Private ruling: GST and sale of an inherited property
Date of advice: 16 June 2016
Published: August 2016
Ruling period: NA
Date scheme commenced: NA

Ruling: Q1: Will the sale of the property be subject to GST? | A1: No. The sale of the property will not be subject to GST. However, Capital Gains Tax may apply for Income Tax purposes. However, Capital Gains Tax may apply for Income Tax purposes. | Q2: If the ATO considers that GST applies to the sale, is it possible to apply the margin scheme. | A2: Under subsection 75-5(1) of the GST Act, the margin scheme may only apply in working out the amount of GST on a taxable supply of real property if the supplier and recipient of the supply have agreed in writing that the margin scheme is to apply to the supply. In this case your supply of the property will not be taxable; hence, GST will not apply to the sale. Consequently the margin scheme will not apply to your sale of the property.

Relevant facts and circumstances: • You have a transport licence and are registered for GST. • You inherited some land in xxxx with a residential dwelling constructed decades ago. • The residential property is currently being leased. • The residential property has not been renovated within the last five years. • You were approached by a developer to sell the property. • The property has never been used to carry on any form of enterprise; apart from being rented as a residential property. • There will be no development on the land beyond what the property currently looks like. • You are selling the property as is to the developer. It will be a straight forward sale of the property to the developer. • The developer will be responsible to secure council/local authority approval for any subdivision. • You have not sold land and or properties in the past and this is a one off transaction. • You are using a real estate agent to sell the property.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sections 9-20; 75-5 & 195-1 Question 1 | Will the sale of the property be subject to GST? | Answer | No. The sale of the property will not be subject to GST.

Reasons for decision: Detailed Reasoning - Carrying on an enterprise: Section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides the definition of enterprise for GST purposes. This definition includes 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. The definition of 'business' in section 195-1 of the GST Act is the same as that in section 995-1 of the Income Tax Assessment Act 1997. The meaning of 'business' is considered in Taxation Ruling TR 97/11 which discusses the main indicators of carrying on a business. In order to be conducted 'in the form of a business' the activities would need to have the essential appearance or characteristics of a business. In this case: • you have been approached by a developer to sell the property. You will engage a real estate agent to assist in the sale process; • you have held the property for many years and are selling the land "as is"; • the property has never been used to carry on any form of enterprise; apart from being rented as a residential property. • there will be no development on the land beyond what the property currently looks like; • the developer will be responsible to secure council/local authority approval for any subdivision; and • you have not sold land and or properties in the past and this is a one off transaction. Therefore, based on the facts provided, after weighing all the relevant indicators, we are satisfied that your activities would not amount to a business of land development. However, the term 'enterprise' also includes an activity or series of activities carried on 'in the form of an adventure or concern in the nature of trade'. An adventure or concern in the nature of trade may include isolated transactions that do not amount to a business, but which have the characteristics of a business deal. The question of whether an entity is carrying on as an enterprise often arises where there are 'one-off' property transactions. The decision to be made is whether the activities are an adventure or concern in the nature of trade as opposed to the mere realisation of a capital asset. Miscellaneous Taxation Ruling MT 2006/1 sets out guidelines on the meaning of the word 'enterprise' for the purpose of entities' entitlement to an Australian business number (ABN). Goods and Services Tax Determination GSTD 2006/6 confirms that the principles in MT 2006/1 apply equally to the term 'enterprise' for GST purposes. Paragraph 265 of MT2006/1 details a list of factors that provide assistance in determining whether activities are an adventure or concern in the nature of trade. If several of the factors are present it may be an indication that an adventure or concern in the nature of trade is being carried on. In this case, you have held the property for some time and currently the activities consist of leasing a residential property. You are selling the property "as is". We acknowledge that your aim may be to realise the highest possible sale price. However, this fact alone is not detrimental to the conclusion that the sale may not be an adventure or concern in the nature of trade. We refer to paragraph 244 of MT 2006/1 which states: An adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, 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. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature. Having applied all the principles in MT 2006/1 to the present circumstances, we conclude that the sale of your property does not amount to an enterprise for GST purposes. The sale of the property is regarded as the mere realisation of a capital asset. Consequently, the sale of the property will not be subject to GST. | Detailed Reasoning - Question 2: If the ATO considers that GST applies to the sale, is it possible to apply the margin scheme? | Detailed Reasoning - Answer: Under subsection 75-5(1) of the GST Act, the margin scheme may only apply in working out the amount of GST on a taxable supply of real property if the supplier and recipient of the supply have agreed in writing that the margin scheme is to apply to the supply. In this case your supply of the property will not be taxable; hence, GST will not apply to the sale. Consequently the margin scheme will not apply to your sale of the property.