Private ruling: GST and sale of property
Published: June 2012

Ruling: Q1: Did you make a taxable supply when you sold your house and part of the land located in Australia? | A1: No.

Relevant facts and circumstances: You are registered for GST. You purchased a house and land in Australia as an investment in xx. The residence on the property was leased until xx. Approval was granted to subdivide the land, subject to a house being built. You decided to build a house with the intention to live in it. Construction of the house commenced in xx. You were owner/builder of the property. Whilst building the house, you were approached to sell the property, by a person unknown to you. You sold the property to the interested party, in xx. You did not charge GST on the sale of the premises. You have not been involved in other developments You own two other properties, one is your principal residence, and the other was previously your residence and is now rented.

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 23-5 | A New Tax System (Goods and Services Tax) Act 1999 Section 23-15 | A New Tax System (Goods and Services Tax) Act 1999 Section 188-10 | A New Tax System (Goods and Services Tax) Act 1999 Section 188-15 | A New Tax System (Goods and Services Tax) Act 1999 Section 188-20

Reasons for decision: Detailed Reasoning - Subject: GST and sale of property: According to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 Australia, and · you are registered, or required to be registered. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. All the elements of section 9-5 of the GST Act must be satisfied for a supply to be a taxable supply | Detailed Reasoning - In your case:: · you carry on a leasing enterprise. · you have subdivided the leased property and built a house on the newly created lot, which you have sold for consideration · your supply is connected with Australia as the property is in Australia. · you are registered for GST. It is necessary to consider whether the supply is made in the course or furtherance of an enterprise that you carry on and whether you are required to be registered for GST. | Detailed Reasoning - Enterprise: Section 9-20 of the GST Act states that an enterprise is an activity, or series of activities, done: · in the form of a business; or · 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. The words 'in the form of' are significant. They indicate that an enterprise will include activities that do not fall within the strict definition of a business or an adventure or concern in the nature of trade. The Australian Taxation Office's (ATO) view on the meaning of the term enterprise is explained in detail in Miscellaneous Taxation Ruling MT 2006/1 ' The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number' (MT 2006/1). Paragraph 159 of MT 2006/1 explains that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case. Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a business and those done in the form of an adventure or concern in the nature of trade. A business encompasses trade engaged in on a regular basis. An adventure or concern in the nature of trade includes an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal. Paragraph 244 of MT 2006/1 provides further guidance on adventures and concerns in the nature of trade. It states: 244. An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature. It is necessary to consider whether the activities (subdivision and sale) are an enterprise that you carry on. That is whether the activities are of a revenue nature and considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset. Paragraph 265 of MT 2006/1 lists a number of factors which can be used to determine whether activities in relation to a sale of property are done under a profit-making scheme. Paragraph 265 of MT 2006/1 provides that if several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. | Detailed Reasoning - These factors are as follows:: · there is a change of purpose for which the land is held; · additional land is acquired to be added to the original parcel of land; · the parcel of land is brought into account as a business asset; · there is a coherent plan for the subdivision of the land; · there is a business organisation (for example, a manager, office and letterhead); · borrowed funds financed the acquisition or subdivision; · interest on money borrowed to defray subdivisional costs was claimed as a business expense; · there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and · buildings have been erected on the land. In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a private asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above. However, there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative. Rather, it will be a combination of factors that will lead to a conclusion as to the character of the activities. | Detailed Reasoning - In applying the above factors to your case, we find that:: · you are not in the business of buying and selling land · you built the house with the intention of living in it · it has not been used in the partnership's business activities, nor for any income producing purposes · you do not regularly sell property with the intention of making a profit Having given consideration to the above factors, it is our view that the activities of subdivision and sale of your property are a way of disposing of part of your investment property. This activity is the mere realisation of a capital asset, and is not a business or an adventure or concern in the nature of trade. Your activity does not amount to the carrying on of an enterprise as defined under section 9-20 of the GST Act. Therefore, as paragraph 9-5(b) of the GST Act has not been met, the sale of the subdivided property by you will not be a taxable supply and therefore not subject to GST. | Detailed Reasoning - Required to be registered:: As provided in section 23-5 of the GST Act, you are required to be registered if: · you are carrying on an enterprise, and · your GST turnover meets the registration turnover threshold (currently $75,000). In your situation, you are carrying on a leasing enterprise. Therefore, we have to determine whether the sale of part of the land will be taken into account towards your GST turnover. Thus, the issue that needs to be determined is whether your GST turnover meets the registration turnover threshold. Under section 23-15 of the GST Act, the applicable GST registration turnover threshold in your case is $75,000. Division 188 of the GST Act provides the meaning of GST turnover. Section 188-10 of the GST Act provides that your GST turnover meets the turnover threshold if: your current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your projected GST turnover is below the turnover threshold, or your projected GST turnover is at or above the turnover threshold. In your situation, your current GST turnover from your leasing enterprise is below the turnover threshold. Therefore, we will consider your projected turnover, as the settlement date for the sale of part of your land will take place in the future. Section 188-20 of the GST Act defines projected GST turnover as the value of all the supplies that you have made, or are likely to make, during that month and the next 11 months. Supplies that are input taxed and supplies that are not made in connection with an enterprise you carry on, are also excluded in calculating your projected GST turnover. We have determined above that the sale of your property is the sale of a private asset and not made in connection with your enterprise. This means that the sale of part of your property will be excluded from your calculation of projected GST turnover. Therefore, your projected GST turnover will be below the registration turnover threshold. As your projected GST turnover is below the registration turnover threshold, you are not required to be registered for GST. | Detailed Reasoning - Conclusion: As the sale of the property was not done in the course of carrying on an enterprise and you are not registered, nor required to be registered for GST, all the requirements of section 9-5 of the GST Act will not be satisfied. Therefore, the sale of the house on part of land located in Australia will not be a taxable supply and will not be subject to GST.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.