating to the A New Tax System (Goods and Services Tax) Bill 1998 confirms this ordinary meaning at paragraph 3.10 which states: 'In the course or furtherance' is not defined, but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. The entity is selling an asset that it initially purchased to use in its enterprise. This is a sale that is connected with the entity's enterprise. Therefore, although the entity did not actually use the asset, the sale is made in the course or furtherance of the entity's enterprise. As such the second requirement of section 9-5 of the GST Act is satisfied. Therefore, the sale of the asset satisfies the positive requirements of section 9-5 of the GST Act. Furthermore, the supply is neither GST-free under Division 38 of the GST Act nor input taxed under Division 40 of the GST Act. Therefore, the entity is making a taxable supply under section 9-5 of the GST Act when it sells a business asset that it initially purchased to use in its enterprise, but which it never actually used prior to sale. [Note: Paragraph 15AB(1)(a) of the Acts Interpretation Act 1901 provides that consideration may be given to material not forming part of an Act to confirm that the meaning of a provision is the ordinary meaning conveyed by the text of the provision taking into account its context in the Act and the purposes or object underlying the Act. Paragraph 15AB(2)(e) of the Acts Interpretation Act provides that any explanatory memorandum relating to the Bill containing the provision is extrinsic material that may be considered for this purpose.]

Legislative references: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 Division 38 Division 40
Other references: The Australian Concise Oxford Dictionary, (1997), 3rd edn, Oxford University Press, South Melbourne. The Explanatory Memorandum relating to the A New Tax System (Goods and Services Tax) Bill 1998.
Subject references: Goods and services tax GST supplies & acquisitions GST enterprise Taxable supply