Private ruling: GST on the sale of new property
Date of advice: 13 September 2018
Published: November 2018
Ruling period: Financial year ended 30 June 20XX.
Date scheme commenced: 1 July 20XX.

Ruling: Q1: Will the supply of one unit of a duplex be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 ? | A1: No.

Relevant facts and circumstances: In 19XX, you and your spouse jointly acquired a property. Since acquisition, the property has been the main residence of you and your spouse. In 20XX, you and your spouse became aware after consultation with an architect that your property was suitable for construction of a duplex. You and your spouse also made enquiries with real estate agent and your accountant to satisfy yourselves that building the duplex would be a viable investment. The estimated rental return on the investment property was a specified amount per week. At the time you were suffering poor health and unable to work on numerous occasions. You were also made redundant from your employment and had a mortgage in relation to the property. You and your spouse subsequently decided to demolish your main residence and build a duplex (two units) on the land. You and your spouse were to retain one unit as your residence, and intended the other unit would be used as investment property. You and your spouse engaged a builder to complete development works. The agreed building contract price for construction of the duplex was specified amount plus a further amount for electrical work. The builder underquoted costs and there were unforeseen building issues which increased the building costs. You and your spouse obtained a loan from your bank as a construction loan. The construction loan did not cover the agreed contract price. Due to increased building costs, you and your spouse were unable to fund the debt incurred. You and your spouse utilised money you received from your redundancy payment and also needed to obtain loans from family members to complete the build. You are currently unemployed. Due to the increase in building costs you and your spouse have decided to sell the unit intended to be the investment property. You and your spouse are using a real estate agent for the sale of the unit. You and your spouse have not previously owned an investment property. The unit is being sold, currently listed for a specified amount The property has not been subdivided.

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 | A New Tax System (Goods and Services Tax) Act 1999 Section 995-1 Detailed reasoning | You must pay the GST payable on any taxable supply that you make. | Section 9-40 of the GST Act provides that you must pay GST on any taxable supply. | A supply is a taxable supply if all elements of section 9-5 are met. | Section 9-5 provides that you make a taxable supply if: | (a) you make the supply for consideration | (b) the supply is made in the course or furtherance of an enterprise that you carry on | (c) the supply is connected with the indirect tax zone (Australia), and | (d) you are 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. | You have demolished your residential dwelling and constructed a duplex on the land. | The transaction will be made for consideration and the property is located in Australia therefore the transactions will meet paragraphs 9-5(a) and 9-5(c) of the GST Act. The supply of the one duplex in your factual situation will neither be GST free nor input taxed. It must also be determined: | 1) Whether the supply is in the course or furtherance of an enterprise being carried on, and | 2) Whether there is a requirement for GST registration. | As provided in section 23-5 of the GST Act, you are required to be registered if: ● you are carrying on an enterprise, and | ● your GST turnover meets the registration turnover threshold (currently $75,000). | Application to your situation | We consider that you are not carrying on an ‘enterprise’ as defined in section 9-20 of the GST Act and you are neither registered nor required to be registered for GST in regard to your activity relating to the sale of the one duplex. | The demolition and construction of the duplex does not constitute running an enterprise and the sale of the one duplex will not be a taxable supply pursuant to section 9-5 of the GST Act.