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Ruling

Subject: Goods and services tax (GST) and sale of property

Question:

Will GST be payable on your sale of Lot X?

Answer:

No.

Relevant facts and circumstances

Individual 1 and individual 2 (you) purchased Lot X and Lot Y, which are located in Australia in a certain year. These lots are adjacent to each other.

Lot X had an existing building on it when you purchased it. Lot X was always zoned residential but since the existing structure was used as a place of worship, you applied to change the usage of the building to a dwelling. On a certain date, Council granted DA consent to change the use of Lot X from a place where certain activities are conducted to a dwelling, with an associated boundary adjustment with Lot Y. You have used Lot X as your principal place of residence ever since the change of use to a dwelling was permitted.

Lot Y is vacant land. You have used Lot Y to park cars, for storage etc.

In a certain month of a certain year, Council approved the building of a dual occupancy dwelling on Lot Y. The intention was for your relatives to be able to build and live in the proposed home. As your relatives have expressed little or no interest in building the dual occupancy dwelling or living on Lot Y, you are considering selling Lot Y.

In order to be able to sell Lot Y independently, you applied for approval for the creation of an easement in the middle of the two lots to provide for vehicle access for both lots. DA approval provided that rights of carriageway shall be registered upon the respective titles of Lot X and Lot Y. This access is particularly important to you, as without it, you will have no parking or vehicle access to your home.

The sale of Lot Y can be made with or without any of the relevant development applications set out above.

If Lot Y is sold, you will continue to occupy Lot X as your principal place of residence.

You have never rented out Lot X nor used it for income producing purposes.

You have never rented out Lot Y nor used it for income producing purposes.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 subsection 7-1(1)

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

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

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

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-20(1)(b)

Reasons for decision

Summary

GST will not be payable on your sale of Lot Y because your sale of this lot will be the mere realisation of a private capital asset.

Detailed reasoning

GST is payable by you where you make a taxable supply.

You make a taxable supply where you satisfy the requirements of 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:

· you make the supply for consideration; and

· the supply is made in the course or furtherance of an enterprise that

· you carry on; and

· the supply is connected with Australia; and

· 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.

We shall now consider whether your sale of Lot Y will be a supply made in the course or furtherance of an enterprise that you carry on.

Section 9-20 of the GST Act defines the term 'enterprise'.

'Enterprise' includes the following activities:

· an activity or series of activities in the form of a business (paragraph

· 9-20(1)(a))

· an adventure or concern in the nature of trade (paragraph 9-20(1)(b))

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

Goods and Services Tax Determination GSTD 2006/6 provides that MT 2006/1 has equal application to the meaning of enterprise for GST purposes.

Paragraphs 244, 262 and 263 of MT 2006/1 provide guidance in relation to sales of private assets and capital assets. They state:

· 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.

· 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.)

You purchased Lot X and Lot Y in a certain year. Therefore, you have held the lots for a long period of time.

You have used the lots for private purposes only. You have used Lot X as your principal place of residence ever since the Council approved usage of the property as a dwelling. You have used Lot Y to park cars, for storage etc. You did not use either lot for income producing purposes.

You obtained DA approval for the building of a dual occupancy dwelling on Lot Y. Your intention was for your relatives to be able to build and live in the proposed homes. As your relatives have expressed little or no interest in building the dual occupancy dwelling or living on Lot Y, you are considering selling Lot Y.

In order to be able to sell Lot Y independently, you have applied for approval for the creation of an easement in the middle of the two lots to provide for vehicle access for both lots. DA approval provided that rights of carriageway shall be registered upon the respective titles of Lot X and Lot Y. This access is particularly important to you, as without it, you will have no parking or vehicle access to your home.

Considering these factors, your sale of Lot Y will be the mere realisation of a private capital asset. Therefore, your sale of Lot Y will not be a supply you make in the course or furtherance of an enterprise that you carry on. Hence, the requirement of paragraph 9-5(b) of the GST Act will not be satisfied.

As not all of the requirements of section 9-5 of the GST Act will be satisfied, you will not make a taxable supply of Lot Y. Hence, GST will not be payable on your sale of Lot Y.

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