Edited version of your written advice

Authorisation Number: 1051214928110

Date of advice: 21 April 2017

Ruling

Subject: GST and Sale of Property

Question

Is the sale of the below listed properties a taxable supply pursuant to section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

No.

Relevant facts and circumstances

You are not registered for GST.

You own the following properties:

1. Property 1 (“Main residence”) has been owned by you for multiple decades. This property includes your main residence.

2. Property 2 was purchased subsequently and has also been owned by you for multiple decades. This property includes a small cottage.

These properties are next to each other, and were purchased for personal use and enjoyment. You have not undertaken and do not intend to undertake any works to improve the properties for the purpose of the sale.

For the past year, Property 2 has been vacant. Prior to this you intermittently leased out the small cottage on this property. The leasing of the cottage was subject to verbal agreements. The rent for the cottage has varied over time. Originally it was $XX per week, then $XX per week and $XXX per week under the most recent lease agreement. The purpose of the rent was to assist in covering the expenses related to the land.

At this time you intend to sell both properties to a property developer, as you desire to live on a smaller property.

No other supplies are being made in this proposed transaction.

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.

A New Tax System (Goods and Services Tax) Act 1999 Section 195-1.

Reasons for decision

GST is payable where you make a taxable supply.

You make a taxable supply, for GST purposes, where you satisfy the requirements of section 9-5 of the 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 that is defined in section 195-1 of the GST Act).

For the sale of the property to be a taxable supply, all of the requirements listed in section 9-5 of the GST Act must be satisfied.

From the facts in this case, you are selling the properties for consideration and the properties are located in Australia. Therefore, the sale of the properties meets the requirements in paragraphs 9-5(a) and 9-5(c) of the GST Act.

What remains to be considered are whether the sale of the properties is in the course of an enterprise that you carry on, whether you are required to be registered for GST and whether the sale is GST-free or input taxed.

Whether the sale of the properties is in the course of an enterprise that you carry on

An 'enterprise' is defined in section 9-20 of the GST Act to include, amongst other things, an activity, or series of activities done:

(a) in the form of a business

(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.

However, paragraph 9-20(2)(c) specifically excludes amongst other things, an activity, or series of activities, without a reasonable expectation of profit or gain from being an enterprise.

Miscellaneous Taxation Ruling MT 2006/1 provides the view of the ATO on the meaning of enterprise for the purposes of entitlement to an Australian business number. Goods and Services Tax Determination 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.

Paragraph 159 of MT 2006/1 explains 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. Ordinarily, the term business would encompass trade engaged in, on a regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off commercial activity that does not amount to a business but which has the characteristics of a business deal. However, the mere realisation of investment or private assets does not amount to trade. Additionally, the fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

The question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions.

MT 2006/1 explains that 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.

In your case, you are selling the two properties which you have owned for a number of years. You are selling the properties due to your advancing age and they are now in excess to your requirements. You are selling the properties to a developer in their current state.

Each property will be examined separately.

Property 1 (“Main Residence”)

You have owned this property for multiple decades and it includes your principal residence. Your use of this property is private and domestic in nature. This property is not subject to any income producing activities.

Considering all the facts and circumstances, the sale of this property is the mere realisation of a private asset. Hence, the sale of this property is neither an activity in the form of a business nor in the form of an adventure or concern in the nature of trade.

As such, the sale of this property is not a supply made in the course or furtherance of an enterprise that you carry on under 9-5(b) of the GST Act. Therefore, you do not satisfy the requirements under 9-5(b) of the GST Act.

As not all the requirements of section 9-5 of the GST Act are met, the sale of this property is not a taxable supply. There is no need to consider further whether you are required to be registered for GST and whether the sale is GST-free or input taxed. Consequently, GST is not be payable on the sale of this property.

Property 2

This property was subsequent to Property 1 for your personal use and enjoyment. Until recently this property has been leased intermittently subject to verbal arrangements and to assist in the costs and expenses of owning the land. You have taken no steps or intend to take any steps to improve this property prior to the sale.

Based on the information provided, we consider that the leasing of this property is done without a reasonable expectation of profit or gain.

On the particular facts provided in your case the sale of this property is a mere realisation of a capital asset. As such, the sale of this property is not a supply made in the course or furtherance of an enterprise that you carry on under 9-5(b) of the GST Act. Therefore, you do not satisfy the requirements under 9-5(b) of the GST Act.

As not all the requirements of section 9-5 of the GST Act are met, the sale of this property is not a taxable supply. There is no need to consider further whether you are required to be registered for GST and whether the sale is GST-free or input taxed. Consequently, GST is not be payable on the sale of this property.

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