Edited version of your written advice

Authorisation Number: 1012787561102

Ruling

Subject: GST and sale of property

Question

Is GST payable on the sale of your property?

Answer

No.

GST is payable on any taxable supplies that you make. The requirements of a taxable supply include that the supply be made in the course or furtherance of an enterprise that you carry on and that you are registered or required to be registered for GST.

In this case, the sale is not considered to be in the course or furtherance of an enterprise that you carry on and you are neither registered nor required to be registered for GST.

Relevant facts and circumstances

You are not registered for GST.

You own property at a specified location (the Property).

The Property has been in your family since the 1940's with the Property being transferred to you in the 1980's.

The Property is in excess of 10 hectares and contains a house which is used as your primary residence.

The remainder of the Property was historically used to operate a fruit growing/picking enterprise.

The fruit growing/picking enterprise was carried on by way of a partnership between you and your spouse.

The partnership was formed when the Property was transferred to you and the Property was always used as part of the enterprise of the partnership.

The partnership has never been registered for GST as the turnover of the partnership did not meet the GST registration threshold.

The partnership enterprise ceased in 20XX with no income being received or expenses being incurred from that date.

There are no outstanding debts or obligations in relation to the fruit growing business.

The fruit (being the sole income producing asset of the business) has remained on the Property, however has not been maintained since the date the enterprise ceased.

Equipment used in the fruit growing/picking enterprise is still on hand and is now used for private purposes for the general upkeep and maintenance of the Property. You do not consider the fruit or equipment to have any significant value and have not had these items professionally valued by a third party.

The Property was not included in the assets of the business.

In or around the 200X calendar year, you, together with surrounding land owners (collectively referred to as the Owners Group) jointly applied for the land owned by the members of the Owners Group to be rezoned from rural to urban.

The properties owned by the Owners Group will remain on separate titles and not be merged prior to the sale of the Property.

The Owners Group engaged an expert project manager (Project Manager) to assist the Owners Group through the rezoning process.

Members of the Owners Group contributed to a joint bank account to cover costs incurred in the rezoning process. Costs were apportioned based on each member of the Owners Groups land size as a proportion of the combined size of the land of the Owners Group.

You currently have a mortgage over the Property. The primary purpose of the loan was to fund general living expenses and the refurbishment and maintenance of your primary residence. The loan has also been used to assist in funding your share of the costs associated with the rezoning process.

You also have an additional separate equity loan (secured against the Property). The primary purpose of this loan was for private purposes but again also assisted in funding some outstanding costs associated with the rezoning process.

Prospective purchasers will be invited to make an offer to purchase the entire land owned by the Owners Group. The Owners Group will determine if they all approve the offer price and each member of the Owners Group must agree to the total offer price.

If the offer is accepted, separate contracts for the sale of land will be entered into by each of the members of the Owners Group. That is, there will be separate contracts between each member and the purchaser.

You do not own any other properties and have not previously been involved in any property development.

You do not intend to carry on any enterprise in the future and it is your intention to not do any more than necessary to secure the rezoning of the land. You do not intend to develop the land.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999

Section 9-40

Section 9-5

Section 9-20

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 9-40 provides that you are liable for GST on any taxable supply you make. The term 'taxable supply' is defined in section 9-5. 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 for GST.

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

The issues in this case are whether the supply of the Property will be made in the course or furtherance of an enterprise that you carry on and whether, as you are not registered for GST, you are required to be registered for GST.

In the event that the answer to these two issues is 'Yes', we will need to examine whether the supply is input taxed.

Section 9-20 provides that the term 'enterprise' includes, among other things, an activity or series of activities done in the form of a business or done in the form of an adventure or concern in the nature of trade. The phrase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

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), provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 2006/6 Goods and services tax: does MT 2006/1 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 discussion in MT 2006/1 equally applies to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

In respect of the fruit growing/picking enterprise carried on by the partnership and whether the current activities constitute activities done in the termination of that enterprise, paragraphs 140 to 148 of MT 2006/1 provides guidance. Given the facts in this case, we do not consider your current activity of applying for rezoning of your Property to be in the course of terminating the fruit growing/picking enterprise after taking into account the following factors:

• no income has been derived or expenses incurred in regard to the fruit growing/picking business since 20XX and all debts or obligations regarding the business have been satisfied;

• the fruit, whilst still on the Property, has not been maintained since that date;

• the Property was not included in the assets of the business and the equipment used in the business is now used solely for private purposes in the maintenance and upkeep of the Property.

Given the above, we do not consider your activities of applying for rezoning of your Property to be in the course of carrying on the fruit growing/picking enterprise.

