Private ruling: Carrying on an enterprise and the liability for GST.
Date of advice: 27 March 2019
Published: May 2019

Ruling: Q1: Are you carrying on an enterprise for the purposes of the goods and services tax (GST) and therefore liable to for GST pursuant to section 9-40 of the A New Tax system (Goods and Services Tax) Act 1999 (GST Act)? | A1: No

Relevant facts and circumstances: ● You are an individual. ● You are not registered for GST ● You purchased a residential property and rented it for a number of years. ● Your intention was to derive rental income from the property and at a future point in time demolish the existing residence and build two dwellings into which you would retire and family could come and stay. ● The two properties were completed in xxxx. ● Due to a change in personal circumstances one dwelling was sold. ● You requested confirmation from the ATO that you are not required to be registered for GST and are not liable for GST on the sale of the sold property.

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 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5

Reasons for decision: Summary: Detailed reasoning All legislative references below are to A New Tax System (Goods and Services Tax) Act 1999 . Under section 9-5, an entity makes a ‘taxable supply’ where the supply: 1. Is made for consideration; and 2. Is made in the course or furtherance of an enterprise that you carry on; and 3. Is connected with the indirect tax zone; and 4. Is made by a supplier who is registered or required to be registered, for GST. The property sold, would consist of a property which is located in the indirect tax zone and the supply would be made for consideration. Therefore, the sale of the property satisfies two elements out lined above (1&3). Accordingly, we need to determine whether the other two elements (2&4) would also be satisfied and would be a taxable supply. You currently have an ABN but have never been registered for GST. | Detailed Reasoning - Are you carrying on an enterprise?: The term enterprise is defined for GST purposes in section 9-20 and includes, among other things, an activity or series of activities done; ● In the form of a business (paragraph 9-20(1)(a)) or ● In the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)). The phase ‘carry on’ in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise. Miscellaneous Taxation Ruling MT 2006/1 – The A New Tax System: The meaning of an entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides the tax office view on the meaning of ‘enterprise’ for the purposes of entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 2006/6 – Goods and Services Tax: does MT 2006/1 have equal application to the meaning of ‘entity’ and ‘enterprise’ for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 , provides that the discussion in Mt 2006/1 applies equally to the term ‘enterprise’ as used in the GST Act and can be relied on for GST purposes. | Detailed Reasoning - In the form of a business: Paragraphs 170 to 179 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1, with reference to Taxation Ruling 97/11 – Income tax: am I carrying on a business of primary production lists indicators of carrying on a business. Paragraph 179 of MT 2006/1 states, that there is no single test to determine whether a business is being carried on. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighting all the relevant indicators. | Detailed Reasoning - Application in this case: We consider that the activities you have undertaken are not in the nature of a ‘business’. Paragraph 245 of MT 2006/1 refers to the ‘badges of trade’ with paragraph 247 to 257 discussing the various ‘badges of trade’ that may be taken into account when determining whether assets have the characteristics of ‘trade’ and are held for income producing purposes, or either as an investment asset or for personal enjoyment. While an activity such as the selling of an asset may of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is being carried on. You originally purchased the residential property with the intention to initially rent it out for a number of years and then to demolish the existing residence and construct two dwellings, one to retire into and the other to be used by family. Your intention never included selling either of the newly constructed premises. The purchase of the residential property and the subsequent building of the two dwellings was not conducted in a business-like manner as there was no business organisation; the residential property was not brought to account as a ‘business’ asset and expenses relating to the construction of the two dwellings were not claimed as business expenses. We do not consider your activities to constitute an adventure or concern in the nature of trade and as such are not an ‘enterprise’ for the purposes of GST. Therefore the sale of one of the duplexes would be the mere realisation of a capital asset. | Detailed Reasoning - GST registration: Section 23 provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000). As discussed above, it is considered that the sale of the property does not constitute an enterprise for GST purposes. As such you are not required to be registered for GST. | Detailed Reasoning - Conclusion: Your activity of selling the property was not done in the course or furtherance of an enterprise. You are not required to be registered for GST. As such, the sale of the property does not meet the definition of a ‘taxable supply’ and you are not liable for GST on the sale in accordance with section 9-40.