Private ruling: GST - sale of real property
Date of advice: 29 November 2022
Published: 23 January 2023
Ruling period: DD MM 20YY to DD MM 20YY.

Ruling: Q1: Will your supply of a property in Australia (the property) be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: No. | Q2: Are you required to be registered for GST under section 23-5 of the GST Act? | A2: No.

Relevant facts and circumstances: You purchased the property when it was part of a much larger property. You are not currently registered for GST. Nor have you ever been registered for GST. You intend to sell the property.

Relevant legislative provisions: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 | Division 23 of the A New Tax System (Goods and Services Tax) Act 1999 | Division 188 of the A New Tax System (Goods and Services Tax) Act 1999 | Section 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 | Detailed reasoning | Section 9-5 of the GST Act provides that you make a taxable supply if: | • you make the supply for *consideration | • the supply is made in the course or furtherance of an *enterprise that you *carry on | • the supply is *connected with the indirect tax zone (essentially Australia), and | • 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. | (* a term defined in the GST Act) Your supply of the property will be made for consideration. Such consideration will consist of the amount that the purchaser pays under the contract of sale for the property. Hence, the first requirement of a taxable supply will be met. | As the property is located in Australia, the third requirement of a taxable supply will also be met. | What therefore remains to be determined is: | • whether the supply of the property will be made in the course or furtherance of an enterprise that you carry on (the second requirement of a taxable supply), and | • whether you are required to be registered for GST (the fourth requirement of a taxable supply), given that you are currently not registered for GST. | It is noted that none of the provisions in the GST Act that could make a supply GST-free or input taxed are applicable to the facts in this case. Enterprise | The term 'carrying on' an enterprise includes doing anything in the course of the commencement or termination of the enterprise; while the term 'enterprise' has the meaning given by section 9-20 of the GST Act. | The phrase 'in the course or furtherance of' is not defined in the GST Act. For the sale of a thing to be made in the course or furtherance of an entity's enterprise, the sale of that thing must have a connection with the enterprise. Section 9-20 of the GST Act relevantly provides that 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 ... | However, subsection 9-20(2) of the GST Act contains some exclusions to the definition of enterprise. Of those exclusions, only those in paragraphs 9-20(2)(b) and 9-20(2)(c) of the GST Act could be of any relevance to your circumstances. | Paragraph 9-20(2)(b) of the GST Act provides that an enterprise does not include an activity, or series of activities, done as a private recreational pursuit or hobby. Paragraph 9-20(2)(c) of the GST Act provides that an enterprise does not include an activity, or series of activities, done by an individual or a partnership (whose members are all, or mostly, individuals) without a reasonable expectation of profit or gain. Miscellaneous Taxation Ruling 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 guidelines on the meaning of enterprise for ABN purposes. | Paragraph 234 of MT 2006/1 provides that ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction. | The characteristics of trade, including the 'badges of trade' are discussed in paragraphs 243 to 246 of MT 2006/1. The word 'trade' takes on its ordinary meaning (traffic by way of sale or exchange or commercial dealing). Such transactions are of a revenue nature. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature. | The courts have identified and referred to badges or identifying features of trade as providing 'common sense guidance' in reaching a conclusion on such matters. | The 'badges of trade' mentioned in MT 2006/1 (refer to paragraphs 247 to 261), include the following: | • the subject matter of realisation - this badge of trade considers the form and the quantity of property acquired. If the property provides either an income or personal enjoyment to the owner it is more likely to be an investment than a trading asset. | • the length of period of ownership - a trading asset is generally dealt with or traded within a short time after acquisition. | • the frequency or number of similar transactions - the greater the frequency of similar transactions the greater the likelihood of trade. | • supplementary work on or in connection with the property realised - improving the property beyond preparing an asset for sale, to bring it into a more marketable condition and gain a better price suggests an element of trade. | • the circumstances that were responsible for the realisation - trade involves operations of a commercial character. As assets can be sold for reasons other than trade, the circumstances behind the sale need to be considered. | • motive - if the activities on an objective assessment have the characteristics of trade, the person's motive is not relevant. It is relevant in those cases where the evidence is not conclusive. Motive is also important in cases if there is a change in character of the asset. | • trade v. 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 not to be purchased for trading purposes. Assets can change their character but cannot have a dual character at the same time. | Paragraphs 258 to 260 of MT 2006/1 also provide that 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 not to be purchased for trading purposes. Examples of investment assets are rental properties, business plant and machinery, the family home, etc. The mere disposal of an investment assets does not amount to trade. Assets can change their character but cannot have a dual character at the same time. | Paragraphs 262 to 269 of MT 2006/1 discuss isolated transactions and sales of real property. A list of factors ascertained from cases provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade. If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follows: | • there is a change of purpose for which the land is held; | • additional land is acquired to be added to the original parcel of land; | • the parcel of land is brought into account as a business asset; | • there is a coherent plan for the subdivision of the land; | • there is a business organisation - for example a manager, office and letterhead; | • borrowed funds financed the acquisition or subdivision; | • interest on money borrowed to defray subdivisional costs was claimed as a business expense; | • there is a level of development of the land beyond that necessary to secure council approval for the subdivision; and | • buildings have been erected on the land. | In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. | This may require a consideration of the factors outlined above; however, there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative rather it will be a combination of factors that will lead to a conclusion as to the character of the activities. | GST turnover and registration turnover threshold | You are required to be registered for GST under section 23-5 of the GST Act if: • you are carrying on an enterprise, and | • your GST turnover meets the registration turnover threshold. | Subsection 188-10(1) of the GST Act provides that you have a GST turnover that meets a particular *turnover threshold if: | (a) your *current GST turnover is at or above the turnover threshold, and the Commissioner is not satisfied that your *projected GST turnover is below the turnover threshold; or | (b) your projected GST turnover is at or above the turnover threshold. | In calculating your current GST turnover and your projected GST turnover, certain supplies, such as supplies that are not made in connection with an enterprise that you carry on and supplies that are input taxed are not included in the calculation (refer to paragraph (c) of sections 188-15 and 188-20 of the GST Act). | Also, in working out your projected GST turnover, section 188-25 of the GST Act requires that you disregard any supply made or likely to be made, by you: • by way of transfer of ownership of a capital asset of yours (paragraph (a)), and | • solely as a consequence of either ceasing to carry on an enterprise, or substantially and permanently reducing the size or scale of an enterprise (paragraph (b)). | Application of the above to the facts in this case | There is thus no separate property development enterprise being carried on by you in relation to the property. Making a profit on sale does not, of itself, mean an isolated transaction becomes an adventure or concern in the nature of trade. | Therefore, when you sell the property, there will be no requirement for you to be registered for GST under section 23-5 of the GST Act.