Private ruling: GST and supply of a call option
Published: June 2012

Ruling: Q1: Are you and the other entity with an interest in the call option required to register for goods and services tax? | A1: No | Q2: Is the assignment of a call option to purchase a commercial property development site with an approved DA and an assigned existing lease of a car yard subject to GST? | A2: No

Relevant facts and circumstances: You are not registered for GST? You and another unregistered entity jointly entered into a call option to purchase a commercial property. The contract for the sale of land being annexure B to the option agreement is ticked: 1. Subject to existing tenancies 2. Commercial 3. The sale is not a taxable supply because the sale is a supply of a going concern under section 38-325. The call option is for a period of 12 months. The entities sought a Development Consent for the construction of residential apartments on the subject property and this was approved. The entities assigned the option to a developer. At the time of assignment of the option to the purchaser, the subject property was still being leased for a business.

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 195-1.

Reasons for decision: Detailed Reasoning - Detailed reasoning: Enterprise is defined in section 9-20 of the GST Act. An enterprise is an activity, or series of activities, done: (a) in the form of a *business; or (b) in the form of an adventure or concern in the nature of trade; or (c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or (d) by the trustee of a fund that is covered by, or by an authority or institution that is covered by... (* denotes a term defined in section 195-1 of the GST Act.) There is no definition of 'trade' or 'adventure or concern in the nature of trade' in the GST Act. However, Miscellaneous Taxation Ruling MT 2006/1 and GSTD 2000/8 assist in determining whether an entity is carrying on an enterprise. It provides guidance as to the meaning of 'an adventure or concern in the nature of trade.' Generally a business includes a trade that is engaged in on a regular or continuous basis, while an adventure or concern in the nature of trade may be an occasional or one-off transaction that does not amount to a business. Paragraphs 262-264 of MT 2006/1 state: | Detailed Reasoning - Isolated transactions and sales of real property: 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.) 264. The cases of Statham & Anor v. Federal Commissioner of Taxation 105 ( Statham ) and Casimaty v. FC of T 106 ( Casimaty ) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset. An adventure or concern in the nature of trade is a concept used in United Kingdom taxation law. 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 to be purchased for investment purposes rather than trading purposes, In respect of the sale of the call option to the developer your development enterprise had not commenced and was not operating at the time of supply. The intent you and the other entity had was to develop the site and build units but you decided not to proceed, therefore the sale of the option will amount to the mere realisation of a capital asset. | Detailed Reasoning - Required to be registered for GST: Section 23-5 of the GST Act provides that you are required to be registered for GST if: · you are carrying on an enterprise, and · your annual turnover meets the registration turnover threshold (currently $75,000 unless you are a non-profit body). As you and the other entity are not carrying on an enterprise you are not required to register for GST. | Detailed Reasoning - Detailed reasoning: GST is payable on taxable supplies. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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. In your case, you do not satisfy paragraphs 9-5(b) or 9-5(d) of the GST Act. The supply is not made in the course or furtherance of an enterprise that you carry on and you are not registered nor required to be registered. Therefore the sale of the call option is outside the scope of GST.

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