Edited version of private advice

Authorisation Number: 1052038677528

Date of advice: 3 October 2022

NOTICE

The private ruling on which this edited version is based has been overturned on objection.

This notice must not be taken to imply anything about the correctness of other edited versions.

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Ruling

Subject: GST and sale of land

Questions

1. Will the sale of the identified real property (the Land) by Entity A be made in the course or furtherance of an enterprise carried on by the Entity for the purposes of section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2. Will the sale of the Land be a taxable supply under section 9-5 of the GST Act?

Answers

1. Yes.

2. Yes.

This ruling applies for the specified period.

The scheme commences on the specified date.

Relevant facts and circumstances

Entity A owns the identified real property (the Land) situated in Australia.

The Land was acquired more than two decades ago.

The Land is vacant land and did not have any residential premises on it at the time of acquisition.

A year later, Entity A completed the purchase of another property (Property X) at a different location in Australia. Property X comprised a number of residential houses. One of the houses is rented out.

A few years later, Entity A settled the purchase of a property (Property Y) situated next to Property X. Entity A has undertaken a primary production business on that land since its acquisition.

Prior to the purchase of the Land, Entity A had earlier purchased an apartment (Property Z) in Australia. Property Z is a rental property.

All four properties are recorded as long-term investments in the accounts of the trading Entity A.

Entity A became registered for GST from 1 July 2000.

The business/enterprise activities of Entity A comprise a primary production business and leasing.

The Land has not been the source of any of the income of Entity A.

Over the years the Land has remained vacant with no construction or other work conducted on the property. The only costs incurred by Entity A in connection with the property have been council rates, land tax, water charge and costs to make the property fire safe.

Entity A now intends to sell the Land.

The Land is currently on the market for sale.

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 paragraph 9-5(a)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-5(b)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-5(c)

A New Tax System (Goods and Services Tax) Act 1999 paragraph 9-5(d)

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 195-1

Reasons for decision

Detailed reasoning

GST is payable on taxable supplies. Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

You make a taxable supply if you meet 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 indirect tax zone; 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.

All the requirements of a taxable supply under section 9-5 of the GST Act must be met at the time of sale for the sale to be a taxable supply. The sale of the Land in the circumstances described, will be neither GST-free nor input taxed.

The sale of the Land will meet the requirements (a), (c) and (d) above. This is because the Land is being sold, as such, the supply will be made for consideration; the Land is located in Australia; and Entity A is registered for GST.

Therefore, what needs to be determined is whether the sale of the Land by Entity A will be in the course or furtherance of an enterprise that it carries on. Whether or not the sale of the Land is in the course or furtherance of an enterprise that Entity A is carrying on is a question of fact and degree.

Enterprise

Section 9-20 of the GST Act defines 'enterprise' to include, amongst other things, an activity or series of activities done:

•         in the form of a business

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

•         on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property.

The term 'carrying on an enterprise' is defined in the GST Act and 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) considers the meaning of 'enterprise' for the purposes of entities' entitlement to an Australian business number (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? confirms that the principles in MT 2006/1 apply equally to the term enterprise for GST purposes.

An entity can carry on more than one enterprise. On the facts provided, Entity A is carrying on a primary production business and a leasing enterprise. Where an entity is registered for GST, the GST registration applies to all the enterprise activities carried on by the entity.

The issue for consideration is whether the sale of the Land is made in the course or furtherance of Entity A's enterprise.

Whether or not an activity, or series of activities, amounts to an enterprise is a question of fact and degree having regard to all of the circumstances of the case.

Federal Commissioner of Taxation v. Swansea Services Pty Ltd [2009] FCA 402; [2009] ATC 20-100 (Swansea) deals with the issue of enterprise. McKerracher J stated the following in the decision:

•         there is nothing in the GST legislation that indicates investment activities cannot amount to an enterprise (paragraph 63),

•         the scope of the definition of enterprise is wide - one activity alone may qualify as an enterprise (paragraph 64),

•         the Explanatory Memorandum of the GST Act also indicates that enterprise is to be viewed widely (paragraph 67), and

•         enterprise is a broader concept than carrying on a business. The GST Act does not stipulate that there must be regular sales for an enterprise to exist (paragraphs 68-69).

We consider that an enterprise can incorporate a single undertaking such as the acquisition and sale of real property.

In your case, the Land is brought into account as a long-term investment asset in the accounts of the trading Entity A. From the time of purchase, Entity A has held the Land as an investment asset.

In Swansea, it was noted that the GST legislation does not preclude investment activities from amounting to carrying on of an enterprise. Although no two cases are the same, applying the view of McKerracher J in Swansea, it is arguable that Entity A's investment activity in relation to the Land can constitute an enterprise in itself.

The phrase 'in the course or furtherance of' is not defined in the GST Act. The Explanatory Memorandum to the A New Tax System (Goods and Services Tax) Bill 1998 supports a broad meaning of the phrase 'in the course or furtherance of':

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.

Therefore, in the given circumstances, even upon a finding that the single action that Entity A undertook by holding on to the Land as a long-term investment asset for more than two decades and then selling it, does not amount to a separate enterprise, the Land remains an asset of the trading Entity A.

The profits from the sale of the Land would benefit Entity A and the sale would contribute to the furthering of the overall enterprise carried out by Entity A.

On that basis, and on the facts of the current circumstances, the sale of the Land will be in the course or furtherance of an enterprise that Entity A carries on. Hence, requirement (b) of section 9-5 of the GST Act will also be met.

Consequently, all the requirements of section 9-5 of the GST Act will be met and the sale of the Land by Entity A will be a taxable supply under section 9-5 of the GST Act.

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