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Ruling

Subject: GST and requirement to register

Question 1

Are the landholders required to register for GST?

Answer

No, the landholders are not required to register for GST.

This ruling applies for the following periods:

N/A

The scheme commences on:

N/A

Relevant facts and circumstances

You purchased a block of land prior to the introduction of Capital Gains Tax.

You farmed the land for many years.

You are now running a small number of cattle on the property as a hobby.

You are not currently registered for GST.

You intended to sell part of the land to fund your retirement and to cover medical expenses.

A portion of the land was re-zoned as a residential area.

Recently you received a list of Conditions for the Development Approval (DA).

Your proposed development activities for the land are based on the conditions listed on the conditions provided on the DA.

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 and

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5.

Reasons for decision

GST is payable on taxable supplies that you make. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 ('GST Act'), an entity makes a taxable supply if:

a) the entity makes a 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 to Australia; and

d) the entity is *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.

(Items marked with an * asterisk are defined in the dictionary at section 195-1 of the GST Act.)

If all these requirements are satisfied, then the entity (the supplier) will be making a taxable supply.

As you are not currently registered for GST, you would only be liable to charge GST if you are required to be registered, and Section 23-5 of the GST Act states that you are required to be registered if:

a) you are *carrying on an *enterprise; and

b) your *GST turnover meets the *registration turnover threshold.

Enterprise

The definition of an enterprise provided in section 9-20 of the GST Act includes (amongst other things) an activity or series of activities, done:

· in the form of a business, or

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

Miscellaneous Tax Ruling MT 2006/1The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number ('MT 2006/1') provides guidance on the meaning of 'enterprise' for GST purposes. Paragraph 159 of MT 2006/1 provides that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case.

For isolated transactions and sales of real property, the issue to be decided is whether the activities are an enterprise, in that they are of a revenue nature, as opposed to the mere realisation of a capital asset.

Certain factors listed in paragraph 265 of MT 2006/1 can be used as indicators of whether or not there is an activity done in the form of a business or in the form of an adventure or concern in the nature of trade. These factors include whether:

· there is a change of purpose for which the land is held;

· additional land is acquired to be added to the original parcel of land;

· 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;

· borrowed funds financed the acquisition or subdivision;

· interest on borrowed to defray subdivisional costs was claimed as a business expense;

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

· buildings have been erected on the land.

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.

From the information provided, there are several events which lead us to consider that the sale of the property is not in the course of an enterprise and no more than mere realisation of capital assets. Factors which lead to this conclusion are as follow:

· you purchased the land in the early 1970's and farmed it for many years;

· no additional land is acquired to be added to the original parcel of land;

· there is no business organisation; and

· the level of proposed development of the land is necessary to obtain council approval.

On the basis of these factors taken in combination, we consider that there is not a significant commercial component in your activities, and the extent of the activities is merely the realisation of capital assets. Therefore, you are considered not to be carrying on an enterprise as defined in section 9-20 of the GST Act.

Based on the information which you provided, we cannot determine whether your circumstance satisfies the turnover requirements. Nevertheless, as discussed above, the sale of an individual asset, in this case your property does not constitute carrying on an enterprise. Hence, you are not required to be registered. Therefore, you would not be able to make a taxable supply, and consequently no GST is payable on the sale of the property.

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