Private ruling: GST and sale of property
Date of advice: 22 July 2015
Published: July 2015

Ruling: Q1: Is the sale of the property a taxable supply? | A1: No, the sale of the property is not a taxable supply.

Relevant facts and circumstances: You and your spouse own a property located in Australia (the property) as joint tenants. The property consists of two parcels of land that were purchased in the late 19XX's and early 19YY's. Since the time of purchase, they have been used for farming. The property contains a house that is your principal place of residence. You are not registered for GST. However, you and your spouse are registered for GST together as a partnership. The property is not recorded as assets of the partnership. While they are used for farming from which the partnership generates assessable income, you and your spouse do not receive rent payments from the partnership. A property developer approached you to buy the property. The property developer does not intend to use the property for farming. You previously owned and sold a property located in Australia. You rented out the house on this property but used the land around for farming. You and your spouse jointly own another property on which you also carry out farming activities. You rent out the house on this property. You and your spouse also own a property from which you receive rental income.

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

Reasons for decision: Summary: In determining whether the sale of the property is a taxable supply, it must be established first whether the property is an asset of the partnership or it remains owned by you and your spouse separate from your business activities. The issue was considered by the Courts. In Harvey v Harvey (1970) 120 CLR 529 at 563, Walsh J held: It is common for agreements to be made, particularly amongst members of a family, for the use by a partnership of land which belongs to one of the partners. By such an agreement, unless a different intention is expressed or is to be inferred from the circumstances, the partnership acquires a right to have the use of the land so long as the partnership continues but no greater right or interest in it either at law or in equity than a right to use the land, a right which may be regarded as arising either from a tenancy or from a licence. Subject to that right the ownership of the property remains with its former owner. It is true, of course, that just as money may be brought into the partnership assets by way of a contribution by one partner to the capital of the partnership, so also land may be brought in as a matter beyond doubt, it must be decided upon a consideration of the circumstances whether it should be concluded that this has been done or whether the partnership has acquired no more than a right to use the land. In Commissioner of Inland Revenue v Dormer and Anor 18 NZTC 13,446, the New Zealand High Court had to determine whether or not a property was owned by individuals or a partnership. Salmon J said: It is necessary to look further than legal title. The question to be determined is whether the original owner retains both the legal title and beneficial interest in the property or whether the title holder has transferred beneficial or equitable ownership at some point. In this case, you and your spouse own the property as joint tenants. The property is your principal place of residence. You did not record the property as an asset of the partnership. Although the partnership used part of the property in carrying out its business activities, you and your spouse did not receive rent from the partnership. We consider that the property remains owned by you and your spouse. The partnership does not have legal title or beneficial interest in the property that would allow it to supply the property, either by sale or lease. GST is payable on a taxable supply. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (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 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 under section 195-1 of the GST Act) Your sale of the property will be for consideration and will be connected with Australia. As such, the requirements in paragraphs 9-5(a) and 9-5(c) of the GST Act are satisfied. You advised that you previously owned and leased a residential property. Currently, you and your spouse also own and lease other properties. Therefore, you are carrying on a leasing enterprise. The property is your principal place of residence. You and your spouse allow the partnership to use part of the property but do not receive rent for it. Thus, we do not consider the property to be part of your leasing enterprise. Therefore, the sale is not made in the course or furtherance of an enterprise that you carry on. The requirement in paragraph 9-5(b) of the GST Act is not satisfied. As not all of the requirements in section 9-5 of the GST Act are satisfied, the sale of the property is not a taxable supply.