Edited version of private advice

Authorisation Number: 1012644749397

Ruling

Subject: GST and sale of land

Question

Is goods and services tax (GST) payable when you sell your land at the specified address in Australia?

Advice/Answer

No. GST is not payable when you sell your land at the specified address in Australia.

Relevant facts and circumstances

You own a specified number of properties being blocks of land. You are the sole owner of these blocks of land:

Some of these blocks are located at A (Land A)

1.block is located at B (Land B)

1 block is located at C (Land C)

Other than these blocks of land, you do not own any other land/real property.

Land A

You purchased the blocks of land in the 80s. These blocks are vacant residential house blocks (there are no buildings or any other improvements on the land). Eventually you would like to sell these blocks of land.

Land B

You purchased the land in the 80s. You forwarded a copy of the Register Search Statement (Title search) Volume 1234 Folio 567 showing your name (name inserted) as the sole proprietor of the Lot number x on Plan of Subdivision 123456.

The land is zoned rural/residential (Rural Living Zone (RLZ)). It is vacant and unimproved (there are no buildings or any other structures on the land). You now intend to sell the land.

You have sought advice on the capital gains issue in relation to the sale. You are in the process of completing a vendor's statement in relation to the sale (the statement is required from the vendor under section 32 of the Sale of Land Act 1962).

You have not yet commenced marketing the sale of the land or engaged a real estate agent for the sale.

The land size is a specified hectare and the land is on a single certificate of title. You will not be developing or subdividing the land prior to the sale.

Land C

You acquired Land C under a mortgage. You were previously building a house on the land to be used as your residence. Since your employment ceased you were unable to complete the construction of your house due to financial reasons. The construction works ceased at the stage where the building was not yet fit or ready for occupation. It was not at a liveable stage. For example, the toilets were not constructed as yet. Since then construction works have not recommenced.

There are no other improvements on the land other than the incomplete construction of the house and machinery shed.

You are registered for GST from 1 July 2000 to the current day in relation to your farming enterprise conducted on Land C. Your farming activities have always been that of cattle farming. You currently have y heads of cattle. The cattle are reared for beef.

Other than your farming activities, you did not carry on any other business activities previously and you are also not carrying on any other business activities currently.

Other than your farming activities, you were also previously in employment. You were employed for more than 20 years until mmyyyy. That is, for the last few years you were not in any employment. You are also currently not in any employment.

You are not entitled to government benefits and you have no other income other than from your farming business. This is the reason you wish to sell Land B.

You do not live on the farm. You have your residence at a specified address.

You answered 'no' to questions 9 and 10 on the Private ruling application form. That is, there has not been an audit on the issues you have raised in this ruling request and you have not previously sought an oral or written ruling for this issue. (The issue is whether GST is payable on your sale of the Maryborough Land). 

Relevant legislative provisions

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

The A New Tax System (Goods and Services Tax) Act 1999 Division 38

The A New Tax System (Goods and Services Tax) Act 1999 Division 40

Reasons for decision

Note: In this ruling, unless otherwise stated,

• all legislative references are to the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)

• reference material(s) referred to are available on the Australian Taxation Office (ATO) website www.ato.gov.au.

Section 9-5 provides for taxable supplies. The section states that an entity makes a taxable supply if all of the following requirements are satisfied:

(a) The entity 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.

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

Where a supply is GST-free or input taxed it will mean that GST does not apply to the supply. That is, GST will not be payable on the supply.

In this case you are an entity (being an individual entity) and you are proposing to sell land B. Accordingly, we need to establish firstly whether, in selling the land, you will be making a GST-free supply or an input taxed supply, before we consider the requirements specified in paragraphs 9-5(a) to (d) above.

In applying the GST-free supply provisions in the GST Act to the facts of your case, we consider that in selling Land B, the GST-free provisions do not apply. Therefore, your sale of Land B is not a GST-free supply.

In applying the input taxed supply provisions in the GST Act to the facts of your case, we also consider that in selling Land B, the input taxed supply provisions do not apply. Therefore, when you sell Land B you are not making an input taxed supply.

