Edited version of private ruling

Authorisation Number: 1011474810295

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Ruling

Subject: Sale of property with residential dwelling

Question

Is the supply of your property located in Australia a taxable supply?

Answer

No, the supply of your property is not a taxable supply.

Relevant facts

You and your spouse purchased the specified property as joint tenants some time ago. The land contains a house and some other small structures..

From the time of purchase, you and your spouse lived in the house and operated a small business.

You suffered a serious injury and ceased work from that time.

Your spouse passed away and the property was transferred solely into your name by survivorship.

You have lived at the property for several decades as your principal place of residence.You are not registered for goods and services tax (GST).

For a considerable time, you allowed a related entity to use the facilities for a small business purpose.. The related entity ceased this operation by 200X.

The related entity also rented out a portion of the land to third parties to use the area as storage for a rental income. You received no cash payment from this activity However, the related entity paid for the council rates and some of the water rates for the property.

The related entity is registered for GST and they are carrying on an enterprise.

Recently you have entered into a Deed of Option with a purchaser to purchase the property. The purchaser must exercise the call option within the terms stipulated in the specified clause. A contract of sale of property will be entered if the call option is exercised.

The contract of sales amongst other terms and conditions, include the following:

· a specified completion date

· the sale includes vacant possession of the land, house and other fixtures

· the consideration for the property

· the supply is not a taxable supply

· the sale is not a taxable supply because the sale is not made in the course or furtherance of an enterprise that the vendor carries on.

You have advised that you are not in any way involved in the enterprise of the purchaser.

Reasons for decision

Summary

The supply of your property is not a taxable supply and no GST is payable on the supply.

Detailed reasoning

Taxable supply is defined in section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) which states:

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 Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is * GST-free or *input taxed.

(An asterisk denotes a defined term in section 195-1 of the GST Act.)

For the supply of your property to be a taxable supply you must meet all the requirements set out in paragraphs 9-5(a) to 9-5(d) of the GST Act and your supply must not be a GST-free supply or an input tax supply.

There are no provisions in the GST legislations that make your sale of the property GST-free. However the supply of the land with the residential premises would normally be an input taxed supply.

You have entered into a call option to sell your property to a purchaser for consideration, and the supply of the property is connected with Australia as it is located in Australia. Therefore, you have satisfied paragraphs 9-5(a) and 9-5(c) of the GST Act. Furthermore you are not registered for GST therefore it remains to be considered as to whether:

(i) you are carrying on an enterprise (paragraph 9-5(b) of the GST Act), or

(ii) you are required to be registered for GST (paragraphs 9-5(d) of the GST Act), or

(iii) the sale of the property is an input taxed supply.

Are you carrying on enterprise?

Enterprise is defined in subsection 9-20(1) of the GST Act: 

(1) An enterprise is an activity or series of activities, done:

(a) in the form of a business; or

(b) in the form of an adventure or concern in the nature of trade; or

(c) on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

(d)…..

Carrying on an enterprise is defined in section 195-1 of the GST Act as including doing anything in the course or the commencement or termination of the enterprise.

Paragraph 9-20(2)(b) of the GST Act provides that an enterprise does not include an activity, or series of activities done as a private recreational pursuit or hobby.

Paragraph 9-20(2)(c) of the GST Act provides that an enterprise does not include an activity, or series of activities done by an individual or partnership without a reasonable expectation of profit or gain.

In your case, you have advised that you have lived at the property for many years and conducted a business from on the property. You ceased this activity before 1 July 2000 and then allowed a related entity to use part of the property a for small business activity (which ceased by 200X) and to lease some portions of the property to third parties to use as storage area. The related entity pays the land rates and a portion of the water rates. You received no other cash payment from the related entity.

It is considered that allowing the related entity to use your property to operate a business from, and to lease portions of the property would meet the requirement of paragraph 9-20(1)(c) of the GST Act. This means that you are considered to be carrying on a leasing enterprise. However you have advised that all you receive in return for that 'leasing' activity is your land rates and a portion of water rates were paid for by the related entity. You have no expectation of profit or gain by allowing the related entity to lease part of your land to third parties.

Accordingly, paragraph 9-20(2)(c) of the GST Act excludes your leasing enterprise from the definition of enterprise because it is conducted by an individual without a reasonable expectation of profit or gain.

Having considered all the information at hand, we consider that you are not carrying on an enterprise. Hence paragraph 9-5(b) of the GST Act is not satisfied.

Section 23-5 of the GST Act provides that you are not required to be registered for GST if you are not carrying on an enterprise. As you are not required to be registered for GST, the requirement in paragraph 9-5(d) of the GST Act is not satisfied.

In summary, we have determined that not all the requirements in section 9-5 of the GST Act have been satisfied. Hence, the sale of your property is not a taxable supply and no GST is payable on the supply.

Although the supply of your family home would be an input taxed supply it is not necessary to consider that as your supply is not a taxable supply.

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