Edited version of private advice

Authorisation Number: 1051614458242

Date of advice: 2 December 2019

Ruling

Subject: GST at settlement

Question

Does the sale of the properties form part of an existing enterprise and therefore would be subject to the GST at settlement withholding provisions?

Answer

No. The sale of the properties does not form part of an existing enterprise and therefore is not subject to the GST at settlement withholding provisions.

This ruling applies for the financial year ending:

30 June 20XX

Relevant facts and circumstances

A company runs an enterprise and has an Australian Business Number (ABN) and is registered for Goods and Services Tax (GST).

The company purchased a property for $XXX with the intention of building the directors of the company a family home.

Due to financial circumstances and economic climate, the company could not proceed with building the directors' family home.

The property has always been recorded as a non-current asset on the balance sheet for over 20 years with all costs relating to this property accumulating as capitalised costs.

The company had previously attempted to sell the property however it failed to sell. The company decided to subdivide the property into two lots and sell separately.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

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

Reasons for decision

Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity makes a 'taxable supply' where the supply:

1.    Is made for consideration; and

2.    Is made in the course or furtherance of an enterprise that you carry on; and

3.    Is connected with the indirect tax zone; and

4.    Is made by a supplier who is registered, or required to be registered, for GST.

The properties sold, consisted of properties which are located in the indirect tax zone, the supplies were made for consideration and the company is registered for GST. Therefore, the sale of the two properties satisfies 3 elements outlined above (1, 3 &4). Accordingly, we need to determine whether the other element (2) would be satisfied and there would be a taxable supply.

Are you carrying on an enterprise?

The term enterprise is defined for GST purposes in section 9-20 of the GST Act and includes, among other things, an activity or series of activities done;

·         In the form of a business (paragraph 9-20(1)(a)).

·         In the form of an adventure or concern in the nature of trade (paragraph 9-20(1)(b)).

The phase 'carry on' in the context of an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Miscellaneous Taxation Ruling MT 2006/1 - The A New Tax System: The meaning of an entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an Australian Business Number (ABN).

Goods and Services Tax Determination GSTD 2006/6 - Goods and Services Tax: does MT 2006/1 have equal application to the meaning of 'entity' and 'enterprise' for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 provides that the discussion in MT 2006/1 applies equally to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

In the form of a business

Paragraphs 170 to 179 of MT 2006/1 discuss factors to consider when determining whether an activity or series of activities are done in the form of a business. Paragraph 178 of MT 2006/1, with reference to Taxation Ruling 97/11 - Income tax: am I carrying on a business of primary production? lists indicators of carrying on a business:

·         A significant commercial activity;

·         An intention of the taxpayer to engage in commercial activity;

·         An intention to make a profit from the activity;

·         The activity is or will be profitable;

·         The recurrence or regular nature of the activity;

·         The activity is systematic, organised and carried on in a business-like manner and records are kept;

·         The activities are of a reasonable size and scale;

·         A business plan exists;

·         Commercial sales of product; and

·         The entity has relevant knowledge or skill.

Paragraph 179 of MT 2006/1 states there is no single test to determine whether a business is being carried on. Whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all relevant indicators.

Application to this case

Given the facts of this case, we consider that the activity of selling the properties did not form part of the existing enterprise and is not a taxable supply.

While an activity such as the selling of an asset may in itself amount to an enterprise, account should be taken of the other activities leading up to the sale to determine if an enterprise is being carried on.

The company purchased the property in xxxx with the intention of building the directors their family home. No improvements were made to the property and the property was subdivided to enable a sale to occur.

Conclusion

Given the above, we do not consider the company's activity of selling the properties to constitute an adventure or concern in the nature of trade and as such the sale does not form part of the company's enterprise for the purposes of GST. Therefore the sale of the properties would be the mere realisation of a capital asset, and not subject to the GST at settlement withholding provisions.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).