Edited version of private ruling

Authorisation Number: 1011580885128

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Ruling

Subject: GST and sale of land

Question 1

Is the sale of land subject to GST where the estate was granted possessory title after the deceased's death?

Answer

The sale of land is not subject to GST.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are registered for GST.

The estate includes a primary production business.

The deceased lived in a house (separate from any farming land) owned by the estate of his mother.

A block of residential land (land) not owned by the deceased or his mother's estate adjoined the house owned by his mother's estate.

The deceased constructed a large shed on the land over 45 years ago and stored items of a personal nature.

There have been no further developments on the land since then.

You could not find an owner of the land, so you lodged an application for possessory title, which was granted to the estate.

You then sold the block of land in a private sale as you are winding up the estate.

You have also sold two farmlands that were part of the primary production business of the deceased. The sale of the land was not part of this business. It was a one-off transaction of privately-owned land.

The estate has one more farmland that is a part of the primary production business of the deceased that you intend to sell.

The estate has no other land.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-5

A New Tax System (Goods and Services Tax) Act 1999 (GST Act) section 9-20.

Reasons for decision

Summary

The sale of land is not subject to GST where the estate was granted possessory title after the deceased's death, as the sale was not in the course or furtherance of an enterprise that you are carrying on. It was the mere realisation of a private asset.

Detailed reasoning

The supply of property will be subject to GST if it constitutes a taxable supply. Taxable supply is defined in section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The requirements of a taxable supply are:

a) a supply is made

b) the supply is made for consideration

c) the supply is made in the course or furtherance of an enterprise that the supplier carries on

d) the supply is connected with Australia

e) the supplier is registered or required to be registered

f) the supply is not GST-free or input taxed.

You satisfy requirements (a), (b), (d), (e) and (f). That is, the supply of the land was made for consideration; the land is in Australia; you are registered for GST and the supply of residential land is not GST-free or input taxed.

Therefore, it remains to be determined whether the sale of the land was made in the course or furtherance of an enterprise that you are carrying on.

Section 9-20 of the GST Act provides that an enterprise is an activity, or a 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 …

Goods and Services Tax Determination GSTD 2006/6 considers what is an enterprise for the purposes of the GST Act.

According to paragraph 13 of GSTD 2006/6, an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business. Isolated transactions with commercial characteristics fall under this category. However, it does not extend to the mere realisation of investment or private assets such as the family home and private cars.  

This means that an adventure or concern in the nature of trade can also include dealing with a single asset. However, an asset sold at a profit, does not, of itself, result in the activity being commercial in nature.

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of an entity carrying on an enterprise for the purposes of entitlement to an Australian business number. GSTD 2006/6 states that MT 2006/1 applies equally to the meaning of enterprise for the purpose of the GST Act.

Paragraph 265 of MT 2006/1 discusses the factors that assist in determining whether activities are carried on in furtherance of an enterprise.

These factors are:

§ there is a change of purpose for which the land is held

§ additional land is acquired to be added to the original

§ the parcel of land is brought into account as a business asset

§ there is a coherent plan for the subdivision of the land

§ there is a business organisation for example a manager, office and letterhead

§ borrowed funds financed the acquisition or subdivision

§ interest in money borrowed to defray subdivisional costs was claimed as a business expense

§ there is a level of development of the land beyond that necessary to secure council approval for the subdivision, and

§ buildings have been erected on the land.

Paragraph 266 of MT 2006/1 states:

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 case:

§ You lodged an application for possessory title of the land, which was granted to the estate.

§ You have not altered the purpose for which you held the land.

§ You have not undertaken any development of the land.

§ You sold the land in a private sale.

§ The sale was a one-off transaction of privately-owned land rather than a series of purchase and sales.

§ Your registration for GST is related to the estate's primary production business.

§ The sale of the land was not connected to the estate's primary production business.

Apart from lodging an application for possessory title, we consider your activities in relation to the sale of the land did not constitute an enterprise as required in paragraph 9-20(1)(b) of the GST Act, but was merely the realisation of a private asset. As the sale does not meet all the conditions of section 9-5 of the GST Act, the sale will not be a taxable supply.

Therefore, the sale land is not subject to GST.

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