Edited version of private advice

Authorisation Number: 1051838846979

Date of advice: 14 May 2021

Ruling

Subject: GST and the sale of a property

Question

Is the sale of your property subject to GST?

Answer

The sale of the Property is not subject to GST because the sale is not 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, the requirements in paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act are satisfied as the sale of the Property is for consideration, the sale is connected with Australia and you are registered for GST., The requirement in paragraph 9-5(b) is not satisfied because the sale is a mere realisation of a private asset and thus, is not made in the course or furtherance of an enterprise that you carry on.

You will need to notify the purchaser in writing that they do not have a withholding obligation and do not need to pay a withholding amount from the contract price of the property to the Australian Taxation Office (ATO) when purchasing the property. This can be included in the sale contract or in a separate document prior to settlement

Relevant facts and circumstances

Mr X and Mrs X (together referred to as 'you') have an ABN and are registered for GST as a partnership for carrying on a farming business.

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

On xx xxxxxxxxx yyyy, you purchased a Property at a specified location. The Property is a vacant land of

The Property is zoned as low-density residential zone.

Your intention was to construct a house on the Property to use as your primary residence.

The Property was left vacant since you purchased it.

Your circumstances changed and you have purchased another house as your primary residence. Therefore, you decided to sell the Property.

The Property was never used to carry on any business or for any income producing purposes.

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

You have not claimed any tax deductions in your individual income tax returns and/or in the partnership's tax returns for expenses incurred in relation to the Property.

You have not claimed any GST credits in the partnership's 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 40-35

A New Tax System (Goods and Services Tax) Act 1999 section 40-65

A New Tax System (Goods and Services Tax) Act 1999 Division 188

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 at 115 Rowe Terrace QLD 4076 ('Property').

The sale of the Property is for consideration, is connected with Australia and you are registered for GST. Hence paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act are satisfied. Paragraph 9-5(b) is not satisfied because the sale is a mere realisation of a private asset and thus, is not made in the course or furtherance of an enterprise that you carry on.

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(d) 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 ATO view 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 to use as your principal residence. Your circumstances changed and you have purchased another house as your principal residence. 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.

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.

You will need to notify the purchaser of the property that the purchaser is not required to withhold GST from the purchase price. See enclosed fact sheet, GST at settlement, for more information about this requirement.

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