Edited version of private advice

Authorisation Number: 1052292655328

Date of advice: 19 August 2024

Ruling

Subject: GST - sale of property

Question

Will the sale of the property be subject to GST in accordance with section 9-5?

Answer

No. The sale of the property will not be a taxable supply in accordance with section 9-5.

This ruling applies for the following periods:

Financial year ending 30 June 2024, to

Financial year ending 30 June 2029.

The scheme commences on:

The date this private ruling is issued.

Relevant facts and circumstances

The property is owned as joint tenants.

The property was originally purchased on XX XXXX.

The property is a commercial premises, previously leased as a restaurant.

The lease ceased in XXXX.

The property has remained vacant since the lease ended.

The vendor does not hold an ABN.

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

Reasons for decision

Under section 9-5, an entity makes a taxable supply where the supply:

1.    is made for consideration; and

2.    is made in the course or 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.

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

In this case, the property to be sold is located in the indirect tax zone and the supply will be for consideration. Therefore, the sale of the property will satisfy two elements outlined above (1&3). Accordingly, we need to determine whether the other two elements (2&4) would be satisfied. If this were the case, the sale of the property would satisfy all of the requirements under section 9-5 and would be a taxable supply.

The vendors of the property previously leased the premises to a third party with the lease ending in XXXX. The property has remained vacant since the lease ended. The vendors of the property do not have an ABN.

Because the transaction of selling a property may be described as an isolated transaction, we need to consider the extended definition of 'enterprise' and whether this activity falls within the definition of a form of an 'adventure or concern in the nature of trade'.

An 'adventure or concern in the nature of trade' refers to transactions that have a commercial nature which are entered into for a profit-making purpose.

Are you carrying on an enterprise

The term 'enterprise' is defined for GST purposes in section 9-20 and includes, among other things, and activity or a 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 guidance on the meaning of this expression.

Goods and Services Tax Determination GSTD 2006/6 Goods and Services Tax: MT 2006/1 have equal application to the meaning of 'entity' for the purposes of the A New tax System (Goods and Services Tax) Act 1999, provides that the discussion on MT 2006/1 applies equally to the term 'enterprise' as used in the GST Act and can be relied on for GST purposes.

Application in this case.

Given the facts of this case, we consider that the sale of the property by the vendors will not display the characteristics of a 'business' as listed above.

The vendors of the property were carrying on a leasing enterprise of which the property was the premises subject to the lease, however this enterprise ceased in XXXX.

We now need to determine whether the sale of the property will qualify as an adventure or concern in the nature of trade.

Paragraph 245 of MT 2006/1 refers to 'the badges of trade' while paragraphs 247 and 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 conjunction with the property realised

•         The circumstances that were responsible for the realisation; and

•         Motive.

The subject matter of realisation

You purchased the property in XXXX and it was a leased commercial premises until XXXX. As the property has been vacant for a number of years, the vendors are contemplating selling the property.

The length of time of ownership

The property was purchased in XXXX.

The frequency and number of similar transactions

This is a one-off transaction.

Supplementary work on or in connection with the property realised

There has been no additional work carried out on the property.

The circumstances that were responsible for the realisation

The property has been empty for a number of years and the owner has decided to sell the property.

Motive

The motive for selling the property is to dispose of the vacant premises.

Conclusion

Given the above, we do not consider that the activity of selling the property would constitute an adventure or concern in the nature of trade and, as such, would not be sold in connection with an enterprise being carried on.

GST registration

Section 23-5 of the GST Act provides that an entity is required to be registered for GST if they carry on an enterprise and the GST turnover meets the registration turnover threshold (currently $75,000).

As detailed above, it is considered that the sale of the property does not form part of an enterprise being carried on by the vendors. Therefore, the vendors are not carrying on an enterprise for which it is required to be registered for GST.

Conclusion

As all of the elements of section 9-5 have not been met, the sale of the property does not meet the requirements under section 9-5 and will not be a taxable supply when sold.

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