Edited version of private advice

Authorisation Number: 1051985526637

Date of advice:24 May 2022

Ruling

Subject: GST - carrying on an enterprise

Question

Are you carrying on an enterprise for the purposes of A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and as a consequence required to be registered for GST in relation to the sale of the property?

Answer

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

This ruling applies for the following periods:

Financial year ending 30 June 20XX to

Financial Year ending 20XX

The scheme commences on:

The date this ruling is issued

Relevant facts and circumstances

You purchased the property in the year 2XXX.

The property size is XX acres.

You are considering selling the property to a property developer.

You had an Australian business number (ABN) however this was cancelled in 2XXX.

You have not carried out any form of farming business on the property.

You have lived on the property as your main residence since purchase. There is a residential premises on the property in which you have lived.

The proposed sale to the developer states that settlement will be a deferred settlement with payments made over three years.

As part of the contract of sale you will be able to remain in the residential premises on the property under a leasing arrangement for six months.

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 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), an entity makes a 'taxable supply' where the supply:

1.    is made for consideration; and

2.    is made in the furtherance of an enterprise being carried 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 the supply would be for consideration. Therefore, the sale of the property would satisfy two of the elements outlined above (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 a business

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 New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) provides the Tax Office view on the meaning of 'enterprise' for the purposes of entitlement to an ABN.

Goods and services Tax Determination GSTD 2006/6 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' s 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 factors to consider when determining whether an 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 recuring or regular nature of the activity;

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

•         the activities are of a reasonable size and scale;

•         a business of product; and

•         the entity has relevant knowledge and 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 of this case, we consider that the sale of the property by you does not display the characteristics of a 'business' as listed above.

Paragraph 245 of MT 2006/1 refers to 'the badges of trade' while paragraphs 247 to 257 consider the six badges of trade being:

•         The subject matter of realisation

•         The length of period of ownership

•         The frequency or number of similar transactions

•         Supplementary work on or in connection with the property realised

•         The circumstances that were responsible for the realisation; and

•         Motive

The subject matter

You acquired the property in 2XXX on which a residential property was situated. You have lived in the property since purchase and used it as your residential premises.

The length of time of ownership

You have owned the property for in excess of XX years.

Supplementary work on or in connection with the property

You have not applied for development approvals in relation to this land. You have not used the land for any farming activity or farming business.

The circumstances that were responsible for the realisation

You did not market the property. You were approached by a property developer expressing an interest in purchasing your property.

Motive

Although a profit will result from the sale of the property, given the length of time you have held the property, your intention in relation to the property, being that you have resided there for more than XX years, does not show that your motive in relation to this property was to sell with an intention of a profit.

Given the above, we do not consider your activities to constitute an adventure or concern in the relation of trade and as such, you would not be carrying on an 'enterprise' for the purposes of GST in relation to the potential sale of this property. Therefore, the sale of the property will not be a taxable supply.

GST registration

Section 23-5 of the GST Act provides that you are not required to be registered for GST unless you carry on an enterprise and your GST turnover meets the registration turnover threshold (currently $75,000).

As the sale of this property is not in the furtherance of an enterprise that you carry on, the proceeds from the potential sale of the property are not taken into account in calculating your GST turnover and determining if you are required to be registered for GST.

As such you are not required to be registered for GST.

GST withholding tax

A supply of new residential premises or potential residential land in Australia will be a taxable supply if you're registered, or required to be registered for GST and the supply is:

•         Made for consideration,

•         Made in the course or furtherance of an enterprise you carry on; and

•         Not a GST-free or input taxed supply.

As detailed above, we have determined that you are not carrying on an enterprise and that you are not required to be registered for GST. Therefore, the potential sale of your property will not be a taxable supply and the provisions under section 14-250 of Schedule 1 to the Taxation Administration Act 1953 (TAA) will not apply in relation to this sale.

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