Edited version of private advice

Authorisation Number: 1052007805336

Date of advice: 20 July 2022

Ruling

Subject: GST - sale of property

Question

Will the sale of the property by you be a taxable supply in accordance with section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) and as a consequence be subject to the withholding provisions under section 14-250 of Schedule 1 to the Taxation Administration Act 1953 (TAA)?

Answer

No. The sale of the property will not be a taxable supply in accordance with section 9-5 the GST Act and as a consequence there will be no requirement under section 14-250 of Schedule 1 to the TAA for the purchaser of the property to withhold an amount under this provision.

This ruling applies for the following periods:

Financial year ending 30 June 20XX, and

Financial year ending 30 June 20XX.

The scheme commences on:

The date this ruling is issued

Relevant facts and circumstances

You purchased a vacant plot of land.

Your intention when you purchased the property was to have a residential home built for yourself.

Due to the increase in the building costs you decided to sell the property. No construction work has commenced on the property.

You hold an ABN and are registered for GST

You are not in the business of buying and selling property.

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 9-40

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

Schedule 1 to the Taxation Administration Act 1953 section 14-250

Reasons for decision

Under section 9-5 of the 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 that you *carry 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.

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

* Denotes a defined term under section 195-1 of the GST Act

When the property is sold, the supply will consist of a property which is located in the indirect tax zone, the supply will be for consideration and you are registered for GST. Therefore, the sale would satisfy three elements outlined above (1,3 & 4). Accordingly, we need to determine whether element 2 will also be satisfied. If this were the case, the supply will satisfy all requirements of section 9-5 of the GST Act and would be a taxable supply.

Are you carrying on an enterprise?

The term enterprise is defined for GST purposes in section 9-20 of the GST Act and includes, among other things, and 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: 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' as used in the GST Act and can be relied on for GST purposes.

It is a fact of this case that you are carrying on an enterprise in which you are required to be registered for GST. We now have to establish whether the sale of the property is in the course or furtherance of the enterprise that you are carrying on.

Carrying on an enterprise/supply made in the course or furtherance of an enterprise

For the sale of the property to be made in the course or furtherance of your enterprise, the sale of the property must have a connection to your enterprise.

Goods and Services Tax Ruling GSTR 2004/8 Goods and services tax: when does an entity have a decreasing adjustment under Division 132' considers the meaning of 'in the course or furtherance of an enterprise'. At paragraph 28 it states:

28.  For the sale of a thing to be made in the course or furtherance of your enterprise, the sale of the thing must have a connection with your enterprise. Whether a connection between the sale of the thing and your enterprise exists will depend on the facts and circumstances. The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 states:

'In the course or furtherance' is not defined but is broad enough to cover any supplies made in connection with your enterprise. An act done for the purpose or object of furthering an enterprise, or achieving its goals, is a furtherance of an enterprise although it may not always be in the course of that enterprise. 'In the course or furtherance' does not extend to the supply of private commodities, such as when a car dealer sells his or her own private car. See Case N43 (1991) 13 NZTC 3361.

Paragraph 29 of GSTR 2004/8 further states:

29.  Given the broad meaning of 'in the course or furtherance', a sale of a thing is capable of being made in the course or furtherance of an enterprise regardless of the extent to which it has a connection with the enterprise, so long as it has some connection. The GST Act does not require that the thing must be applied primarily or principally in carrying on the enterprise for the supply of the thing to be in the course or furtherance of an enterprise. Accordingly, a connection between the sale of the thing and your enterprise exists even if, at the time of its sale, the thing is applied in carrying on the enterprise to a minor or secondary extent.

The sale of the property will be in the course or furtherance of your enterprise where it has some connection with the enterprise. Paragraph 30 of GSTR 2004/8 considers characteristics which indicate the following characteristics of a thing which indicates strongly that the sale of a thing has a connection with your enterprise:

•         at the time of sale it formed part of the assets of your enterprise (for example, it is trading stock or a depreciable asset for income tax purposes);

•         at the time of sale it was applied in carrying on your enterprise to at least some extent; and

•         it is sold as a transaction of your enterprise.

•         Each of these points will indicate a connection and not all of the points need to be satisfied. The word 'Asset' is not defined in the GST Act. The Macquarie Dictionary online, www.macquariedictionary.com.au, accessed 5 July 2022, defines the term as 2. an item of property, as a building, a piece of equipment, etc...,3. an economic resource.... In this respect the property is not an asset of your enterprise which you are seeking to realise. Although you are registered for GST, the sale of that asset will not be a taxable supply because the requirements of section 9-5 are not met.

Note: trading stock and depreciable assets for income tax purposes are merely two types of assets and do not represent an exhaustive list of assets an enterprise can have.

In summary

The facts and circumstances of your sale of the property do not establish a sufficient connection with your enterprise and as such paragraph 9-5(b) of the GST Act will not be satisfied. As all of the requirements of section 9-5 of the GST Act are not satisfied your sale of the property will not be a taxable supply.

As such you are not liable for GST on the sale of the property in accordance with section 9-40 of the GST Act and the GST withholding provisions under section 14-250 of Schedule 1 to the TAA do not apply to this sale.

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