Private ruling: GST and the sale of real property when closing a business
Date of advice: 11 December 2018
Published: April 2019
Ruling period: Quarter ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Will the sale of the property following the ceasing of trade of my landscaping business prior to the settlement of date be a non-taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No | Q2: Will I be required to be registered for GST purposes following the ceasing of trade of my land scaping business but prior to the sale of the real property? | A2: Yes

Relevant facts and circumstances: The company operated a business on commercial land it owned. The contract provides for vacant possession and the contract for sale was entered into the later months of the year. The business will cease before settlement this includes: a) ceasing trading activities b) cancel any licences and business registrations c) sell off all remaining inventory and plant and equipment (excluding the property) d) terminate all staff and paying out the applicable entitlement e) finalise all accounts, activity statements and income tax returns and, f) cancel GST and ABN registration. The Commercial Land and Buildings sale contract has been supplied. This provides the details of the company selling the property to the other company. Both companies have an active ABN and are registered for GST. The property will be sold as free hold and it states on the contract that the sale price will be GST inclusive and there will be GST withholding obligations.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 section 9-20 | A New Tax System (Goods and Services Tax) Act 1999 section 38-325

Reasons for decision: Summary: Section 9-5 of the GST Act provides that you make a taxable supply if: • you make the supply for consideration • the supply is made in the course or furtherance of an enterprise that you carry on • the supply is connected with the indirect tax zone, and • 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. To be a taxable supply, all of the requirements of section 9-5 of the GST Act must be satisfied. In respect of your sale of the property, there is clearly a supply, being a supply of real property. Consideration is also present as the property will be sold for an amount of money. In addition, sections 195-1 and 9-25 of the GST Act defines 'indirect tax zone' to mean 'Australia'. As such, the supply of the property is connected with the indirect tax zone because the property is located in Australia. You are also registered for GST. Therefore, the issue to be considered in this case is whether the sale of the property is being made in the course or furtherance of an enterprise that you carry on. | Detailed Reasoning - Enterprise: The term 'enterprise' is defined in subsection 9-20(1) of the GST Act to include, among other things, an activity or series of activities, done: • in the form of a business • in the form of an adventure or concern in the nature of trade, or • on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. However, subsection 9-20(2) of the GST Act provides that the term 'enterprise' does not include, among other things, an activity or series of activities, done: • as a private recreational pursuit or hobby, or • by an individual or a partnership without a reasonable expectation of profit. Based on the information provided, it is considered that the above exclusions will not apply to your circumstances The Commissioner in Goods and Services Tax Determination GSTD 2006/6 and Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of the term 'enterprise' for GST purposes. From the facts provided, it is clear that you are currently carrying on a business and as such, you are carrying on an enterprise for GST purposes. However, the requirement in section 9-5 of the GST Act is that the supply is made in the course or furtherance of an enterprise that is carried on. The term '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' as 'during' and 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 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. This means that once an enterprise is being carried on, most activities in relation to that enterprise will be considered to be in the course or furtherance of that enterprise unless the GST legislation specifically states otherwise. As well, anything done in the course of commencing or terminating the enterprise will also be caught. The facts show that since purchase you have used the property for business purposes only. In other words, you have been treating the property as a business asset of your enterprise. The sale of a business asset would be considered to be made in the course or furtherance of the enterprise to which it relates. Accordingly, the sale of your property, which is a business asset of your enterprise, would be a supply in the course or furtherance of the enterprise that you are carrying on. As such, the requirement in section 9-5 of the GST Act is satisfied. As all of the requirements of section 9-5 of the GST Act are satisfied, the sale of your property will constitute a taxable supply and as such, will be subject to GST unless the sale of the property is GST-free or input taxed. The sale of your property is not GST-free as there is no provision in the GST Act that will make the supply GST-free.