Edited version of private advice

Authorisation Number: 1051832167231

Date of advice: 29 April 2021

Ruling

Subject: GST and the sale of vacant land

Question

Should the purchaser of the vacant land withhold an amount at settlement? If yes how much should they withhold?

Answer

No.

This ruling applies for the following period:

Xx xx xxxx

The scheme commences on:

Xx xx xxxx

Relevant facts and circumstances

•   The xx FAMILY PTY LTD ATF THE YYY FAMILY TRUST (You) bought a vacant residential land.

•   The purchase price was $xx. You have not earned any profits or done any development on the land since then.

•   You are currently considering selling this vacant land.

•   The sale price advised by the real estate agent is around $xx.

•   You have provided an ABN which belongs to xx Family Pty Ltd ATF the YYY Family Trust.

•   The xx Family Trust is carrying on an enterprise as a property limited company and the vacant land to be sold is an asset of that enterprise.

•   The trust is not currently registered for GST. It was registered for GST before, but the registration was cancelled due to non-business activities.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 sections 9-5; 23-5;

Taxation Administration Act 1953 section 12-190

Reasons for decision

Taxation Ruling TR 2002/9 provides guidance as to whether an entity making a payment in respect of a supply is required to withhold an amount under section 12-190 of Part 2-5 (the PAYG provisions) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953).

Paragraphs 8 & 51 of TR 2002/9 state the following:

In what circumstances does a payer need to withhold

8. Subsection 12-190(1) of Schedule 1 to the TAA 1953 provides that:

An entity (the payer) must withhold an amount from a payment it makes to another entity if:

(a) the payment is for a *supply that the other entity has made, or proposes to make, to the payer in the course or furtherance of an *enterprise *carried on in Australia by the other entity; and

The exceptions - when is there no requirement to withhold?

51. For the no ABN withholding provision to apply, the operative requirements contained in paragraph 12-190(1)(a) of Schedule 1 to the TAA 1953 must be satisfied (e.g., there must be a supply, the supply must be made by an entity carrying on an enterprise in Australia etc). If these conditions are satisfied then the provision will require a withholding unless one of the exceptions listed in the provision is satisfied. These exceptions are contained in subsections 12-190(2) to (6) of Schedule 1 to the TAA 1953 and provide that there is no requirement to withhold:

(i) if a supplier quotes their ABN on

•                    an invoice or

•                    some other document relating to the supply (subsection 12-190(2));

Paragraph 53 of TR 2002/9 has been reproduced below:

53. To avoid having an amount withheld, the supplier's ABN must be quoted to the payer before or at the time the payment is made. The essential criterion is the payer has the ABN 'relating to' the supply when the payment is made.

In this case you informed you have an ABN. Therefore, provided the ABN is quoted before or at the time of payment then the buyer will not have to withhold an amount in relation to the supply of the land.

Taxable supply:

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 provides that you make a taxable supply if you make the supply for consideration; the supply is made in the course or furtherance of an enterprise that you carry on; the supply is connected with the indirect tax zone; and you are registered, or required to be registered for GST.

However, the supply is not a taxable supply to the extent that it is GST-free or input taxed.

In this case you will make the supply of a business asset for consideration; in the course or furtherance of an enterprise you carry on and the supply is connected with the indirect tax zone.

In this case for the supply of the vacant land (business asset) to be taxable it needs to be determined whether you are required to be registered for GST.

Section 23-5 of the GST Act provides that an entity is required to be registered for GST if it is carrying on an enterprise and its GST turnover meets the registration turnover threshold.

Currently the GST turnover threshold is $ 75,000. $150,000 for a not for profit body.

Also given the facts of this case the supply of the vacant land will be neither input taxed nor GST-free.

Therefore, you are required to register for GST and the sale of the property will be a taxable supply under section 9-5 of the GST Act.

You will need to remit 1/11 of whatever amount you receive as GST.

Additional information:

QC 16711 is about GST and the disposal of capital assets. This document is available on our website at www.ato.gov.au and states the following:

A capital asset is an asset retained by an enterprise for the purpose of earning revenue. A capital asset is not intended for sale in the ordinary course of business.

Capital assets include things like:

•   motor vehicles

•   manufacturing machinery

•   office equipment

•   land and buildings.

If you sell, transfer or otherwise dispose of a capital asset, and you're registered or required to be registered for GST, it's generally a taxable sale and you need to account for GST on the sale.

QC 16711 provides that you charge GST, and account for GST on your activity statement, if you sell, trade-in or otherwise transfer ownership of a capital asset in Australia and are registered or required to be registered for GST.

In this case you informed us that the vacant land is a business asset.

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