Private ruling: sale of a boat
Published: February 2012

Ruling: Q1: Is the sale of the boat a taxable supply? | A1: No, the sale of the boat is not a taxable supply.

Relevant facts and circumstances: You are the trustee for a trust and the Trust is registered for the goods and services tax (GST). The Trust is engaged in an enterprise of property development. The boat in question was purchased a couple of years ago. The Trust claimed input tax credit on this acquisition stating that it was a creditable acquisition. The Australian Taxation Office (ATO) requested you to provide information to verify whether this was a creditable acquisition. You claimed that the Trust purchased the boat for resale and that the Trust was engaged in an enterprise of trading in boats used for recreational purposes. However, when requested by the ATO, you failed to provide evidence of such activity. As you failed to provide information to the ATO's satisfaction input tax credits for this acquisition was denied. This was intimated by the ATO to you by a letter. Penalties were imposed on the Trust as a result of the ATO audit. You informed us that the boat was originally listed as an asset of the Trust, however it was deemed as a personal asset by the ATO at purchase and is viewed as a director's personal asset to which any expenses increase the director's loan account. No other entity holds legal title to the boat.

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

Reasons for decision: Summary: The Australian Taxation Office issued you a letter in which we informed you: · that based on the facts and evidence presented you had not been able to demonstrate a nexus between the purchase of the boat and any enterprise you were carrying on. · that we were not able to substantiate and therefore not satisfied that the purchase of the boat was a creditable acquisition in accordance with section 11-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). · given that section 11-20 of the GST Act states you are only entitled to claim an input tax credit for a creditable acquisition, the input tax credit you claimed on the activity statement was denied. Subsequent to our previous letter quoted above, there has not been any further evidence to show a nexus between the acquisition of the boat and any enterprise the supplier is carrying on. For the sale of the boat to be a taxable supply, it must satisfy section 9-5 of the GST Act, which states: You make a taxable supply if: (a) you make the supply for *consideration; and (b) the supply is made in the course or furtherance of an *enterprise that you *carry on; and (c) the supply is *connected with Australia; and (d) 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. (* Denotes a term that is defined in section 195-1 of the GST Act). The Tax Office informed you that the boat in question was not acquired by the Trust in the course of an enterprise the Trust was carrying on. Consequently, the Trust was denied input tax credit for its acquisition. Resulting from that decision, the ownership is now considered by the Trust as a director's personal asset. For the sale of the boat to be a taxable supply, it must satisfy the conditions in section 9-5 of the GST Act. According to subsection 9-5(b) of the GST Act, the supply must be made in the course or furtherance of an enterprise that the supplier is carrying on. Goods and Services Tax Determination: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purpose of the A New Tax System (Goods and Services Tax) Act 1999 (GSTD 2006/6) defines an enterprise at paragraph 6 as follows: An enterprise is defined as an activity or series of activities done in a certain manner or by certain entities. The activities covered include those done in the form of a business or an adventure or concern in the nature of trade, leasing on a regular or continuous basis, activities done by charitable or religious institutions, superannuation funds, and activities done by the Commonwealth, a State, a Territory, or local government. However, GSTD 2006/6 also states the exclusions to the definitions of an enterprise at paragraph 18 as follows: There are specific statutory exclusions to the definition of enterprise. Excluded are activities done: o by a person: o as an employee; o as a company director; o as an office holder; or o under a labour hire arrangement or as specified by regulation; o as a private recreational pursuit or hobby; o by an individual (other than a trustee of a charitable fund or of a fund covered by item 2 of the table in section 30-15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN), or a partnership (all or most of the members of which are individuals) without a reasonable expectation of profit or gain; or o as a member of a local governing body established by or under a State Law or Territory law (except a local governing body to which subsection 12-45(3) in Schedule 1 to the Taxation Administration Act 1953. Based on the facts you provided the boat is viewed as a director's personal asset. Therefore, the disposal of the director's personal asset falls outside the activities of an enterprise as defined above. As such, the supply of the boat fails to satisfy subsection 9-5(b) of the GST Act. Consequently, the proposed sale of the boat will not be a taxable supply.

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