Edited version of private advice

Authorisation Number: 1051815498615

Date of advice: 15 March 2021

Ruling

Subject: Requirement to be registered for GST and taxable supplies

Question 1

Are you carrying on an enterprise for the purposes of GST and as a consequence required to be registered for GST?

Answer

No, you are not carrying on an enterprise for the purposes of GST and therefore are not required to be registered for GST.

Question 2

Is the sale of the subdivided property a taxable supply?

Answer

No, as you are not registered or required to be registered for GST the sale of the property will not be a taxable supply under the GST Act.

This ruling applies for the following periods:

1 July 2020 to 30 June 2021

The scheme commences on:

Date of issue

Relevant facts and circumstances

•   You are an individual who does not have an Australian Business Number (ABN) and is not registered for goods and services tax (GST).

•   You own a property which has been your family home in which you reside.

•   You have received approval to subdivide the block into 2 lots. Lot 1 being xxx m2 of land with the original residence is remaining and Lot 2 being xxxx m2 of vacant land.

•   You have not developed the subdivided parcel of land in any way other than to obtain the subdivision approval.

•   You entered into a contract of sale to sell off the larger portion of the property.

•   You are remaining in the portion of the property with the house remaining as your residence.

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 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 9-40

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

Reasons for decision

Under section 9-5, 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.

If the property were to be sold, the supply would consist of a property which is located in the indirect tax zone and would be made for consideration. Therefore, the sale of the property would satisfy two elements (1&3). Accordingly, we need to determine whether the other two elements (2&4) would also be satisfied. If this were the case, the supply of the property would satisfy all requirements of section 9-5 of the GST Act and 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)) or

•   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 entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an ABN.

Goods and services Tax determination GSTD 2006/1, 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 to consider when determining whether and 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 will be profitable;

•   the recurrent or regular nature of the activity;

•   the activity is systematic, organised and carried on in a business-like manner nd records kept;

•   the activities are of a reasonable size and scale;

•   a business of product; and

•   the entity has relevant knowledge or skill.

Paragraph 179 of MT 2006/1 states, that 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 the relevant indicators.

Application in your case

Given the facts in this case, we consider that the activity you have undertaken in subdividing your property which contains your primary place of residence, keeping the portion containing the existing residence, and selling the remaining portion with development approval attached, is not in the nature of the indicators of a 'business' as listed above.

Paragraph 244 of MT 2006/1 explains that an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business, but which has the characteristics of a business deal. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

Paragraph 245 of MT 2006/1 refers to 'the badges of trade' with paragraphs 247 to 257 discussing the various 'badges of trade' that may be taken into account when determining whether assets have characteristics of 'trade' and are held for income producing purposes, or either as an investment asset or for personal enjoyment.

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 subdivided property, subject to this sale formed part of your primary residential premises. The selling of the subdivided portion of the property was not conducted in a business-like manner as there was no business organisation; the property was not bought into account as a 'business' asset and expenses relating to the subdivision of the property were not claimed as a business expense.

GST registration

Section 23-5 of the GST Act provides that you are required to be registered for GST if you are carrying on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000).

As discussed above, it is considered that the sale of the subdivided portion of the property would not constitute an 'enterprise' for GST purposes. As such you are not required to be registered for GST.

Conclusion

In conclusion, your activity of subdividing your property and selling off the larger portion, would not be done in the furtherance of an enterprise. As you are not required to be registered for GST, the sale of the property would not meet the definition of a 'taxable supply' and you would not be liable for GST on the sale in accordance with section 9-40 of the GST Act.

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