| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1012688888020
Ruling
Subject: GST and sale of vacant residential land
Question
Is the proposed sale of your vacant residential block of land subject to goods and services tax (GST)?
Decision
No.
Relevant facts and circumstances
• You purchased a residential block of land in your name a number of years ago with the intention of building a house for leasing purposes. GST was not included in the purchase as it was a private sale.
• The land is zoned residential and it is suitable for construction of a single residential dwelling.
• You entered into a contract with a builder to construct a house but abandoned the project due to the builder continually increasing the contract price.
• You own a number of residential rental properties in addition to your own residence. Your main income is residential rental income.
• You previously carried on an enterprise unrelated to leasing properties.
• As per our records, your GST registration has been recently cancelled.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 (GST Act) - section 9-5
Reasons for the decision
In order to determine whether the proposed sale of your residential block of land (land) is subject to GST, it is necessary to ascertain whether the sale of the land will be a taxable supply.
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.
In this case you will make the supply of the land for consideration and satisfy paragraph 9-5(a) of the GST Act.
It is necessary to determine whether you will make the supply 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) ......
In this case, we consider that you did not carry on a business of buying and selling vacant land and other properties.
We also consider that the proposed sale of this land is not a part of an adventure or concern in the nature of trade. You did not purchase this block of land with the intention of developing and selling at a profit. You wanted to build a residence and lease it. Due to factors beyond your control, you had to give up that project and you were left with this vacant block of land. As you are not able to use the block of land for construction of a residence, you are compelled to sell it.
Based on the given facts, we consider that the proposed sale of your land is a mere realisation of a capital asset. Accordingly, your proposed sale of land will not satisfy paragraph 9-5(b) of the GST Act as a supply made in the course or furtherance of an enterprise carried on by you.
Therefore, the sale of this land will not satisfy section 9-5 of the GST Act as a taxable supply and you will not incur a GST liability. However capital gain tax may apply.
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).
