Private ruling: Carrying on an enterprise and the requirement to register for GST
Date of advice: 7 May 2019
Published: July 2019
Date scheme commenced: 12 July 20XX

Ruling: Q1: Are you carrying on an enterprise for the purposes of the goods and services tax (GST) and as a consequence required to be registered for GST? | A1: No

Relevant facts and circumstances: ● You and your wife purchased a vacant block of land. ● Your intention, when purchasing the vacant land, was to build a residential premise on the land with the intention to reside in the completed property. ● Due to changing circumstances you have decided not to proceed with the construction of the house and are looking at selling the vacant block of land in the future. ● You are individuals who are not registered for GST. ● You do not intend to register for GST prior to the sale of the property.

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 9-40 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5 | Taxation Administration Act 1953 Schedule 1 (TAA) section 14-250

Reasons for decision: Summary: Under section 9-5, an entity makes a ‘taxable supply’ where the supply: 1. is made for consideration; and 2. is made in the course or furtherance of an enterprise that you carry on; and 3. is connected with the indirect tax zone; and 4. is made by a supplier who is registered, or required to be registered, for GST. In your case, if the land was to be sold, the supply would consist of a property which is located in the indirect tax zone and the supply would be made for consideration. Therefore, the sale of the property would satisfy two elements outlined above (1&3). Accordingly, we need to determine whether the other two elements (2&4) would also be satisfied. If this were the case, the supply of the property would satisfy all requirements of section 9-5 and would be a taxable supply. You are not registered for GST, nor do you intend to register for GST prior to the sale of the property. | Detailed Reasoning - Are you carrying on an enterprise?: The term enterprise is defined for GST purposes in section 9-20 and includes, among other things, an activity or series of activities done: ● in the form of a business (paragraph 9-20(1)(a)) or ● in the form of an adventure or concern in nature of trade (paragraph 9-20(1)(b)). The phase ‘carry on’ in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise. Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides the Tax Office view on the meaning of ‘entity’ and ‘enterprise’ for the purposes of entitlement to an Australian Business Number (ABN). Goods and Services tax Determination GSTD 2006/6 Goods and Services Tax: does MT 2006/1 have equal application to the meaning of ‘entity’ and enterprise’ for the purposes of A New Tax System (Goods and Services Tax) Act 1999, provides that the discussion in MT 2006/1 applies equally to the term ‘enterprise’ as used in the GST Act and can be relied on for GST purposes. | Detailed Reasoning - In the form of a business: Paragraphs 170 to 179 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1, with reference to Taxation Ruling 97/11 Income Tax: am I carrying on a business of primary production, list indicators of carrying on a business: ● a significant commercial activity; ● an intention of the taxpayer to engage in commercial activity; ● an intention to make a profit from the activity; ● the activity is or will be profitable; ● the recurrent or regular nature of the activity; ● the activity is systematic, organised and carried on in a business-like manner an d records are kept; ● the activities are of a reasonable size and scale; ● a business of product; and the entity has relevant knowledge or skill. Paragraph 179 of MT 2006/1 states, that there is no single test to determine whether a business is being carried on. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators. | Detailed Reasoning - Application in your case: Given the facts of this case, we consider that the activity of selling a block of land is not in the nature of the indicators of a ‘business’. Paragraph 244 of MT 2006/1 explains that 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. Paragraph 245 of MT 2006/1 refers to the ‘badges of trade’ with paragraphs 247 to 257 discussing the various ‘badges of trade’ that may be taken into account when determining whether assets have characteristics of ‘trade’ and are held for income producing purposes, or either as an investment asset or for personal enjoyment. While an activity such as the selling of an asset may itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is being carried on. You and your wife originally purchased the land with the intention of building your own residential house, in which you intended to reside. The purchase of the land was not conducted in a business-like manner as there was no business organisation; the vacant land was not bought into account as a ‘business’ asset and expenses relating to the land purchase, plans and council fees were not claimed as a business expense. Given the above, we do not consider your activities to constitute an adventure or concern in the nature of trade and as such are not an ‘enterprise’ for the purposes of GST. Therefore the sale of the land would be considered to be the mere realisation of a capital asset. | Detailed Reasoning - GST registration: Section 23-5 provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000). It is considered that the sale of the land would not constitute an ‘enterprise’ for GST purposes. As such you are not required to be registered for GST. | Detailed Reasoning - GST at Settlement: Suppliers of a property are required to assist the purchaser of a property to comply with the withholding provisions under the Act by notifying the purchaser whether or not they have a withholding obligation in relation to the supply of the property. Where the supplier of the property is not carrying on an enterprise and is not registered or required to be registered for GST, they should notify the purser of the property that there is no withholding obligations in relation to the sale. In this case as you are not carrying on an enterprise and are not registered or required to be registered for GST, the purchaser does not have a withholding obligation, under section 14-250 of the TAA, in relation to the purchase of your land.