Private ruling: goods and services tax (GST) and sale of property

Ruling: Q1: Will GST be payable on your sale of property Y? | A1: No. GST will not be payable on your sale of property Y at all under the circumstances set out in the facts. | Q2: Will you be required to be registered for GST when you sell property Y? | A2: No (under the circumstances set out in the facts).

Relevant facts and circumstances: Individual 1 and individual 2 (you) are not registered for GST. You previously resided in a personally owned residence at a location within Australia (property X) You decided that you would like some more living space and commenced searching for a larger property. You eventually came across a property at a location within Australia that included a small certain sort of building (property Y). After deciding that you would like to live in a certain sort of building and given the extra size of property Y compared to property X, you entered into a contract on a certain date to purchase property Y. Due to the circumstances of the vendors, settlement did not take place until a certain date. You moved into property Y as soon as your were able to, on a certain date. Whilst residing in the building that forms part of property Y, you undertook some renovations, in the form of installing a kitchen, a bathroom and an internal toilet. Other work on the building was more in the way of maintenance such as painting, polishing floorboards and resecuring some walls and foundations. You decided to rent out property X and entered into a certain period of time lease on a certain date. You have renewed this lease with a further certain period of time lease on a certain date. After residing in the building that forms part of property Y for a certain period of time, you are considering whether you have a personal preference for residing in property X, because property X is closer to entertainment and cafés. To this end you may consider selling property Y after the end of the property X lease on a certain date and move back into property X. If you decide to take this course of action, you will make your decision close to the end of the property X lease and continue to reside in property Y until the end of the property X lease. If you sell property Y after the end of the property X lease on a certain date and move back into property X, you will have used property Y as your residence only. If you sell property Y after the end of the property X lease on a certain date and move back into property X, your intention from the time you entered into a contract to purchase property Y to the time you put it on the market for sale will have been to live in property Y and not to sell it. The renovation, maintenance and sale of property Y is a one-off transaction that is not expected to happen again. If you sell property Y after the end of the property X lease and move back into property X, you will not have subdivided property Y. If you sell property Y after the end of the property X lease and move back into property X, you will not have built any buildings on property Y (ignoring the work you did on the building that forms part of property Y). You are not carrying on an enterprise apart from leasing out property X and buying, renovating, maintaining and selling property Y.


Reasons for decision: Summary: GST will not be payable on your sale of property Y under the circumstances set out in the facts as it will be the mere realisation of a private capital asset under these circumstances. | Detailed Reasoning - Detailed reasoning: GST is payable by you where you make a taxable supply. You make a taxable supply where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 section 195-1 of the GST Act) In your case, you will satisfy the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act. That is, you will supply property Y for consideration when you sell it, and the sale will be a supply connected with Australia, as the property is located in Australia. We shall now determine whether your sale of property Y will be a supply you will make in the course or furtherance of an enterprise that you carry on. Miscellaneous Taxation Ruling MT 2006/1 provides guidelines on the meaning of enterprise for ABN purposes. Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 provides that MT 2006/1 has equal application to the meaning of 'entity' and 'enterprise' for the purposes of the GST Act. Based on the information provided, your sale of property Y will be an isolated real property transaction. Paragraphs 262, 263 and 270 of Miscellaneous Taxation Ruling MT 2006/1 discuss whether 'one-off' or isolated real property transactions involve the carrying on of an enterprise. They state: 262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. 263. 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. (In an income tax context a number of public rulings have issued outlining relevant factors and principles from judicial decisions. See, for example, TR 92/3, TD 92/124, TD 92/125, TD 92/126, TD 92/127 and TD 92/128.) 270. In isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit making undertaking or scheme and therefore an adventure or concern in the nature of trade. In accordance with paragraph 244 of MT 2006/1, 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. In accordance with MT 2006/1, a subdivision of a property may constitute an enterprise. We consider that your sale of property Y will be the mere realisation of a private capital asset and not be part of an enterprise, under the circumstances set out in the facts, as: · you moved into property Y as soon as you were able to; · you will have lived in property Y for a period of close to a certain period of time (at least); · you will reside in property Y until the end of the property X lease, and your decision to sell property Y will be made close to the end of the property X lease; · you will have used property Y as your residence only; · from the time you entered into a contract to purchase property Y to the time you put it on the market for sale, your intention will have been to live in it and not to sell it; · you will not subdivide property Y; and · you will not build any buildings on property Y (ignoring the work you did on the building that forms part of property Y). Therefore, your sale of property Y will not be a supply made in the course or furtherance of an enterprise that you carry on under these circumstances. Hence, the requirement of paragraph 9-5(b) of the GST Act will not be satisfied under these circumstances. As not all of the requirements of section 9-5 of the GST Act will be satisfied under these circumstances your sale of property Y will not be a taxable supply under these circumstances and therefore, GST will not be payable on your sale of this property under these circumstances. | Summary: Under the circumstances set out in the facts you will not be required to be registered for GST when you sell property Y as your GST turnover will not meet the registration turnover threshold of $75,000 under these circumstances. | Detailed Reasoning - Detailed reasoning: In accordance with section 23-5 of the GST Act, an entity is required to be registered for GST if: (a) it is carrying on an enterprise, and (b) its GST turnover meets the registration turnover threshold of $75,000. You are carrying on an enterprise of leasing out property X. Therefore, you satisfy the requirement of paragraph 23-5(a) of the GST Act. Subsection 188-10(1) of the GST Act states: 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. Subsection 188-15(1) and subsection 188-20(1) of the GST Act exclude input taxed supplies and supplies not made in connected with an enterprise that the supplier carries on from the calculation of current and projected GST turnover Your leasing income is excluded from the current and projected GST turnover calculations as it is consideration for an input taxed supply of residential premises by way of lease under subsection 40-35(1) of the GST Act. Under the circumstances set out in the facts, your activity of buying, renovating, maintaining and selling property Y is not an enterprise. Under these circumstances, proceeds from your sale of property Y will be excluded from your current and projected GST turnover calculations because your supply of this property will not be connected with an enterprise that you carry on under these circumstances. You advised that you are not carrying on an enterprise apart from leasing out property X and buying, renovating, maintaining and selling property Y. Therefore, under the circumstances set out in the facts, your current and projected GST turnovers will be zero when you sell the property Y. Hence, under these circumstances, your GST turnover will not meet the registration turnover threshold of $75,000 when you sell property Y. Therefore, you will not satisfy the requirement of paragraph 23-5(b) of the GST Act when you sell property Y under these circumstances. As you will not satisfy both requirements of section 23-5 of the GST Act under these circumstances you will not be required to be registered for GST when you sell property Y under these circumstances. (Note, this decision is based on your current situation and predictions. If you engage in a new enterprise or begin leasing out non-residential property or commercial residential premises in the future, you may be required to be registered for GST at that time depending on the circumstances. However, if you are required to be registered for GST when you property Y, the sale will still not be a taxable supply under the circumstances set out in the facts because the sale will not be a supply made in the course or furtherance of an enterprise that you carry on under these circumstances.)

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