Private ruling: GST and sale of property
Date of advice: 12 February 2019
Published: May 2019

Ruling: Q1: Are you making a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 when you sell property situated at a specified location? | A1: No

Relevant facts and circumstances: Individual A and Individual B (You) are registered for GST as a partnership effective from xx/xx/xxxx. You carried on an enterprise being the operation of a winery situated at a specified location which also contained your principal place of residence. In xx/xxxx you purchased vacant land situated at a specified location (the Property) being vacant land approximately xxxxm. Your intention at the time of the purchase of the Property was to build a dwelling to be used as your principal place of residence upon your retirement. The winery business including your residential premises was sold on xx/xx/xxxx (contract date). Under the terms and conditions of the sale contract you provide your services to the new owners of the winery for a minimum of 12 months following the sale. The purpose is to facilitate the transfer of knowledge of the vineyard, winery and property as well as the operation of the business. Invoices are tendered to the new owners each month for your services. You also provide consultancy services to another vineyard and have a share arrangement with another. In 20XX you began the formal process of applying for building and planning permits and began some incidental development to enable the building of your proposed principal place of residence on the Property. You also obtained building quotes for construction and obtained soil tests and engineering specifications on the proposed dwelling to comply with building and planning permits. On xx/xx/xxxx, the relevant Council issued Planning Permit xxx/xxxx/xxx in respect to the use and development of the Property. Subsequently, an alternative property containing an existing dwelling was placed on the market that you considered to be more appropriate/desirable to reside in in your retirement. Due to difficulties relating to obtaining building permits and council regulations delaying the building process on the Property you abandoned your plans to build on the Property. You decided to sell the Property and purchase the alternative property. You made an offer on the alternative property shortly after it came to market which was subsequently accepted. You sold the Property in xxxx and purchased the alternative property. The sale of the Property resulted in a profit being made. At the time of sale, the Property was vacant land however the Property had been fenced, surveyed and soil tested in order to prepare it for a planning permit. No other development of the Property had been carried out. The Property was not included as an asset in the accounts of the winery business or your current enterprise of providing consultancy services. Likewise, outgoings related to the Property (such as water and council rates, expenses related to planning and building permits, soil tests, surveying fees, etc) were not expensed in the accounts of the winery or your consultancy business. Such costs were paid for from your private funds. The purchase of the Property was funded by the sale of an investment property together with available funds on hand. You purchased an investment property in xxxx for the purpose of generating rental income. You sold the investment property in xx/xxxx. You have not previously been involved in the development of property/land.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-40

Reasons for decision: Summary: Note: In this reasoning, unless otherwise stated: ● all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) ● reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au Section 9-40 provides that you are liable for GST on any taxable supplies that you make. Section 9-5 provides 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 the indirect tax zone; and (d) you are registered, or required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. As you are registered for GST, the question in this case is whether you are making the supply of the Property in the course or furtherance of an enterprise that you carry on. The phrase ‘carry on’ in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise. In this case you previously carried on an enterprise involving the operation of a vineyard and winery and currently carry on an enterprise of providing consultancy services. Goods and Services Tax Ruling GSTR 2004/8; Goods and services tax: when does an entity have a decreasing adjustment under Division 132? provides guidance in regard to whether the sale of a thing is made in the course or furtherance of your enterprise. Paragraphs 28 to 31 of GSTR 2004/8 states: 28. For the sale of a thing to be made in the course or furtherance of your enterprise, the sale of the thing must have a connection with your enterprise. Whether a connection between the sale of the thing and your enterprise exists will depend on the facts and circumstances. The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 states: 'In the course or furtherance' is not defined but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. 'In the course or furtherance' does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. See Case N43 (1991) 13 NZTC 3361. 29. Given the broad meaning of 'in the course or furtherance', a sale of a thing is capable of being made in the course or furtherance of an enterprise regardless of the extent to which it has a connection with the enterprise, so long as it has some connection. The GST Act does not require that the thing must be applied primarily or principally in carrying on the enterprise for the supply of the thing to be in the course or furtherance of an enterprise. Accordingly, a connection between the sale of the thing and your enterprise exists even if, at the time of its sale, the thing is applied in carrying on the enterprise to a minor or secondary extent. 30. Each of the following characteristics of a thing indicates strongly that the sale of the thing has a connection with your enterprise: ● at the time of sale it formed part of the assets of your enterprise (for example, it is trading stock or a depreciable asset for income tax purposes); ● at the time of sale it was applied in carrying on your enterprise to at least some extent; and ● it is sold as a transaction of your enterprise. 31.Factors that tend to indicate that a sale is a transaction of the enterprise include the following: ● the sale is made from enterprise premises; ● payment is accepted using enterprise facilities such as a cash register or a credit card facility; ● the proceeds of sale are deposited into an enterprise bank account; and ● enterprise book accounts are used to record the transaction. The list in this paragraph is not exhaustive or conclusive. All the facts and circumstances must be considered and balanced. In this case: ● you acquired the Property with the intention of building your principal place of residence; ● the Property was not included as an asset in the accounts of the winery business or your current enterprise of providing consultancy services; ● outgoings related to the Property (such as water and council rates, expenses related to planning and building permits, soil tests, surveying fees, etc) were not expensed in the accounts of the winery or your consultancy services enterprises; and ● the Property was not used in carrying on your enterprise of operating a winery or your consultancy enterprise to any extent. Given the above, we do not consider your sale of the Property to have been made in the course or furtherance of an enterprise you carried on, being the operation of a vineyard and winery and your enterprise of providing consultancy services. | Detailed Reasoning - Conclusion: Your sale of the Property will not constitute a taxable supply as the sale of the Property was not made in the course or furtherance of an enterprise that you carry on. Consequently GST will not apply to the sale of the Property.