Private ruling: GST and supply of vacant land
Published: April 2015

Ruling: Q1: Will X and Y make a taxable supply of their interest in the vacant land (the Property) located in Australia under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No

Relevant facts and circumstances: • X and Y jointly acquired the Property located in Australia in the 1990s. • The Property was purchased for the purpose of holding it as an investment property, and no additional capital expenses have been incurred apart from holding costs of rates, land tax, maintenance etc. • The payments, (acquisition and holding costs) were made by X and Y in their personal capacity. • The Property has been held as vacant land from purchase date to current date. The land has not been used in any business, never been leased to other parties or produced any rental-type income. This was the initial purpose of the acquisition and has remained so until the date of sale. • A is a property developer and is registered for goods and services tax (GST). • X and Y and A have entered into a call option agreement on the sale of the Property.

Relevant legislative provisions: A New Tax System (Goods and Services tax) Act 1999 section 9-5 | section 9-20 | section 184-1

Reasons for decision: Summary: Section 9-5 of the GST Act sets out 4 criteria required for a supply to be a taxable supply. Under this section, you make a taxable supply if: 1. you make the supply for consideration 2. the supply is made in the course or furtherance of an enterprise that you are carrying on 3. the supply is connected with Australia, and 4. you are registered or required to be registered. However, a supply is not a taxable supply to the extent that it is GST-free or input taxed. 'You' under the GST Act is the entity that makes the supply. Entity is defined in section 184-1 of the GST Act to include an individual, a partnership, a trust and other forms of legal persons. In the circumstances, X and Y who are joint owners of the interest in the Property (the Property), are an entity for GST purposes and are not registered for GST in their private capacity. Hereafter, X and Y (in their private capacity), is referred to as X and Y who are a non-GST registered entity. A supply is not a taxable supply unless all of the criteria above are met. In your circumstances, the supply (sale) of the Property will be made for monetary consideration. The supply of the Property is connected with Australia as the Property is situated in Australia. We need to consider whether X and Y are required to be registered for GST. Under section 23-5 of the GST Act, X and Y are required to be registered for GST if they are carrying on an enterprise and their turnover exceeds the registration threshold of $75,000. Therefore, it is necessary to establish whether they are carrying on an enterprise in relation the supply of the Property. Enterprise is defined in section 9-20 of the GST Act to include an activity or series of activities, done in the form of a business, in the form of an adventure or concern in the nature of trade or on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. Miscellaneous Ruling MT 2006 /1 provides the view of the Tax Office on whether or not an activity constitutes an enterprise for the A New Tax System (Australian Business Number) Act 1999 (ABN Act) . Goods and Services Tax Determination GSTD 2006/8 provides that the view of the Tax Office expressed in the MT 2006/1 can be equally applied to the meaning of enterprise under the GST Act. The activities relate to the supply of the Property are not repetitive and regular. Therefore, it is considered that X and Y are not carrying on a business. Although the sale of the subdivided land is not considered to be a business, paragraph 234 of MT 2006/1 provides that an isolated or one-off activity may fall into the category of 'an adventure or concern in the nature of trade'. This category includes a commercial activity of a trading nature that does not amount to a business but which has the characteristics of a business deal. The approach of the Tax Office on the question of 'whether an entity is carrying on an enterprise where there is one-off or isolated real property transaction' is expressed in paragraph 263 of MT 2006/1 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. X and Y have provided that they acquired the Property in 1990 as an investment asset. Other than the acquisition costs, no additional capital expenses have been incurred. X and Y are liable for the acquisition costs and holding costs of rates, land tax, maintenance etc. These are paid by X and Y in their private capacity. The Property has been held as vacant land from purchase date to current date. The land has not been used in any business, never been leased to other parties or produced any rental-type income. This was the initial purpose of the acquisition and has remained so until the date of sale. It is considered that the supply of the Property is not made under a profit-undertaking scheme and is merely a realisation of an investment asset. Therefore, the supply of the Property is not an activity done in the form of an adventure or concern in the nature of trade. As the land has never been leased, X and Y are not carrying on an enterprise on a regular or continuous basis in the form of a lease, licence or other grant of an interest in the Property. It is considered that the supply of the Property is a mere realisation of an investment asset and is not made in carrying on an enterprise as defined in section 9-20 of the GST Act As not all of the requirements under section 9-5 of the GST Act are met, the supply of the interest in the Property is not a taxable supply. No GST payable arises from the supply of the interest on the Property. It should be noted that as the supply of the Property is not taxable, the margin scheme under Division 75 of the GST Act will not be applied as there is no GST payable on the supply to be calculated.