Private ruling: GST and the sale of real property
Date of advice: 31 October 2023
Published: 11 December 2023
Ruling period: Financial year ending 30 June 2023.
Date scheme commenced: The date this private ruling is issued.

Ruling: Q1: Was the sale of the property a taxable supply in accordance with section 9-5? | A1: No. The sale of the property was not a taxable supply in accordance with section 9-5.

Relevant facts and circumstances: You have an Australian Business Number (ABN), but you are not registered for goods and services tax (GST). You and XXXX, as tenants in common, entered into a contract to purchase the property. Your intentions were to build a house to either move into (as it was conveniently close to your workplace) in which you would rent out your existing property or rent out the newly constructed property. In early XXXX, there were significant changes in circumstances. You had discussions about the increasing interest rates, and the business implications of the ongoing COVID-19 pandemic were causing a great deal of uncertainty and hesitation in making any decisions. Due to these changes in circumstances, you decided to sell the newly constructed house. You signed the construction contract on XX XXXX which began on XX XXXX. Construction was completed and occupancy certificate was issued on XX XXXX. You entered into a contact of sale on XX XXXX, with settlement occurring on XX XXXX. You were not aware of any obligation to register for GST when selling a new residential house. No amount of GST was withheld at settlement by the purchaser, and you did not claim any GST credits on the building and associated costs.

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

Reasons for decision: Summary: Under section 9-5, an entity makes a taxable supply where the supply: (1) is made for consideration (2) is made in the furtherance of an enterprise being carried on (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. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. In your case, the property was located in the indirect tax zones and the supply was for consideration. Therefore, the sale of the property would satisfy two elements outlined above (1) and (3). The sale of the property is neither GST-free nor input taxed supply, therefore, we need to determine whether the other two elements (2) and (4) would be satisfied. If this were the case, the sale of the property would satisfy all of the requirements under section 9-5 and would be a taxable supply. | Detailed Reasoning - In the course or furtherance of 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 done in the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)). The phrase '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 New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number provides the ATO 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 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes. Paragraph 159 of MT 2006/1 provides that whether or not an activity or series of activities amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case. | 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 as: • a significant commercial activity • an intention of the taxpayer to engage in commercial activity • an intention to make a profit from the activity • the activity will be profitable • the recurrent or regular nature of the activity • the activity is systematic, organised and carried on in a business-like manner and records kept • the activities are of a reasonable size and scale • a business of product, and • the entity has relevant knowledge or skill. | Detailed Reasoning - Application in your case: Given the facts of this case, we consider that the sale of the property by you does not display the characteristics of a 'business' as listed above. | Detailed Reasoning - In the form of an adventure or concern in the nature of trade: Paragraphs 247 to 261 of MT 2006/1 outline some factors to determine whether the sale of an asset could be considered as a mere realisation of a capital or investment asset. The factors are: • subject matter of realisation • length of period of ownership • frequency or number of similar transactions • supplementary work on or in connection with the property • circumstance that were responsible for the realisation, and • motive. | Detailed Reasoning - The subject matter: You purchased a vacant block of land with the intention of building a house and either moving into the property or leasing it out. However, due to changes in your circumstances and the increase in interest rates you decided to sell the property. | Detailed Reasoning - The length of time of ownership: You purchased the vacant land in XX XXXX, signed the construction contract on XX XXXX and the house was completed on XX XXXX. You put the property on the market shortly after completion with settlement occurring on XXXX. | Detailed Reasoning - The frequency and number of similar transactions: You are not in the business of property development. | Detailed Reasoning - Supplementary work on or in connection with the property realised: Once the property was completed it remained vacant and was never leased. | Detailed Reasoning - The circumstances that were responsible for the realisation: You decided to sell the property due to changes in your circumstances and increasing interest rates. | Detailed Reasoning - Motive: Although a profit may result from the sale of the property, you have sold the property due to a change in your circumstances and increasing interest rates. Your initial intentions of building a new house and either occupying as your family home or to lease out, does not show that your initial intention in relation to this property was a profit making one. | Detailed Reasoning - Conclusion: Given the above, we do not consider that your activity of selling the property would constitute an adventure or concern in the nature of trade and, as such, was not sold in connection with an enterprise being carried on by you. Therefore, the sale of the property does not meet the requirements under section 9-5 and was not a taxable supply.