Edited version of your private ruling

Authorisation Number: 1012608231569

Ruling

Subject: GST and sale of private property

Question

Is the sale of your property subject to the goods and services tax (GST)?

Decision

No, the sale of your property is not subject to GST.

Relevant facts and circumstances

• You live in an aged care home and you have given a power of attorney to your children.

• You own a property consisting of three blocks of land on separate titles.

• One block of land contains sheds on it, from which you previously carried on a business. Another block contains your residential house. The other block constitutes vacant land.

• We are informed that you conducted a business on the land with your ex-spouse. Your spouse passed several years ago. Although you and your spouse conducted the business together, your involvement in the business ceased more than ten years ago.

• These blocks were originally zoned residential. However, now they have been rezoned to be commercial.

• As per our records, you are not registered for the goods and services tax (GST).

• Your pension has been reduced as your property was counted as an asset. Therefore, your children have decided to sell the property in order to continue with your current level of health care.

• Your children want to know whether GST is payable on the sale of the property.

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 9-10

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

Reasons for the decision

Subsection 9-10(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that a supply is any form of supply whatsoever.

Paragraph 9-10(2)(d) of the GST Act provides that without limiting subsection (1), a supply includes a grant, assignment or surrender of real property. As the proposed sale of your land constitutes surrender of real property, the sale of your land will be a supply for the purposes of the GST Act.

Section 9-5 of the GST Act provides that 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 it is GST-free or input taxed.

For there to be a taxable supply, all the requirements under section 9-5 of the GST Act have to be satisfied.

As you will make your supply for consideration, paragraph 9-5(a) of the GST Act will be satisfied. It is necessary to consider whether your supply will be made in the course or furtherance of an enterprise that you carry on and satisfy paragraph 9-5(b) of the GST Act.

Subsection 9-20(1) of the GST Act provides that 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; or

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

d) .....

Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1) refers to the meaning of an entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (ABN).

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

Paragraphs 262-266 of MT 2006/1 refer to isolated transactions and sales of real property and state:

Isolated transactions and sales of real property

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.)

264. The cases of Statham & Anor v. Federal Commissioner of Taxation (Statham) and Casimaty v. FC of T ( Casimaty ) provide some guidance on when activities to subdivide land amount to a business or a profit-making undertaking or scheme. In these cases, farm land was subdivided and sold. Minimal development work was undertaken to meet council requirements and to improve the presentation of certain allotments. On the particular facts of these cases the courts held that the sales were a mere realisation of a capital asset.

265. From the Statham and Casimaty cases a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade (a profit-making undertaking or scheme being the Australian equivalent, see paragraphs 233 to 242 of this Ruling). If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on. These factors are as follows:

• 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.

266. 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. This may require a consideration of the factors outlined above, however there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. 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.

The proposed sale of your property is an isolated property transaction. We consider that your activities in selling your property do not constitute a business or an adventure or concern in the nature of trade or a profit making undertaking. It is simply a realisation of a capital asset, which you have owned for a long time. Accordingly, in selling your property, you will not be carrying on an enterprise. Therefore, the requirements of paragraph 9-5(b) of the GST Act will not be satisfied. Hence, as not all of the requirements of section 9-5 of the GST Act will be satisfied you will not be making a taxable supply when you sell your property.

We consider that the sale of your property will be a mere realisation of a capital asset and will not be subject to GST.

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