Private ruling: Goods and services tax (GST) and sale of a property
Date of advice: 25 February 2016
Published: April 2016

Ruling: Q1: Will GST be payable on your sale of the property (X)? | A1: No. | Q2: Will you be required to be registered for GST as a result of your sale of the property? | A2: No.

Relevant facts and circumstances: You are not registered for GST. You own vacant land - (address) (the property - property X), which is (number) hectares of mostly virgin bush. You will potentially sell the property. You purchased the property many years ago, and it was then zoned as rural area. You purchased the property for the purpose of building a house on the property in the future and living in it. The land is now zoned as residential. There has been no commercial or business activity conducted on the land since you bought it. The value of the property increased significantly during the time you owned it as a result of the change in the zoning of the local area to residential many years ago. You did not bring about the rezoning of the land by making a re-zoning application to Council. You have not developed the land. You did not apply for DA approval in respect of the land. You sold another property before. You used this other property as your residence. You rent out commercial property at another location on a regular and continuous basis. You earn less than $75,000 rent from this other property.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1) | 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 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | A New Tax System (Goods and Services Tax) Act 1999 Division 188

Reasons for decision: Summary: GST is not payable on your sale of the land because it will be the mere realisation of a private capital asset. | Detailed Reasoning - Detailed reasoning: GST is payable on taxable supplies. You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 the indirect tax zone; 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 defined in section 195-1 of the GST Act) The indirect tax zone is Australia. An enterprise includes: • activity or series of activities done in the form of a business (paragraph 9-20(1)(a) of the GST Act) • an adventure or concern in the nature of trade (paragraph 9-20(1)(b) of the GST Act) • leasing out property on a regular or continuous basis (paragraph 9-20(1)(c) of the GST Act) Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the concept of 'enterprise' for ABN Purposes. Goods and Services Tax Determination GSTD 2006/6 states that MT 2006/1 can be relied on for GST purposes. Paragraph 234 of MT 2006/1 distinguishes between a business and an adventure or concern in the nature of trade. It states: 234. Ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be 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 discusses sales of private assets. 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. Paragraphs 258 and 259 of MT 2006/1 distinguish between trading assets and investment assets. They state: 258. United Kingdom cases categorise assets as either trading assets or investment assets. Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes. [102] 259. Examples of investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of investment assets does not amount to trade. Paragraph 249 of MT 2006/1 states: 249. A trading asset is generally dealt with or traded within a short time after acquisition. Paragraphs 262 and 263 of MT 2006/1 discuss one-off real property transactions. They state: 262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. 263. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are 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. (In an income tax context a number of public rulings have issued outlining relevant factors and principles from judicial decisions. See, for example, TR 92/3, TD 92/124, TD 92/125, TD 92/126, TD 92/127 and TD 92/128.) In FC of T v Williams 72 ATC 4188; (1972) 127 CLR 226, Gibbs J observed (at ATC 4194-4195; CLR 249): `An owner of land who holds it until the price of land has risen and then sub- divides and sells it is not thereby engaging in an adventure in the nature of trade, or carrying out a profit-making scheme. The situation is not altered by the fact that the landowner seeks and acts upon the advice of an expert as to the best method of sub-division and sale or by the fact that he carries out work such as grading, levelling, road-building and the provision of reticulation for water and power to enable the land to be sold to its best advantage. The proceeds resulting from the mere realisation of a capital asset are not income either in accordance with ordinary concepts or within the second limb of sec 26(a), even though the realisation is carried out in an enterprising way so as to secure the best price.' You did not resell the land in question within a short time after acquisition and you held it for a very long period of time. You have merely held the land in question until the price of land in the area had risen and you held the land for private purposes (you had an intention of building a house on the land to live in). Therefore, you have not engaged in an adventure or concern in the nature of trade or business and the sale of the land will be the mere realisation of a private capital asset. Therefore, this sale will not be made in the course or furtherance of an enterprise that you carry on. Hence, the requirement of paragraph 9-5(b) of the GST Act is not met. As not all of the requirements of section 9-5 of the GST Act are met, GST is not payable on your sale of the property. | Detailed Reasoning - Question 2: In accordance with section 23-5 of the GST Act, an entity is required to be registered for GST if: (e) they are carrying on an enterprise; and (f) their GST turnover meets the registration turnover threshold ($75,000). You are carrying on enterprise as you are leasing out commercial property on a regular or continuous basis. Therefore, you meet the requirement of paragraph 23-5(a) of the GST Act. In accordance with sections 188-15 and 188-20 of the GST Act, only supplies made in connection with the supplier's enterprise are included in the supplier's GST turnover. Your sale of the land is not a supply made in connection with an enterprise that you carry on. Hence, your sale of the land will not result in you being required to be registered for GST. You are not required to be registered for GST because your GST turnover is under $75,000.