Edited version of your written advice

Authorisation Number: 1051374714181

Date of advice: 24 May 2018

Ruling

Subject: Sale of a going concern

Question

Does goods and services tax (GST) apply to the sale of our vacant land?

Answer

No.

Relevant facts and circumstances

● You are registered GST.

● The land was originally acquired for the purpose of building your home. You asked an architect to design a dwelling.

● You paid deposits for council.

● The house on the land was demolished and land was levelled.

● You tendered builders and quotes were provided.

● The quotes were more than you could afford.

● You tried to find another builder however; most of quotes were above your budget.

● You decided to sell the vacant land without building the home.

● You are not carrying on an enterprise in relation to this activity. You are merely not able to build your own house.

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 Section 9-10

A New Tax System (Goods and Services Tax) Act 1999 Section 9-20

A New Tax System (Goods and Services Tax) Act 1999 Section 23-5

Reasons for decision

All legislative references in this Ruling, unless otherwise stated are to A New Tax System (Goods and Services Tax) Act 1999 (GST Act). The relevant legislative provisions are discussed below.

Section 9-5 defines a taxable supply as:

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 you *carry on; and

(c) the supply is *connected with the iIndirect 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 defined term under section 195-1)

You make the supply of the vacant land for consideration and it is in Australia.

You are not conducting an enterprise of selling property on a regular basis.

Section 23-5 provides that you are required to be registered for GST if:

(a) you are carrying on an enterprise and

(b) your GST turnover meets the registration turnover threshold.

Section 9-20 provides that enterprise includes, among other things, an activity or series of activities done:

● in the form of a business, or

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

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 provides the view of the ATO on the meaning of enterprise. 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.

MT 2006/1 provides that 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.

Paragraph 265 of MT 2006/1 lists a number of factors which can be used to determine whether activities in relation to a sale of property are done under a profit-making scheme. Paragraph 265 of MT 2006/1 provides that if several of these factors are present, it may be an indication that a business or an adventure or concern in the nature of trade is being carried on.

● 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.

In determining whether activities relating to isolated transactions are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above. However, there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative. Rather, it will be a combination of factors that will lead to a conclusion as to the character of the activities.

You are not subdividing the block or building the dwelling. You are just selling vacant land. The sale is the mere realisation of a capital asset. GST will not apply to the sale of your vacant land.

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