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Ruling

Subject: Sale of residential property

Question:

Will your supply of the property be a taxable supply?

Answer:

No

Relevant facts and circumstances

You are not registered for GST.

You own the property as joint tenants.

The property was acquired in YYYY.

You subsequently constructed a residence in YYYY on the lot and continue to reside on the property. You use the property primarily for personal purposes.

A relative conducts a primary production business via a family trust. The trust takes fruit from your property for no consideration. Consequently, you derive no income from your property.

The subject land has been rezoned. The rezoning was initiated and managed by the local shire council which applied to a wide area in the locality. You did not actively pursue the rezoning and were a mere passive participant in the process.

You have executed a sale contract to sell the property as a single lot.

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

Reasons for decision

For there to be a taxable supply of the property, the supply must meet all of the criteria set out in section 9-5 of A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Further, the supply must not be GST free or input taxed.

In your case:

· you will be making the supply of the property for consideration,

· the property is located in Australia

· you are not registered for GST

· on the facts provided,

· your supply of the property is not GST-free, and

· the portion of the property that the house is located on will be an input taxed supply of residential property.

Therefore, the issues to be considered are whether the supply of the portion of the property that is not input taxed will be made in the course or furtherance of any enterprise that you are carrying on and, if so, whether you are required to be registered for GST.

As defined in subsection 9-20(1) of the GST Act an enterprise includes an activity, or a series of activities, done:

· in the form of a business, or

· in the form of an adventure or concern in the nature of trade, or

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

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of enterprise for ABN purposes.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 provides that the principles in MT 2006/1 apply equally to the terms 'entity' and 'enterprise' and can be relied on for GST purposes.

Paragraphs 262 and 263 of MT 2006/1 provide guidance in determining whether a one-off or isolated real property transaction is an enterprise. They state:

262. The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

263. The issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset. (In an income tax context a number of public rulings have issued outlining relevant factors and principles from judicial decisions. See, for example, TR 92/3, TD 92/124, TD 92/125, TD 92/126, TD 92/127 and TD 92/128.)

Paragraph 244 of MT 2006/1 discusses the sale of a family home. It states:

244. 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. Such transactions are of a revenue nature. However, the sale of the family home, car and 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 indicated in the facts, you acquired the property to establish a new residence for yourself and your family.

Although the property has been rezoned, the rezoning was initiated and managed by the local shire council which applied to a wide area in the locality. You did not actively pursue the rezoning and were a mere passive participant in the process.

You are selling the property as a single lot.

These facts lead to the conclusion that the property was not acquired with the intent of realizing the property for a profit. Consequently, the sale is not in the form of an adventure in the nature of trade. It follows that the supply is a mere realisation of a capital asset and is not made in the course of or furtherance of an enterprise that you carry on.

As your supply of the portion of the property that is not input taxed will not be made in the course or furtherance of any enterprise that you are carrying on, it is not necessary to consider whether you are required to be registered.

As your supply of the property will not satisfy all of the conditions detailed in section 9-5 of the GST Act, it will not be a taxable supply.

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