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Edited version of your private ruling
Authorisation Number: 1012521637023
Ruling
Subject: GST and sale of residential property
Question
Will the sale of the new residential premises be subject to goods and services tax (GST)?
Answer
No, the sale of the new residential premises will not be subject to GST.
Relevant facts and circumstances
You and your spouse purchased a property as joint tenants in 20XX.
You used the property as your primary place of residence for less than five years. You did not rent out the property or use it to derive income.
In 20YY, you commenced building a house to the rear of your main residence and subdivided the property. The subdivision was registered in 20ZZ.
You sold your main residence; and on settlement, you moved into the new residential premises.
The new residential premises is now your main place of residence. You did not rent out the new residential premises or use it to derive income.
A couple of incidents occurred after you moved into the new residential premises and you now intend to sell it after living in it for less than five months.
You and your spouse are not carrying on an enterprise as a partnership or as individuals.
You and your spouse have not subdivided or developed a property previously.
While you are contemplating to acquire a property to lease as an investment, you do not intend to develop properties for profit or become developers.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5 and
A New Tax System (Goods and Services Tax) Act 1999 section 9-20.
Reasons for decision
Goods and services tax (GST) is payable on a taxable supply.
According to 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) it makes the supply for consideration; and
(b) the supply is made in the course or furtherance of an enterprise that the entity carries on; and
(c) the supply is connected with Australia; and
(d) the entity is registered or required to be registered for GST.
All the conditions above must be satisfied for a supply to be a taxable supply. However, a supply is not a taxable supply if it is GST-free or input taxed.
In this case, the sale of the new residential premises will be for consideration; thus paragraph
9-5(a) of the GST Act will be satisfied. The sale will be connected with Australia as the new residential premises is located in Australia; as such, paragraph 9-5(c) of the GST Act will also be satisfied.
What remains to be determined is whether the sale of the new residential premises will meet the conditions in paragraphs 9-5(b) and 9-5(d) of the GST Act. If one of these conditions will not be met, the sale will not be a taxable supply.
Supply made in the course or furtherance of an enterprise (paragraph 9-5(b) of the GST Act)
You advised that you and your wife are not carrying on an enterprise as a partnership or as individuals. Thus, we must determine whether your activities leading to the sale of the new residential premises constitute an enterprise.
An enterprise is defined in section 9-20 of the GST Act to include 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 Tax Ruling MT 2006/1 considers the meaning of the terms 'entity' and 'enterprise' for the purposes of the A New Tax System (Australian Business Number) Act 1999 (ABN Act). According to Goods and Services Tax Determination GSTD 2006/6, the principles in MT 2006/1 apply equally to the terms 'entity' and 'enterprise' and can be relied upon for GST purposes.
The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.
Paragraph 265 of MT 2006/1 provides the following indicators that a business or an adventure or concern in the nature of trade is being carried on:
· there is a change of purpose for which the land is held;
· additional land is acquired to be added to the original parcel 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 this case, you acquired a property that was your main residence for less than five years. You subdivided the property and built the new residential premises at the rear of your main residence. You sold your main residence as you intended to live on the new residential premises. After occupying the new residential premises, a couple of incidents occurred that you decided to sell it after living in it for less than five months. You did not use any of the premises to derive income.
According to paragraph 13 of GSTD 2006/6, the sale of the family home, a private car or other private assets is not, without other factors being present, an adventure or concern in the nature of trade.
Based on the information that you provided, we do not consider your activities to be in the form of a business or an adventure or concern in the nature of trade as most of the factors mentioned above are not present. Furthermore, you have not previously engaged, and you do not intend to engage in property development. Your activities leading to the sale of the new residential premises do not constitute an enterprise. As such, the sale of the new residential premises will not be made in the course of an enterprise that you and your spouse are carrying on. The requirement in paragraph 9-5(b) of the GST Act will not be satisfied.
As the requirement in paragraph 9-5(b) of the GST Act will not be satisfied, it is no longer necessary to determine if paragraph 9-5(d) of the GST Act will be satisfied.
The sale of the new residential premises will not be a taxable supply. Therefore, the sale will not be subject to GST.
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