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Edited version of your written advice
Authorisation Number: 1012880086291
Date of advice: 16 September 2015
Ruling
Subject: Sale of new residential premises
Question
Was your supply of the new house to a family member be a taxable supply pursuant to section 9-5 of the GST Act?
Answer
No.
Relevant facts and circumstances
You are not registered for GST.
You purchased a house located at in Australia in 19XX. You lived at the property until mid-19XX after which you moved.
From 19XX the property was house sat by family or friends. From 20XX your family member and his/her spouse resided in to the property rent-free.
The house was in need of repair and work needed to be done on the sewerage. You considered building a small unit at the back of the property for your retirement and selling the house to your family member but couldn't due to council regulations. Your family member suggested in 20XX that the property could be developed by demolishing the current premises, dividing the block and building two houses on the land. You would then have accommodation on the property and assistance from him/her when necessary. At the time the property was still mortgaged.
You agreed with your family member that the purchase price would be on par with the building costs only. The construction was fully funded from your savings. You engaged a builder and construction of two houses (House A and House B) commenced in June 20XX. In December 20XX your family member moved in to house A.
The cost for House A was $X, inclusive of water and sewer connection, surveyors fees, landscaping, land titles search and lodgement, etc. The conveyancers were given a value of $X for stamp duty purposes.
On a day in 20XX, you entered into an agreement with your family member and spouse for the sale of Allotment XX Deposited Plan XXXXX being for the whole of the land comprised in Certificate of Title Register Book Volume XXXX Folio XXX and being improved residential land situation in Australia (House A). They paid $XX which is the cost of construction plus an amount for the value of the land.
You received $X less the deductions made by the conveyancers. The transfer of this house was finalised in 20XX.
Relevant legislative provisions
Section 9-5 - A New Tax System (Goods and Services Tax) Act 1999
Reasons for decision
You make a taxable supply (for GST purposes) where you satisfy the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), which states:
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 the indirect tax zone; 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.
(*Denotes a term defined in the GST Act)
You meet the requirements of paragraph 9-5(a) and 9-5(c) of the GST Act. This is because:
• your sale of the property (House A) to your family member and spouse was a supply made for consideration
• this supply was connected with the indirect tax zone (Australia) as the property is located in Australia
In addition you are not registered for GST, there are no provisions of the GST Act under which your sale of house A was GST-free and the supply of the new residential premises will not be input taxed.
Therefore we need to consider whether:
• The supply of House A was made in the course or furtherance of an enterprise and
• whether you are required to be registered for GST.
Enterprise
Enterprise relevantly includes:
• an activity or series of activities done in the form of a business (paragraph 9-20(1)(a) of the GST Act or
• an adventure or concern in the nature of trade (paragraph 9-20(1)(b) of the GST Act)
• but does not include an activity or series of activities by individuals without a reasonable expectation of profit.
Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of enterprise for ABN purposes.
MT 2006/1 contains a number of examples of isolated property transactions that are enterprises and those that are not. Example 32 at paragraphs 288 to 290 is considered similar to your circumstances:
288. Astrid and Bruno live on a large suburban block. The council has recently changed their by-laws to allow for smaller lots in their area. They decide to subdivide their land to allow their only child, Greta, to build a house in which to live.
289. They arrange for the approval of the subdivision through the council, for the land to be surveyed and for the title of the new block to be transferred to Greta. She pays for all the costs of the subdivision and the cost of her new house.
290. Astrid and Bruno have not carried on an enterprise and are not entitled to an ABN in respect of the subdivision. It is a subdivision without any commercial aspects and is part of a private or domestic arrangement to provide a house for their daughter.
The subdivision of the property and construction and sale of House A to your family member and his/her spouse for $XX less than market value does not possess any commerciality or profit making intention and as in example 32 above, is part of a private or domestic arrangement within your family to provide suitable accommodation and possibly future assistance to you.
Therefore, the supply of the new residential property to your family member and his/her wife is not in the course or furtherance of an enterprise that you carry on, as defined in section 9-20 (2)(c) of the GST Act.
As you are not considered to be carrying on an enterprise you are not required or entitled to be registered for registered for GST pursuant to section 23-5 of the GST Act.
Therefore the sale of House A to your family member and his/her spouse is not a taxable supply under section 9-5 of the GST Act and no GST is payable by you in relation to that supply. As the supply is not a taxable supply it is not necessary to consider the margin scheme.
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