Private ruling: GST and sale of land
Date of advice: 15 May 2019
Published: June 2019
Ruling period: 01/07/2018 to 31/12/2018
Date scheme commenced: 1 July 2018

Ruling: Q1: Does the sale of the land form part of an existing enterprise and therefore is subject to the GST at settlement withholding provisions? | A1: No.

Relevant facts and circumstances: You have an Australian Business Number (ABN) and are registered for Goods and Services Tax (GST). You purchased a vacant block of land a number of years ago with the intention of increasing your residential footprint which included your home which was situated on an adjacent lot. During the course of ownership, the only addition on the vacant lot was fencing and adding water points. You sold the property to reduce your residential land area prior to retirement. The land was not part of your enterprise.

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 90-40 | A New Tax System (Goods and Services Tax) Act 1999 section 23-5

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. The property sold consisted of a property which is located in the indirect tax zone, the supply was made for consideration and you are registered for GST. Therefore, the sale of the property satisfies three elements outlined above (1, 3 & 4). Accordingly we need to determine whether the other element (2) would also be satisfied and there would be a taxable supply. | 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 the 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 A New Tax System: The meaning of an 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 ‘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 the 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 lists 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 recurrence or regular nature of the activity; ● The 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 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 weighting all the relevant indicators. | Detailed Reasoning - Application in this case: Given the facts of this case, we consider that the activity of selling the property does not form part of your enterprise and is not a taxable supply. While an activity such as the selling of an asset may in 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 purchased the property to expand your private residential footprint. The only improvements you made to this parcel of land was to fence the property and to add water points. You purchased this property in your own right and not as part of your existing enterprise. You have sold the parcel of land to reduce your residential footprint, leading into retirement. | Detailed Reasoning - Conclusion: Given the above, we do not consider your activity of selling this property to constitute an adventure or concern in the nature of trade and as such the sale does not form part of an ‘enterprise’ for the purposes of GST. Therefore the sale of the property would be the mere realisation of a capital asset.