Private ruling: GST and sale of property
Date of advice: 2 November 2018
Published: February 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 (GST Act) when you sell property situated at a specified location? | A1: No

Relevant facts and circumstances: Individual A (You) and Individual B are not registered either as individuals or as a partnership. You and Individual B were previously registered as a partnership for GST and carried on an enterprise of providing building supplies and building services and also leasing property. The partnership was restructured with the building services enterprise operating through a corporate entity (ABC Pty Ltd). The rental property being the subject of the leasing enterprise was sold in 201C. The partnership cancelled its GST registration effective from 30 June 201A. You and Individual B own property located at a specified location (the Property). The Property is approximately X acres and contains Y residential dwellings and a number of sheds to house tools and equipment. You have resided on the Property for many years together with Individual B with the Property originally being owned by your parent. You and Individual B resided in one of the residential dwellings and your parent resided in the other dwelling on the Property. You and Individual B used the dwelling as your principal place of residence. On the passing of your parent the unoccupied dwelling has remained vacant with title to the Property transferring in full to you 19XX. Subsequently, a 50% interest was transferred to Individual B in 201B for estate planning purposes only. You have never used the Property for purposes other than for use as your primary residence You have been approached by an unrelated party who made on offer to purchase the Property and as a consequence entered into an agreement to sell the Property. On xx/xx/xxxx the relevant Shire Council issued a planning permit allowing for a twenty (XY) lot staged subdivision of the Property. Whilst the planning permit has been issued you do not intend to develop the Property and you will not conduct any development works on the Property prior to settlement. The Property will not be subdivided prior to settlement. You and Individual B have not previously been involved in the development of property although you are currently in the process of building a holiday house. You currently derive your income from wages and Director fees from ABC Pty Ltd with Individual B also deriving their income through salary and wages. Your motive for selling the property is to reduce the debt associated with funding the construction of your holiday house.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | Section 9-20 | 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. Of relevance is whether you are making a supply of the Property in the course or furtherance of an enterprise that you carry on and if so, whether you are required to be registered for GST. Section 9-20 provides that the term ‘enterprise’ includes, among other things, 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 Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1) provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 2006/6 provides that the discussion in MT 2006/1 equally applies 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 232 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 TR 97/11 Income tax: am I carrying on a business of primary production? lists indicators of carrying on a business: ● a significant commercial activity; ● a purpose and 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 carried on in a similar manner to that of other businesses in the same or similar trade; ● activity is systematic, organised and carried on in a businesslike manner and records are kept; ● the activities are of a reasonable size and scale; ● a business plan exists; ● commercial sales 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. In this case you have lived on the Property as your primary place of residence for many years with full title to the Property passing to you from your parent in 19XX. You have not previously been involved in the development of property. Given the facts provided we consider that the activities you have undertaken do not display the salient indicator of a business, which are transactions entered into on a continuous and repetitive basis. We do not consider that your actions of obtaining a planning permit and selling the Property as a whole alone constitute being activities in the form of a business. | Detailed Reasoning - In the form of an adventure or concern in the nature of trade: Paragraph 234 of MT 2006/1 provides that ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal. Paragraphs 243 to 257 of MT 2006/1 discuss the characteristics of trade, including the badges of trade as referred to in a number of judicial decisions: ● the subject matter of the realisation; ● length of period of ownership; ● frequency or number of similar transactions; ● supplementary work on or in connection with the property realised; ● circumstances that were responsible for the realisation; ● motive Paragraph 244 of MT 2006/1 clarifies 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 with such transactions being of a revenue nature. However, the sales of the family home or 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. As discussed above, you have lived on the Property as your primary place of residence together with your spouse (Individual B) for many years. Given the facts provided you do not have a history of buying and selling property of a regular or consistent basis. Furthermore, you will not be subdividing or conducting any development works on the Property prior to the date of settlement. Your motive for selling the Property is primarily to reduce the debt associated with funding the construction of your holiday house. Given the above, a balanced view of these observations, with no one feature being determinative in isolation, reasonably leads to a conclusion that the sale of the Property was not for the purpose of trade and not a commercial-like undertaking. As such we do not consider your activities of obtaining a planning permit and selling the Property as being done in the form of an adventure or concern in the nature of trade. | Detailed Reasoning - Conclusion: The activities you have undertaken in regard to the sale of the Property are not considered to be the course of an enterprise that you carry on. Therefore you have not made a taxable supply as defined in section 9-5 and GST is not applicable to the sale of the Property.