Edited version of private ruling

Authorisation Number: 1011556211976

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Ruling

Subject: GST and sale of real property

Question

Is your sale of the vacant block of land (the property) a taxable supply?

Answer

Yes, your sale of the property is a taxable supply.

Facts

You carry on a business as a commercial landlord and are registered for GST.

Several years ago, you purchased a property with the intention of it being an investment.

The acquisition of the property was financed by a loan that you took out.

The property is listed in your balance sheet as an asset.

You purchased the property under your current business structure purely for convenience. The acquisition of the property represents a small proportion in relation to your other activities.

Since your acquisition, the property had been left idle and no capital improvements have been done.

You have not derived any income from the property.

You have incurred expenses for rates and interest on the loan.

You have not claimed any income tax deductions nor have you claimed any input tax credits on expenses relating to the property.

The supply of the property to you was not a taxable supply.

Recently, you sold the property. You did not apply the margin scheme on the disposal of the property.

Reasons for decision

GST is payable on any taxable supply that you make.

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a taxable supply if:

(a) you make a supply for consideration

(b) the supply is made in the course or furtherance of an enterprise that you carry on

(c) the supply is connected with Australia, and

(d) you are registered, or required to be registered for GST purposes.

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

Accordingly, the sale of the property is a taxable supply if all the requirements of section 9-5 of the GST Act are met.

In your case, the sale of the property satisfies the requirements of paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act. That is, you make the supply for consideration and the supply is connected with Australia as the property is located in Australia and you are registered for GST.

Therefore, we need to determine whether you meet the remaining requirements of section 9-5 of the GST Act. That is, whether you are making the sale in the course or furtherance of an enterprise that you carry on and whether the sale is GST-free or input taxed.

Section 9-20 of the GST Act provides that enterprise includes, among other things, an activity or serries 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 provides the view of the Tax Office on the meaning of enterprise for the purposes of entitlement to an Australian business number. 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.

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 commercial activity that does not amount to a business but which has the characteristics of a business deal. However, the mere realisation of investment or private assets does not amount to trade. Additionally, the fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

The phrase 'in the course or furtherance of' is not defined in the GST Act. The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 supports a broad meaning of the phrase 'in the course or furtherance of':

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.

Federal Commissioner of Taxation v. Swansea Services Pty Ltd [2009] FCA 402; [2009] ATC 20-100 (Swansea case) is a recent case dealing with the issue of enterprise. McKerracher J stated the following in the decision:

1. there is nothing in the GST legislation that indicates investment activities cannot amount to an enterprise (paragraph 63)

2. one activity alone may qualify as an enterprise (paragraph 64)

3. the scope of the definition of enterprise is wide (paragraph 64)

4. the Explanatory Memorandum of the GST Act also indicates that enterprise is to be viewed widely (paragraph 67), and

5. enterprise is a broader concept than carrying on a business. The GST Act does not stipulate that there must be regular sales for an enterprise to exist (paragraphs 68-69).

In your case, you acquired the property for investment purposes. You obtained a loan in your own name to finance the acquisition. You have incurred costs in relation to the property but you have not claimed any income tax deductions or input tax credits. You have not undertaken any improvements on the property since its acquisition. You are carrying on a commercial leasing enterprise and this property has been brought into account as a business asset of yours.

Applying the view of McKerracher J in the Swansea case, your investment activities in relation to the property can constitute an enterprise. Accordingly, the transactions and actions that you undertook can be categorised as a series of activities that are akin to investment activities that accord with the broad concept of enterprise.

Based on the information provided, the sale of the property is made in the course or furtherance of an enterprise that you carry on. Hence, the requirement of paragraph 9-5(b) of the GST Act is satisfied.

Furthermore, the sale of the property, in the circumstances you described, is neither GST-free nor input taxed. As all the requirements of section 9-5 of the GST Act are satisfied, the sale of the property is a taxable supply under section 9-5 of the GST Act.

Additional information

Information available on the ATO website specifically deals with the issue of business, company or trust that holds land as an investment or an asset which is used for their enterprise and they are registered for GST. The Commissioner's view explained under question 15.4.18 of The Property and Construction Issues Register provides that:

The sale of the land by a business, trading company or trust is made in the course or furtherance of an enterprise that the business, trading company or trust is carrying on. The sale of the land will be a taxable supply and subject to GST.

The supply of real property will be subject to GST if it constitutes a taxable supply.

Further, the response in question 15.4.18 of The Property and Construction Issues Register under the heading 'Is the sale of the land 'in the course or furtherance' of an enterprise?' states:

A transaction is a supply 'in the course or furtherance' of an enterprise that is carried on where the supplies can be considered to be connected to the entity's enterprise.

The term in the course or furtherance is not defined in, but the term is wide enough to cover any supply made in connection with an enterprise and to cover natural incidents and things incidental to the core enterprise activities. Also, 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.

As the business, trading company or trust owns the land, and it was held as part of the business structure, the sale is in the course or furtherance of it's enterprise and will be a taxable supply unless it is an input taxed supply.

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