Private ruling: GST and a sale of real property
Date of advice: 24 September 2020
Published: November 2020
Ruling period: All tax periods commencing 1 July 20XX and following.

Ruling: Q1: Is your sale of real property a taxable supply to the purchaser? | A1: No. The supply of the property is not a taxable supply.

Relevant facts and circumstances: In 20XX, you purchased the property as an individual. You did not claim any input tax credits on your purchase of the property as you were not registered or required to be registered for GST at all material times. You completed the construction of a large shed in using personal funds. No GST was claimed on the building of the shed. The property size is over XXX square metres including a residence and a shed. The property is zoned as a commercial property. You use the shed for storage of vehicles, boats, caravans and equipment. You also keep large freezers and fridges in the shed. Further, the shed is also used for personal laundry, washing and showering. You later completed your personal residence prior to 20XX. You have lived on that property ever since. The cost to build the home was less than $XXX. The residence was added to the property as you moved in permanently. You have never generated any income from the use of the property. You are a shareholder and director of an Australian private company (the company). The company derived income from leasing space in the shed for storage to third party customers. You have never charged rent to the company to use the shed. The income generated by the company for using the shed was below $XX in each applicable year. The company generated income from the 20XX financial year until the present and has ceased trading activities. You signed an offer and acceptance to sell the property to an unrelated purchaser, for over $XXX with no GST in the price. The purchaser will place funds in a trust account to cover GST should it be payable. A condition of the contract is that the seller obtain a ruling from the ATO as to whether GST is payable on this contract. The purchaser intends to use the property for storage and private purposes and is not registered or required to be registered for GST.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999, Division 9 | A New Tax System (Goods and Services Tax) Act 1999, section 188-25.

Reasons for decision: Summary: GST is payable on taxable supplies. In order to determine whether the sale of your property is a taxable supply, we must consider all of the requirements set out in section 9-5 of the GST Act. Section 9-5 of the 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 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. 'Supply' is defined very broadly under the GST Act. Subsection 9-10(1) defines the meaning of supply as 'a supply is any form of supply whatsoever'. Subparagraph 9-10(2)(d) states that the definition includes 'a grant, assignment or surrender of real property'. When you convey the property to the purchaser at settlement this would meet the definition of 'supply'. 'Consideration' is defined in section 9-15. It includes, per subparagraph 9-15(1)(a) 'any payment, or any act or forbearance in connection with a supply of anything'. The contract provided states that the purchase price for the supply of the property is over $1,000,000. The contract also allows for a further GST related amount to be held in trust pending the outcome of this GST private ruling. These are potentially payments in connection with the supply of the property. It is reasonable to conclude that there is a supply and that there is not only consideration but consideration in connection with that supply of the property at settlement. Accordingly, this element of a taxable supply is met. The next element to consider is whether in making that supply of the property to the purchaser, it is made in the course or furtherance of an enterprise that you carry on under paragraph 9-5(b) of the GST Act. The term 'in the course or furtherance' is not defined in the GST Act, but the term is wide enough to cover any supply made in connection with an enterprise and any core enterprise activities. The term 'enterprise' is defined in subsection 9-20(1) of the GST Act to include an activity, or series of activities, done: (a) in the form of a business (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 real property... Subsection 9-20(2) of the GST Act excludes certain activities from being an enterprise and these include activities as 'a private recreational pursuit or hobby' or 'by an individual without a reasonable expectation of profit or gain' per subparagraphs 9-20(2)(b) and (c) respectively. You also advised that the company you are associated with did conduct an enterprise from the property via providing storage to third parties. The granting of a lease or licence may meet the definition of 'enterprise' above as the company had for a time, a leasehold interest in the property which has since ceased. However, the mere act of granting access to your property is of itself not enough without more to be an enterprise. During this time, you did not charge the company rent. 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 (MT 2006/1) indicates at paragraph 307 that a gratuitous grant of a lease or licence is not an enterprise by itself because in conducting the activities of leasing or licencing the individual also needs to have a reasonable expectation of gain or profit which is not evident in this case. The company has a separate legal identity from you as an individual in keeping with Salomon v A Salomon and Co Ltd [1897] AC 22. As the GST Act is focused on the course or furtherance of an enterprise you carry on, the relevant enquiry is limited to any enterprise that you carry on as an individual rather than the activities of the company. The act of selling the property is not in the course of a leasing enterprise. However, as the act of selling an asset in itself may amount to an enterprise, we need to consider whether the sale is itself either in the form of a business or in the form of an adventure in the nature of trade which may apply to one-off sales such as yours. This is discussed in MT 2006/1 from paragraph 233. Of strict relevance to the facts of your case it says at paragraph 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. As stated above, the sale is one-off but the mere fact a profit occurs is not enough. There are a number of factors to consider before the sale can amount to an enterprise. The relevant factors in MT 2006/1 to this case are: · the subject matter of the realisation, · the length of time the asset is held · frequency of trading. The property has been in your possession for at least 13 years and in that period you have built it up to make it more liveable for your own convenience. You had a residence constructed on the property where you lived since approximately June 20XX. This is a private and domestic purpose. Additionally, as stated above, the property was used to store personal items in the shed you constructed. This points to it as an investment rather than a trading asset which is discussed in MT 2006/1 at paragraph 247. Further, as it is a one off sale there is no evidence to suggest that it was purchased with the intention of sale with a profit. On the facts presented, you as an individual used the property as a residence but not in the course of an enterprise you carried on. Nor is the sale itself an adventure in the nature of trade. It is accepted that paragraph 9-5(c) of the GST Act is met because the supply of the property is located within Australia which is part of the indirect tax zone. The final element of a taxable supply set out in paragraph 9-5(d) is whether or not you are registered or required to be registered for GST. You advised that you are not registered for GST and nor are you required to be registered for GST. It is noteworthy that even if you were conducting a leasing enterprise to the company where your turnover was below the 'registration turnover threshold', the sale of the property for over $1,000,000 would not form part of your projected turnover because per section 188-25 of the GST Act, the sale of capital assets are disregarded when the sale is made in ceasing the enterprise or permanently reducing it. Consequently you would not be required to register for GST. Therefore, the supply of the property to the purchaser should not include GST in the price as it is not a taxable supply under the GST Act.