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Edited version of private advice

Authorisation Number: 1051897539377

Date of advice: 14 September 2021

Ruling

Subject: GST and sale of vacant land

Question 1

Will your sale of the vacant land be made in the course of an enterprise that you carry on under section 9-20 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

Answer

Yes, your sale of the vacant land will be made in the course of an enterprise in the form of an adventure or concern in the nature of trade under paragraph 9-20(1)(b) of the GST Act.

Question 2

Will you be required to register for GST and collect GST on the sale?

Answer

You will be required to register for GST where the sale of the land is $75,000 or above. In that case, the sale will be a taxable supply under section 9-5 of the GST Act and GST is to be collected on the sale.

Other information

You must notify the purchaser in writing before settlement whether they will have a withholding obligation. The notification can be included in the sales contract or in a separate document before settlement. For more information on GST at settlement go to https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Property/GST-at-settlement/?anchor=Ifyouaresellingproperty#Ifyouaresellingproperty

Relevant facts

You are a superannuation fund currently that is not registered for GST and you do not make any supplies

In 20XX you purchased a vacant land and you did not take any loan to purchase the land.

The vacant land was primarily purchased with the thought of attaining a capital gain, the land then being eventually sold for the benefit of the fund's beneficiaries. You considered the possibility that the land could be developed by constructing a house for resale however no activities were undertaken to do so. If it was developed the property would have been resold for the benefit of the fund members.

You do not have the financial resources to develop the land thus you need to sell the vacant land to allow for retirement benefits to be paid to a beneficiary who has reached retirement age.

The vacant land is currently not on the market. The real estate agent has estimated the sale of the land could be around $XXX depending on the market.

You do not own other land or real property. No improvements have been made on the land since the purchase and no building or structures have been erected on the land. The land cannot be subdivided.

You are not in the business of property development. You do not have a business plan in relation to the purchase of the land. No expert advice was obtained regarding the purchase and proposed sale of the land.

You have never been in any prior subdivision or development activities; The purchase and proposed sale will be a one-off activity. Your sale of the land is unexpected; it happens due to the sudden retirement of a beneficiary. aThe sale has not been planned in any systematic or businesslike manner. The sale will be conducted before any development of the land could be undertaken.

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 23-5

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

Reasons for decision

Note: Where the term 'Australia' is used in this document, it is referring to the 'indirect tax zone' as defined in section 195-1 of the GST Act.

Questions 1 and 2

Summary

Your sale of the vacant land will be a taxable supply under section 9-5 of the GST Act where you are required to be registered for GST. You will be required to register for GST where the sale of the land will be A$75,000 or more.

Detailed reasoning

Section 9-40 of the GST Act provides that you are liable for GST on any taxable supplies that you make.

Section 9-5 of the GST Act provides 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 the indirect tax zone; and

d)    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 your case, you meet the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act as you will sell the vacant land for consideration; and the sale is connected with Australia since the vacant land is located in Australia.

Further the sale is not an input taxed supply or a GST-free supply under the GST law.

Therefore, what remains to be determined is whether your sale of the vacant land will be a supply made in the course or furtherance of an enterprise that you carry on and, as you are not currently registered for GST, whether you are required to be registered .

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

In accordance with section 9-20 of the GST Act, an enterprise includes, amongst other things:

•         an activity or series of activities done in the form of a business

•         an adventure or concern in the nature of trade

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of enterprise for the purpose of entitlement to an Australian Business Number (ABN). Goods and Services Tax Determination GSTD 2006/6 states that MT 2006/1 can be relied on for the purposes of determining whether an entity carries on an enterprise for GST purposes

The vacant land was primarily purchased with the thought of attaining a capital gain, the land then being eventually sold for the benefit of the fund beneficiaries. You considered the possibility that the land could be developed by constructing a house for resale however no activities were undertaken to do so. If it was developed the property would have been resold for the benefit of the fund members.

One of the beneficiaries retired unexpectedly due to health issue and as you do not have the financial resources to develop the land you decided to sell the vacant land to be able to pay retirement benefits to the beneficiary

According to Miscellaneous Tax Ruling MT 2006/1, assets can change their character from a capital/investment asset or a trading/revenue asset, or vice versa, but cannot have a dual character at the same time. 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.

In this instance we need to determine if the sale of the vacant land was made in the course of an enterprise that you carried on.

In the form of a business

Paragraphs170 to 232 of MT 2006/1 discuss the factors to consider when determining whether an activity or series of activities are done in the form of a business.

Paragraph 178, with refence to Taxation Ruling TR 97/11 Income tax am I carrying on a business of primary production? lists indicators of carrying on a business:

•         a significant commercial activity;

•         a purpose and 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 recurrent or regular nature of the activity;

•         the activity is carried on in a similar manner to that of other business in the same or similar trade;

•         activity is systematic, organised and carried out in a business-like way 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 and skill.

Based on the facts provided, we do not consider that your actions of selling the vacant land constitute activities done in the form of a business.

In the form of an adventure or concern in the nature of trade

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.

According to paragraph 254 in MT 2006/1 if the activities on an objective assessment have the characteristics of trade, the person's motive is not relevant. It is relevant in those cases where the evidence is not conclusive. An intention to resell at the time of acquisition may be an indicator of the resale being an adventure or concern in the nature of trade.

Further paragraph 270 in MT 2006/1 states that in isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit-making undertaking or scheme and therefore an adventure or concern in the nature of trade.

In your case the vacant land was purchased with the intention of resale or for development and the property to be sold after construction at a profit. In this instance you will be conducting an enterprise in the form of an adventure or concern in the nature of trade when selling the vacant land under paragraph 9-20(1)(b) of the GST Act.

Paragraph 9-5(b) of the GST Act is satisfied since the sale will be made in the course of an enterprise that you carry on under paragraph 9-20(1)(b) of the GST Act.

Are you required to register for GST?

Under section 23-5 you are required to register for GST if you are carrying on an enterprise and the annual turnover meets the GST registration threshold which currently is $75,000 ($150,000 for non-profit organisation).

Your annual turnover meets the GST turnover threshold if either:

Your GST turnover is your total business income (not your profit), minus:

The vacant land you will sell is a trading asset and therefore will be included in your current and projected GST turnover.

Where the sale of the land is $75,000 or more you will be required to be registered for GST as your annual turnover will meet the GST registration threshold. You will collect GST on the sale.

Where the annual turnover is below $75,000 you will not be required to be registered for GST. You will not collect GST on the sale.

Other information

GST at settlement

If you are selling or buying new residential premises or potential residential land, you may need to pay GST at settlement. The way GST is paid for certain property transactions affects purchasers, suppliers and their representatives.

From 1 July 2018, at settlement most purchasers pay both:

This applies to both:

If you are selling property

If you are selling residential premises or potential residential land you must:

This can be included in the sales contract or in a separate document prior to settlement. Most states have updated their standard contracts to include this information.

If you have made a mistake on the notification, you must provide the purchaser with an amended one.

You may incur penalties if you fail to provide the required notice.

The purchaser pays the withholding amount directly to us at the time of settlement - instead of to you.

For more information refer to 'GST at settlement' at https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Property/GST-at-settlement/?anchor=Ifyouaresellingproperty#Ifyouaresellingproperty

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