Private ruling: GST and sale of vacant land
Date of advice: 10 December 2018
Published: April 2019
Ruling period: 1 December 2018 to 30 November 2022

Ruling: Q1: Is the sale of the vacant land a taxable supply? | A1: No

Relevant facts and circumstances: You are a trust. There is a company that operates as your trustee. You are registered for GST and operate under a business name. You have been utilised as an investment arm of the family. You purchased a property for the purpose of holding it. Purchase price did not include GST. You were not purchasing as trading stock and the seller was not registered for GST. You decided to sell the property. You have had an offer subject to finance for the property. On accepting the offer, you were told by the agent and solicitor that it would not be subject to GST even though you were registered for GST because it was residential land. The land was never purchased with the intention of becoming part of your trading stock. The property is a block that was part of a subdivision completed many years ago and the zoning was residential. You have no intention of subdividing it; it was a parcel of land already available for residential purposes.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5

Reasons for decision: Summary: GST is payable on a taxable supply. You make a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) if: a) you make the supply for consideration; b) the supply is made in the course or furtherance of an enterprise that you carry on; c) the supply is connected with Australia; and d) you are registered or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In relation to the sale of the vacant land, we need to consider whether the supply is made in the course or furtherance of your enterprise. All of the other requirements of a taxable supply are present. As stated in Goods and Services Tax Determination GSTD 2009/1 Goods and services tax: is a supply by way of an in specie distribution of an asset that is applied in an enterprise carried on by a discretionary trust to a beneficiary of the trust made 'in the course or furtherance of' the trust's enterprise? [paras 6-9]: The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 (Explanatory Memorandum) supports a broad meaning of the phrase 'in the course or furtherance of': 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. In the course or furtherance does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. Having regard to the context in which the phrase 'in the course or furtherance of' appears and the above statement from the Explanatory Memorandum, the phrase should be given a broad meaning so as to encompass supplies made in connection with the relevant enterprise. By distinguishing an act done for the purpose or object of furthering an enterprise from an act done in the course of an enterprise, the Explanatory Memorandum illustrates that a supply may be made in connection with the relevant enterprise without the supply furthering or achieving the goals of the enterprise. […] A supply of private commodities is a supply by an entity as an ultimate consumer. By contrast, the supply of an asset that is applied in the supplier's enterprise is not a supply by the entity as ultimate consumer. It occurs at a point along the chain before the asset has reached anyone as an ultimate consumer. Nothing has previously happened to the asset to make it a 'private commodity'; it has not been previously supplied to a private consumer nor applied wholly for the supplier's private purposes. The application of an asset in an enterprise establishes the necessary connection between the supply of the asset and the relevant enterprise. In your circumstances: ● The vacant land was acquired and held by you as a capital asset. ● The vacant land was not acquired with short-term goal of resale for profit. ● The vacant land was not recorded as trading stock of the business. ● The vacant land has never been used in income producing activity. Therefore, it is considered that the supply of the vacant land is a mere realisation of a capital asset and is not in the course or furtherance of your enterprise as defined in section 9-20 of the GST Act. As all of the criteria in section 9-5 of the GST Act are not met, your supply of the vacant land is not a taxable supply and therefore is not subject to GST.