Edited version of private advice

Authorisation Number: 1051817463232

Date of advice: 17 March 2021

Ruling

Subject: GST and the sale of a property

Question

Is GST payable on the sale of the Property?

Answer

No.

GST is not payable on the sale of the Property because you are not making a taxable supply.

For the sale of real property to be a taxable supply the supply must satisfy all the requirements of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act).

In your case, although the sale of the Property is for consideration, connected with Australia and you are registered for GST and hence satisfies paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act, the requirements of paragraphs 9-5(b) is not satisfied. This is because:

• the sale is a mere realisation of a private asset and hence, is not made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act).

Relevant facts

Mr X ('you') is an owner of the property in XXXXXXXX ('Property').

In XXXXXXXX XXXX, you purchased the Property as a vacant land of approximately XXXX metres for $XXX,XXX.00 using part of your saving and balance of loan from the Bank.

You purchased the Property for the purpose of building your principal place of residence.

You added a shed and a water tank to the Property.

You made a building plan after discussions with the architect and acquired the building permit.

You applied for the finance to build a new dwelling with various lenders.

You could not obtain the finance after numerous attempts with various lenders to build the new dwelling on the land.

Recently, your neighbour made an offer to purchase the Property. You have accepted the offer.

You are carrying on business of subcontracting services.

You are registered for GST for carrying on your business.

You are not carrying on an enterprise of buying and selling the properties.

The Property has not been listed in your business record as a business asset.

You have not claimed any tax deductions in your income tax returns and/or your business tax returns for expenses incurred in relation to the property.

You have not claimed any GST in the business activity statements.

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

Summary

You are not making a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) when you sell the Property.

The sale of the Property is for consideration, is connected with Australia and you are registered for GST hence satisfies paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act. However, the requirements of paragraphs 9-5(b) is not satisfied. This is because:

• the sale is a mere realisation of a private asset and hence, is not made in the course or furtherance of an enterprise that you carry on (paragraph 9-5(b) of the GST Act),

Consequently, GST is not payable on the sale of the Property.

Detailed reasoning

GST is payable on any taxable supply that you make.

The sale of real property is a taxable supply if the supply satisfies all 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 Australia; 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 defined in the GST Act.)

Based on the information that you provided, you will meet the requirements of paragraphs 9-5(a), 9-5(c) and 9-5(c) of the GST Act as below:

• the sale of the Property is for consideration;
• The supply is connected with Australia as the property is located in Australia; and
• You are registered for GST.

Therefore, what remains to be determined is whether your sale of the Property will be made in the course or furtherance of an enterprise that you carry on.

Whether the sale will be made in the course or furtherance of an enterprise that you carry on

Section 9-20 of the GST Act 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 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.

MT 2006/1 provides that ordinarily, the term business would encompass trade engaged in, on a regular or continuous basis, while 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.

Paragraphs 258 to 260 of MT 2006/1 provide that certain type of assets, such as rental properties, business plant and machinery, the family home, family cars and other assets are considered as investment assets. These assets are purchased with the intention of being held for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person. The mere disposal of these investment and private assets does not amount to trade. Assets can change their character from investment to trade, however these assets cannot be held at the same time for both purposes.

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.

Paragraph 262 of MT 2006/1 acknowledges that the question of whether an entity is carrying on an enterprise often arises where there are 'one-offs' or isolated real property transactions. Paragraph 263 continues stating that the issue to be decided is whether the activities being conducted are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset.

Based on the information provided, you purchased the Property with the intention of building residential premises as your principal residence. However, you were unable to obtain finance from various lenders. Due to circumstances you could not erect any building on the Property and hence, you decided to sell the Property. There has been no further activity on the Property since you acquired it

Considering all the facts and circumstances of your case, the sale of the Property is the mere realisation of a private asset. The sale is not in the form of a business or an adventure or concern in the nature of trade.

Therefore, your supply of the Property will not constitute a supply made in the course of furtherance of an enterprise that you carry on and as such, the requirement in paragraph 9-5(b) of the GST Act is not met.

Therefore, as you do not satisfy all the requirements of section 9-5 of the GST Act, the sale of the Property is not a taxable supply. Hence, GST is not payable on the sale.

Additional information

A vendor of residential premises and potential residential land must give a written notice to the purchaser before making the supply. The notice must state whether the purchaser has a GST withholding obligation in relation to the supply.

This requirement applies to all vendors of residential premises and potential residential land, not only those who are registered or required to be registered for GST.

For further information, refer to our website www.ato.gov.au and search GST at settlement.

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