Private ruling: GST and supply of real property
Published: December 2014

Ruling: Q1: Is goods and services tax (GST) applicable to the sale of vacant land? | A1: No

Relevant facts and circumstances: • You were registered for GST on 1 July 2000 and cancelled your GST registration a few years later. • You owned 2 blocks of land at the same address (different titles) before 1 July 2000. One block comprised a residential premises and a shed (residential block), the other is a vacant block of land (vacant land). • You leased out the shed. The lessee had their own access to the shed, not through the vacant land. The lease of the shed between you and the lessee did not provide the lessee any right on the vacant land. • The vacant land has not been used for any income earning activities or enterprise including being a part of the lease of the shed. • The residential block was sold earlier. • The vacant land now is the only asset you own, there will be no income earning activity (no rental, agistment or other income) derived from the vacant land. • Currently, the vacant land incurs significant holding costs (including land tax and other costs). You hope to sell the vacant land to reduce ongoing costs and simplify your affairs.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 7-1 | Section 9-5 | Section 9-20 | Section 23-5

Reasons for decision: Summary: Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) sets out four criteria required which all must be met for a supply to be a taxable supply. However, we need to consider whether a supply is made when you sell the vacant land. The term' supply' is defined in section 9-10 of the GST Act to include 'a grant, assignment or surrender of real property'. The term 'real property' is defined in Division 195 - the Dictionary part of the GST Act- to include any interest or right over land'. Therefore, the sale of the land is a supply under paragraph 9-10(2)(d) of the GST Act. Under section 9-5 of the GST Act, you make a taxable supply if: • you make the supply for consideration • the supply is made in the course or furtherance of an enterprise that you are carrying on • the supply is connected with Australia, and • you are registered or required to be registered. However, note that your supply is not a taxable supply to the extent that it or GST-free or input taxed. In your circumstances: • the supply (sale) of the vacant land will be made for monetary consideration. • the supply of the vacant land is connected with Australia as the land is situated in Australia. • the supply of the vacant land is not input taxed under Division 40 or GST-free under Division 38 of the GST Act. • you are currently not registered for GST. However, an entity is required to be registered for GST if the requirements under section 23-5 of the GST Act are met. Note that you are required to be registered for GST if both of the requirements under section 23-5 of the GST Act are met. Those conditions include a requirement that you are carrying on an enterprise in relation to the vacant land and your GST turnover meets the turnover threshold. Therefore, firstly, it is necessary to establish whether you are carrying on an enterprise in relation to the supply of the vacant land. Enterprise is defined in section 9-20 of the GST Act to include 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. Paragraph 9-20(1)(c) of the GST Act provides that enterprise includes activity or a series of activities done on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property. You have provides that you only leased the shed which is wholly located on your residential block. The lessee had their own access to the shed, not through the vacant land. The lease of the shed between you and the lessee did not provide the lessee any right on the vacant land. You have further provided that the vacant land has not been used for any income earning activities or enterprise including being a part of the lease of the shed. Therefore, you are not carrying on a leasing enterprise in relation to the vacant land. Miscellaneous Ruling MT 2006/1 provides the view of the Tax Office on whether or not an activity constitutes an enterprise for the A New Tax System (Australian Business Number) Act 1999 (ABN Act) . Goods and Services Tax Determination GSTD 2006/8 provides that the view of the Tax Office expressed in the MT 2006/1 can be equally applied to the meaning of enterprise under the GST Act. Although the sale of the vacant land is not considered to be a business, paragraph 234 of MT 2006/1 provides that an isolated or one-off activity may fall into the category of 'an adventure or concern in the nature of trade'. This category includes a commercial activity of a trading nature that does not amount to a business but which has the characteristics of a business deal. Paragraphs 235 and 237 of MT 2006/1 explain that: 235. In Australia, there are specific income tax provisions that include in assessable income the profit made from an isolated transaction. These have been developed from earlier provisions that ensured that, 'profit arising from the sale by the taxpayer of any property acquired by him for the purpose of profit-making by sale, or from the carrying on or carrying out of any profit-making undertaking or scheme' was included in a taxpayer's assessable income. 237. The term 'profit making undertaking or scheme' like the term 'an adventure or concern in the nature of trade' concerns transactions of a commercial nature which are entered into for profit-making, but are not part of the activities of an on-going business. Both terms require the features of a business deal, see McClelland v. Federal Commissioner of Taxation, in which Lord Donovan, delivering the opinion of the majority, said: 'It seems to their Lordships that an 'undertaking or scheme' to produce this result must - at any rate where the transaction is one of acquisition and resale - exhibit features which give it the character of a business deal. It is true that the word 'business' does not appear in the section; but given the premise that the profit produced has to be income in its character their Lordships think the notion of business is implicit in the words 'undertaking or scheme'. However, paragraph 244 of MT 2006/1 emphasises that: …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. The approach of the Tax Office on the question of 'whether an entity is carrying on an enterprise where there is one-off or isolated real property transaction' is expressed in paragraph 263 of MT 2006/1 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. Paragraph 266 provides further that: In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above, however there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative rather it will be a combination of factors that will lead to a conclusion as to the character of the activities. In your circumstances • The vacant land was acquired prior to 1 July 2000 and is held by you as a capital asset with expectation of significant capital appreciation. • The vacant land was not acquired with short-term goal of resale for profit. • The vacant land has never been used in income producing activity. • The reason to dispose of the vacant land is to avoid significant holding costs (including land tax and other costs). Therefore, it is considered that the supply of the vacant land is a mere realisation of a capital asset and is not an enterprise as defined in section 9-20 of the GST Act. As all of the criteria in section 9-5 of the GST Act are not met, your supply of the vacant land is not a taxable supply and therefore is not subject to GST.