We note that the arguments included in your Private ruling application refer to the partnership as a 'tax law partnership' with references to GSTR 2004/6. Whilst not a determining factor in this case, we would consider the partnership to be a 'general law partnership'. Paragraph 19 of GSTR 2004/6 states:

19. If the 'receipt of income jointly' is from the 'association of persons' carrying on business as partners, that association of persons is a general law partnership, and not a tax law partnership.

In this case, we consider the association between you and your spouse is that of carrying on the fruit growing/picking business as partners. Whilst income from the business may be received jointly, the association between the partners is/was to carry on the business.

The next issue to consider is whether your activities of applying for rezoning and subsequent sale of your Property to be in the course of carrying on another enterprise.

As discussed earlier, the term 'enterprise' includes, among other things, an activity or series of activities done in the form of a business or done in the form of an adventure or concern in the nature of trade. Paragraph 178 of MT 2006/1 lists a number of indicators considered when attempting to determine whether an activity or series of activities amount to a business:

• 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.

Furthermore, 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' as follows:

• a business encompasses trade engaged 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.

Paragraph 244 of MT 2006/1 explains that an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business but which has the characteristics of a business deal. It refers to 'the badges of trade' and outlines a number of factors that may be taken into account when determining whether assets have the characteristics of 'trade' and held for income producing purposes, or held as an investment asset or for personal enjoyment.

Paragraphs 258 and 259 of MT 2006/1 provide guidance on the distinction between trading/revenue assets and investment/capital assets providing the following:

• Assets can be categorised as trading/revenue assets or capital/ investment assets. Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes.

• Examples of capital/investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of capital/investment assets does not amount to trade.

Assets can change their character from a capital/investment asset to a trading/revenue asset, or vice versa, but cannot have a dual character at the same time.

While an activity such as the selling of an asset may not of itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is carried on.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues, stating that the issue to be decided is whether the activities being conducted 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.

The cases of Statham & Anor v. Federal Commissioner of Taxation (Statham) and Casimaty v. FC of T (Casimaty) established a number of factors in determining whether activities are a business or an adventure or concern in the nature of trade with reference to real property transactions including:

• 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.

No single factor will be determinative of whether the activity or activities will constitute either a business or an adventure or concern in the nature of trade.

The following discussion is centred on applying the facts of this case to the above indicators of a business and factors in determining whether activities are a business or an adventure or concern in the nature of trade with reference to the indicators established in Statham and Casimaty in the context of real property transactions.

In this case, the activity involves a single property being in excess of 10 hectares in area containing your principal place of residence. The Property is currently being used for private purposes only as your primary or principal place of residence. The Property is intended to be used for this purpose until the sale of the Property subsequent to the approval of the rezoning application. As such, there will be no change to the purpose for which the land is held whilst conducting this activity.

Additional land has not been acquired by you during the rezoning process. Whilst the rezoning application relates to a larger area of land than that held by you and the fact that a prospective purchaser will make a single offer for the combined properties of the Owners Group, no additional land will be acquired by you and title in the other properties will remain with the individual owners of such land.

The Property is your primary place of residence and is not considered to be a business asset.

Whilst you will not be subdividing and developing the Property, the expert engaged to act on behalf of the Owners Group would develop a coherent plan in presenting the rezoning application to the relevant Government authorities.

You are financing the costs related to the rezoning process using funds available through your mortgage loan and a separate equity loan. Whilst the primary purpose of the loans is to fund general living expenses and the refurbishment and maintenance of your primary residence, the funds are also used to satisfy rezoning expenses. In addition, the interest expense incurred on the loans is not being claimed as a business expense.

It is your intention to do only what is necessary to secure the rezoning of the land and there have been no additional buildings erected on the Property.

Given the circumstances discussed above, we consider that your activities associated with your application for the re-zoning and subsequent sale of your Property do not constitute 'carrying on an enterprise' for the purposes of GST.

GST Registration

Section 23-5 provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000 or$150,000 for non-profit bodies).

Section 23-10 provides that you may register for GST if you are carrying on an enterprise, regardless of your GST turnover.

In both cases, a common requirement for GST registration is that you are carrying on an enterprise.

As discussed above, we do not consider you to be carrying on an enterprise. As such you are not eligible for GST registration.

Conclusion

GST is payable on any taxable supplies that you make. The requirements of a taxable supply include that the supply be made in the course or furtherance of an enterprise that you carry on and that you are registered or required to be registered for GST.

In this case, the sale is not considered to be in the course or furtherance of an enterprise that you carry on and you are neither registered nor required to be registered for GST.

As such, you will not be making a taxable supply when you sell the Property and GST will not be applicable to the sale.

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