Edited version of your written advice

Authorisation Number: 1012815417639

Ruling

Subject: GST and sale of properties

Question

Will you need to charge goods and services tax (GST) when you sell the properties located in Australia?

Advice

No, you will not need to charge GST when you sell the properties located in Australia because based on the information received, the supply of the properties will not be a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

Relevant fact

You own properties in Australia and currently you are not registered for the goods and services tax (GST).

You and your spouse in a partnership carry on a farming business on the properties. The partnership is registered for GST.

You do not receive any income from the partnership when they use the properties for their farming activities. There never has been a written agreement for you to lease the property or for the partnership to use the property for farming. All agreements have been verbal.

The partnership pays all rates, costs of property ownership and maintenance. You do not recall claiming any personal deductions for any of these running costs, or conversely returning any rent for the use of the property

The partnership will carry on the farming business on the properties up to the day of any sale of the property including fertilising, smudging and so on.

You are considering selling the properties

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 subsection 9-20

Reasons for decisions

GST is payable on a taxable supply. A supply is a taxable supply under section 9-5 of the GST Act 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.

All the requirements in section 9-5 of the GST Act must be satisfied for a supply to be a taxable supply.

One of the requirements for a supply to be taxable supply is the supply is to be made in the course of an enterprise that you carry on (paragraph 9-5(b) of the GST Act). We will now determine whether you will be supplying the properties in the course of an enterprise that you carry on when you sell the properties.

Will the supply of the properties be made in the course of an enterprise that you carry on?

Subsection 9-20(1) of the GST Act defines 'enterprise' as an activity or series of activities and includes:

• in the form of a business;

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

• in the form of an adventure or concern in the nature of trade.

• In the form of a business

From the fact given you are not in the business of purchasing and selling properties.

The supply of the properties will therefore not be made in the course of an enterprise in the form of a business under subsection 9-20(1) of the GST Act.

• On a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

From the facts given you are supplying the properties to the partnership on a continuous basis so that the partnership can carry on the farming business. In this instance you are considered carrying on an enterprise in the form of a lease, licence or other grant of an interest in property under subsection 9-20(1) of the GST Act

However, under paragraph 9-20(2)( c) of the GST Act, an enterprise does not include an activity or series of activities done by an individual (other than a trustee of a charitable fund, or a fund covered by item 2 if the table in section 30-15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN, or a partnership (all or most of the members of which are individuals), without a reasonable expectation of profit or gain.

From the facts received, you are not deriving any income from the partnership when they use the properties and you have no expectation to make a profit when the partnership uses the properties since the partnership is paying for the costs related to the properties that you would normally pay should the partnership not be using the properties for their farming business. Further you are not providing the properties to the partnership in a business manner.

In this instance we consider you are not carrying on an enterprise by virtue of paragraph 9-20(2)(c) of the GST Act since you are not supplying the properties to the partnership with an expectation of profit.

The supply of the properties will therefore not be made through an enterprise in the form of a lease, licence or other grant of an interest in property under subsection 9-20(1) of the GST Act.

• in the form of an adventure or concern in the nature of trade

Miscellaneous Taxation Ruling MT 2006/1 considers the meaning of carrying on an enterprise.

When you sell the properties it will be a one-off isolated real property transaction.

In regard to one-off isolated transaction, paragraphs, 262 and 263 of MT 2006/1 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....

Further paragraph 244 of MT 2006/1 states:

244. 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. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

Based on the facts received and as discussed above, you will not be selling the properties through an enterprise despite the fact that the partnership is using your property to carry on their farming business. Accordingly, the properties are being held by you as an asset and therefore the disposal of the properties will not amount to trade for GST purposes.

Accordingly, you will not be selling the properties in the form of an adventure or concern in the nature of trade under subsection 9-20(1) of the GST Act

Summary

When you sell the properties, the supply of properties will not be done in the course of an enterprise that you are carrying on under paragraph 9-5(b) of the GST Act. In this instance all the requirements in section 9-5 of the GST Act will not be satisfied and therefore no GST will be payable of the sale of the properties.

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