As the supply of Land B is not GST-free or input taxed, we will consider if you will satisfy the provision of paragraphs 9-5(a) to (d).

(a) In selling Land B you will receive consideration. Therefore, the requirement specified in paragraph 9-5(a) will be satisfied.

(b) Provided the sale of Land B is made in the course or furtherance of an enterprise that you carry on, then the requirement specified in paragraph 9-5(b) will be satisfied.

(c) As Land B is located in Australia, the sale of this land will be connected with Australia and the requirement specified in paragraph 9-5(c) will be satisfied.

(d) You are currently registered for GST. Being registered for GST at the time of selling the land will satisfy the requirement specified in paragraph 9-5(d).

We consider that when you sell Land B, the requirements specified in paragraphs 9-5(a) (c) and (d) will be satisfied. Whether paragraph 9-5(b) will be also be satisfied is to be further considered.

Paragraph 9-5(b) requires that when you sell Land B you are doing so in the course or furtherance of an enterprise that you carry on.

The only enterprise that you have carried on previously, and are carrying on currently, is that of beef cattle farming. This farming enterprise is on Land C.

As Land B is not used in your cattle farming enterprise, we consider its sale will not be made in the course or furtherance of the farming enterprise.

However, it is relevant to consider if selling Land B is in itself an enterprise of acquiring and selling of real property. Therefore, it is necessary to consider the meaning of the term 'enterprise' for the purposes of the GST Act.

'Enterprise' is defined in section 9-20 which provides, amongst other things, 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.

The question of whether an entity is carrying on an enterprise is examined in Miscellaneous Tax 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). Paragraph 159 of MT 2006/1 states that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case.

Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a business and those done in the form of an adventure or concern in the nature of trade. A business encompasses trade engaged in on a regular basis. An adventure or concern in the nature of trade includes an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal.

In your case, you have acquired blocks of land but have not sold any previously. You are now proposing to sell Land B and and eventually you would like to sell the other blocks of Land A. Accordingly, we need to determine whether your sale will be considered for GST purposes as an isolated or one-off transaction that is considered an enterprise.

MT 2006/1 explains:

177. To determine whether an activity, or series of activities, amounts to a business, the activity needs to be considered against the indicators of a business established by case law.

178. TR 97/11 discusses the main indicators of carrying on a business. Based on that discussion some indicators 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.

179. There is no single test to determine whether a business is being carried on. Paragraph 12 of TR 97/11 states that 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'...

Paragraph 265 of MT 2006/1 lists a number of factors which can be used to determine whether activities in relation to a sale of real property are done under a profit-making undertaking or scheme. 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.

Paragraph 266 of MT 2006/1 explains:

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.

In your case:

• You own properties being X blocks of land.

Block of Land B acquired in the 80s.

Block of Land A acquired in the 80s.

Block (Land C) acquired and used for farming to current date.

• You are now proposing to sell Land B.

• You are selling the land because of your financial situation as you have now been unemployed for a few years since mmyyyy and have no income other than income from your small scale cattle farming business.

• Prior to the sale, you are not engaging in any development or subdivision works.

• You intend to eventually sell the other land.

In considering whether you are carrying on an enterprise of buying and selling land, we have taken the following into account:

MT 2006/1 includes explanations at paragraphs 249 to 253 that a trading asset is generally dealt with or traded within a short time after acquisition, and that the greater the frequency of similar transactions the greater the likelihood of trade.

You own a number of real properties. You have not been selling land on a regular basis. You are selling the land to assist your financial situation and to complete your residence at Land C. When you sell Land B you will be conducting your first sale of land which you have held for more than 20 years.

We consider the one-off sale of land does not amount to an enterprise for GST purposes.

Even though you may eventually sell the other real properties which you have held for a similar length of time, we consider this intention will not result in the sale of Land B to amount to an enterprise of buying and selling land.

Accordingly, we determine that when you sell Land B, you are not making the sale in the course or furtherance of an enterprise that you carry on and the requirement of a taxable supply specified in paragraph 9-5(b) will not be satisfied. This means, GST is not payable when you sell your land located at the specified address in Australia.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).