Private ruling: GST and sale of real property
Date of advice: 24 April 2020
Published: June 2020

Ruling: Q1: Is GST payable on the sale of the property located in Australia (the Property)? | A1: No.


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 23-5.

Reasons for decision: Summary: GST is not payable on the sale of the Property because you are not making a taxable supply under section 9-5 of the the A New Tax System (Goods and Services Tax) Act 1999 (GST Act). This is because although the sale of the Property is made for consideration and is connected with Australia, it is not made in the course or furtherance of an enterprise that you carry on and you are neither registered nor required to be registered for GST. | Detailed Reasoning - Detailed reasoning: GST is payable on any taxable supply that you make. The sale of the Property is a taxable supply if the supply satisfies all the requirements of section 9-5 of the GST Act, which 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 Australia; 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. (*denotes a term defined in the GST Act) Based on the information that you have provided, the proposed sale of the Property is for consideration and is connected with Australia as the property is located in Australia. Therefore, the supply satisfies paragraphs 9-5(a) and 9-5(c) of the GST Act. It remains to be determined whether the sale of the Property is made in the course or furtherance of an enterprise that you carry on under paragraph 9-5(b) of the GST Act, whether you are required to be registered for GST under paragraph 9-5(d) of the GST Act, and whether the sale is GST-free or input taxed. | Detailed Reasoning - Paragraph 9-5(b) of the GST Act: Section 9-20 of the GST Act provides that enterprise includes, among other things, an activity or series of activities done: · in the form of a business, or · in the form of an adventure or concern in the nature of trade. Miscellaneous Taxation Ruling MT 2006/1 provides the view of the ATO on the meaning of enterprise for the purposes of entitlement to an Australian business number. Goods and Services Tax Determination GSTD 2006/6 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 explains that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case. Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a business and those done in the form of an adventure or concern in the nature of trade. 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 commercial activity that does not amount to a business but which has the characteristics of a business deal. However, the mere realisation of investment or private assets does not amount to trade. Additionally, the fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature. Paragraphs 258 and 259 of MT 2006/1 provide guidance on the distinction between trading/revenue assets and investment/capital assets. They provide the following: · Assets can be categorised as trading/revenue assets or capital/ 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. · Examples of capital/investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of capital/investment assets does not amount to trade. Paragraph 260 of MT 2006/1 explains that assets can change their character from being capital/investment assets to being trading/revenue assets, or vice versa, but cannot have a dual character at the same time. It is considered that the relevant issue in your case is whether the nature of the asset, that is, the property has changed as a consequence of the activities associated with its sale. MT 2006/1 explains that while an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is carried on. In your case, you purchased the Property a number of years ago, prior to the introduction of GST in 2000, and used as your principal residence. Although part of the Property was also used for a farming business conducted in partnership with your relative, the income producing activities on the land ceased a number of years ago. You have not put the Property on the market for sale. However, you have been approached by property developers looking to purchase land in the area for development. Due to your age and retirement options, you are considering selling the Property as it is too large to your requirements. Considering all the facts and circumstances in your case, the proposed sale of the Property is the mere realization of a private asset. Hence, it is not in the form of an adventure or concern in the nature of trade. Further your activities are not those of an entity carrying on a business of buying and selling land. Accordingly, the sale of the Property is not made in the course or furtherance of an enterprise that you carry on and the requirement of paragraph 9-5(b) of the GST Act is not satisfied. Although it is not necessary to consider whether you satisfy the condition at paragraph 9-5(d) of the GST Act, for completeness, we discuss the requirements. | Detailed Reasoning - Paragraph 9-5(d) of the GST Act: You are not registered for GST. Section 23-5 of the GST Act provides that you are required to be registered if: (a) you are carrying on an enterprise and (b) your GST turnover is $75,000 or more. As outlined above, you are not carrying on an enterprise. Hence, the requirement of paragraph 23-5(a) of the GST Act is not satisfied. Therefore, as not all the requirements in section 23-5 of the GST Act are satisfied, you are not required to be registered for GST and the requirement of paragraph 9-5(d) of the GST Act is not satisfied. In this case, it is not necessary to consider whether the sale of the Property is GST-free or input taxed. Therefore, as you do not satisfy all the requirements of section 9-5 of the GST Act, the sale of the Property is not a taxable supply. Hence, GST is not payable on the sale. | Detailed Reasoning - Additional information: A vendor of residential premises and potential residential land must give a written notice to the purchaser before making the supply. The notice must state whether the purchaser has a GST withholding obligation in relation to the supply. This requirement applies to all vendors of residential premises and potential residential land, not only those who are registered or required to be registered for GST. For further information, refer to our website www.ato.gov.au and search GST at settlement .

Relevant facts: You are the sole owner of the Property. | The Property has a total land area of a specified number of square metres and contains your family home and storage sheds. | You purchased the Property a number of years ago, prior to the introduction of GST in 2000, using your savings and a bank loan. | Since your purchase you have occupied the Property as primary residence for yourself and your family. | A few years after your purchase, in partnership with a relative (the Partnership), you commenced using a portion of the land for a small farming business, growing fruits and vegetables. The Partnership was registered for GST. | At the time of purchase the land was zoned rural. A few years ago, the State Planning Authority rezoned it to residential. | A small portion of the front of the Property, was acquired by the Roads Authority for the widening of a road. | The Property is not currently on the market for sale. However, you have been approached by property developers looking to purchase land in the area for development. | You expect the selling price to be over the GST registration turnover threshold. | You provided an aerial picture of the Property.