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Edited version of your written advice
Authorisation Number: 1051507340675
Date of advice: 18 April 2019
Ruling
Subject: GST and sale of property
Question
Is the sale of the Property by you subject to GST?
Answer
No, the sale of the Property by you is not subject to GST. In the circumstances of this case, your sale of the Property is not made in the course or furtherance of an enterprise that you carry on. Therefore your sale of the Property will not be a taxable supply.
Relevant facts and circumstances
● This private ruling has been jointly requested by X and Y.
● References from hereon to ‘you’ are to X and Y collectively.
● You have agreed to the use of short form reporting for the purposes of this private ruling.
● You bought a property with a home on it in 20XX. You sub-divided the block into two lots and built a new premise on part of the land (lot 2) in 20XX, and kept the old home (situated on lot 1) as is.
● The new premise is known as the Property.
● The old home is known as the old home.
● As advised, there was intention on your part to live in the Property on a long-term basis as your home. Thus, the Property has been your main residential premise since the construction of the Property.
● The construction of the Property was completed in early 20XX. The Property is used for tasks of day-to-day living, such as preparing food, cleaning and laundering. You occupy the Property and are the owners of the Property. The Property is located in an area zoned as residential.
● As advised:
- The house has become uncomfortable for you. Hence you have decided to sell the house. The residence has become too small to accommodate X’s child.
- Due to personal reasons X’s child wanted to stay at home for short periods. You’ve wanted to have a suitable environment to welcome X’s child when required. The Property which is a single bedroom dwelling was unsuitable given the storage of suitcases in the living room, your interruption to X’s child’s sleep at night, and everyone occupying the same living room and kitchen space. The decision to move from the Property was motivated by this unexpected family circumstance.
- The construction of the Property was not intended for a profit. The construction and sale of the Property was not intended by you to be in the course or furtherance of an enterprise, but rather, for the creation of a long-term dwelling for yourselves. The intention in this regard has not changed. It is only that the size of the dwelling is simply no longer suitable for your needs.
- You invested circa $X for a solar off grid system that would only pay back in about XX years. The house has no electrical energy bill, with the intention that it would pay back over time.
- Input tax credits in relation to the building of the Property were not claimed. As advised, the economic and property market climate is not such that a large profit if indeed any is envisaged upon a sale of the Property. The property market has performed poorly in the last few years.
Additional facts
● The old home has been leased out since the Property was built.
● The contract date for the sale of the Property was in early 20XX. The settlement date for the sale of the Property was in early 20XX.
● In respect of properties leased out by you (collectively or individually), you have provided that:
- You have leased out another unit from 20XX until now.
- You have leased out the old home from early 20XX until now.
- Y has leased out another property from 20XX until now.
● The total cost of subdivision and construction of the Property was $XXX in cash outlay.
● The intention to install a solar off grid system was formed in 20XX.
● With regard to your intended use of the original property when it was first purchased you have advised that:
- You found the other unit you were in no longer suitable for you. You decided that the current area offered a better option long term. Once you moved to the area you felt that a sustainable small house would be a good option to limit our impact on the environment. This motivated you to build the Property in the back. You kept the old home because the property market had a sharp downturn.
● You have not (either individually or together) been previously engaged in building or development activities.
● The property you purchased has not ever been accounted for as a business asset.
● The purchase of the property, subdivision and construction was financed in part by a bank and in part with your own funds. The amounts varied, typically a certain portion was funded from the mortgage and the rest was financed by you. The mortgage was a private residential type, capital repayment, with variable rate.
● No expenses related to the purchase of the property, the subdivision or construction have been claimed as a business expense.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 - section 9-20
Reasons for decision
Under short form reporting, the reasons for decision are contained within the Answer section of the private ruling.
Additional information
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 Commissioner’ view on the meaning of an enterprise.
MT 2006/1 provides that assets can change their character from investment, which is capital in nature, to trade and therefore revenue in nature (paragraphs 258 to 260). If the activities of a person on an objective assessment have the characteristics of trade, the person’s motive is not relevant (paragraph 254). The characteristics of trade are explained in paragraphs 243 to 261 and include the length of period of ownership and the frequency or number of similar transactions.
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