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Ruling

Subject: The sale of commercial and residential premises

Question 1

Is the sale of a property that comprises both commercial premises and residential premises, by a statutory trust that did not carry on an enterprise, a mixed supply?

Answer

No, the sale of the property that comprises both commercial premises and residential premises, by a statutory trust that did not carry on an enterprise from the property, is not a mixed supply. No GST is payable on the sale of the property because it is not a taxable supply.

This ruling applies for the following periods:

N/A

The scheme commences on:

N/A

Relevant facts and circumstances

You, the Trustee for a Trust are a statutory trust and are registered for GST. You are selling a property that is on one title and consists of residential premises and commercial premises

The property was owned by owned by two co-owners. The owners lived in the residential premises for a number of years. The property was owned by the same entities for a significant period of time.

The title to the property passed from the co-owners of the property to you as joint tenants from the orders of the Supreme Court.

The residential premises has only been used for residential purposes.

The commercial premises of the property have always operated as such.

The enterprise that was being conducted from the premises by a third party ceased trading approximately a week after the auction of the property and the lease on the property was terminated pursuant to the Supreme Court orders before the completion of the sale.

The commercial premises and the residential premises are on one single title and are zoned as purely residential.

You have never conducted the leasing enterprise and have never been the lessor throughout the transfer process. The Trust was established pursuant to Supreme Court orders and was established solely to sell the property.

The Trust does not conduct any other enterprise and will cease to exist once this matter is finalised.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 sections 7-1; 9-5; and 9-20.

Reasons for decision

Section 7-1 of the A New Tax System (Goods and Services Tax) Act 1999 (the GST Act) provides that you must pay GST on any taxable supply that you make.

Section 9-5 of the GST Act defines a taxable supply. It states:

You make a taxable supply if:

(a) you make the 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 with Australia; and

(d) you are *registered, or *required to be registered.

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

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

You have made the supply for consideration; the supply is connected with Australia, as the property is in Australia; and you are registered for GST. It must now be determined whether the supply of property was made in the course or furtherance of an enterprise that you carry on.

'Enterprise' is defined in subsection 9-20(1) of the GST Act. It states:

An enterprise is an activity, or 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; …

Miscellaneous Taxation Ruling MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) discusses when an entity can be said to be carrying on an enterprise. Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999? (GSTD 2006/6) provides that the reasons in MT 2006/1 are considered to apply equally to the term 'enterprise' in the GST Act and can be relied on for GST purposes.

Paragraph 154 of MT 2006/1 provides that it is necessary to identify one activity or a series of activities that amount to an enterprise. Paragraph 159 provides that whether or not an activity or series of activities amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case. Example 15 in MT 2006/1 provides that an activity such as the selling of an asset may not of itself amount to an enterprise, but account should also be taken of the other activities leading up to the sale to determine if an enterprise has been carried on.

In the form of a business

An enterprise includes an activity, or series of activities, done in the form of business. MT 2006/1 presents some indicators of business derived from case law. These are:

· a significant commercial activity;

· a purpose and intention of the taxpayer to engage in commercial activity;

· an intention to make a profit from the activity;

· the activity is or will be profitable;

· the recurrent or regular nature of the activity;

· the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

· activity is systematic, organised and carried on in a businesslike manner and records are kept;

· the activities are of a reasonable size and scale;

· a business plan exists;

· commercial sales of product; and

· the entity has relevant knowledge or skill.

There is no single test to determine whether a business is being carried on.

In your case, the property had been owned by the one family for a significant period of time. The sale was a once-off and not a regular activity. No business plan existed and this activity was not on a commercial scale. Considering these factors, the sale of the property was not in the form of a business.

In the form of an adventure or concern in the nature of trade

There is also no single test to determine what is an adventure or concern in the nature of trade. MT 2006/1 recognises case law stipulating that an adventure or concern in the nature of trade implies a commercial, profit-making undertaking or scheme. Paragraph 244 of MT 2006/1 provides that this undertaking must have the characteristics of a business deal and be of a revenue nature. Paragraph 247 of MT 2006/1 provides that where the property being sold provides personal enjoyment to the owner it is more likely to be an investment rather than a trading asset. Paragraphs 249 to 255 of MT 2006/1 provide that the length of ownership, the frequency of the transactions, supplementary work on the property, the circumstances that were responsible for the realisation and the motive are also relevant factors when determining whether an activity is in the form of an adventure or concern in the nature of trade.

In your case, you sold a property consisting of a residence and a commercial shop. This property as a whole was zoned residential. The owners lived in the residential property for a number of years. The property was owned by the same entities for a significant period of time. You, as Trustee, have not engaged in leasing the commercial premises at any stage during the sale process. The sale of the property was an infrequent transaction, as it was sold by order of the Supreme Court. Considering these factors, the sale of the property was not in the form of an adventure or concern in the nature of trade.

Isolated transactions and sales of real property

MT 2006/1 also provides guidance on whether an entity is carrying on an enterprise where there is a 'one off' sale of real property. Paragraph 266 of MT 2006/1 provides that 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. 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.

Paragraph 265 of MT 2006/1 states factors to consider when determining whether an isolated sale of real property is a business or a concern in the nature of trade. These are:

· 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 - for example a manager, office and letterhead;

· borrowed funds financed the acquisition or subdivision;

· interest on 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.

In your case, there was no change of purpose for which the land was held; it still remains partly a residential property and partly a commercial property. No additional land has been acquired. The parcel of land as a whole is not brought into account as a business asset. A business organisation does not exist. There are no subdivisional costs. You, as Trustee for the Trust, have no plans to develop or refurbish the property. Additional buildings have not been erected on the land. Considering these factors, this transaction of real property was not done in the course of an enterprise that you were carrying on.

As the sale of the property was not made in the course or furtherance of an enterprise that you were carrying on, the sale of the property is not a taxable supply. There is no requirement to report GST on the transaction.

Additional information

GST consequences may arise where the title of a property passes from co-owners to a statutory trust.

Please refer to Goods and Services Tax Ruling GSTR 2004/6 Goods and services tax: tax law partnerships and co-owners of property and Goods and Services Tax Ruling GSTR 2006/9 Goods and services tax: supplies for more information.

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