Edited version of private advice

Authorisation Number: 1052387810531

Date of advice: 13 May 2025

Ruling

Subject: GST - sale of vacant land

Question 1

Are the entities making a taxable supply of real property when they sell the property?

Answer 1

No.

Question 2

If the answer to question one is yes, will the margin scheme apply?

Answer 2

Not applicable.

This ruling applies for the following periods:

X XXX 19XX to XX XXX 20XX

The scheme commenced on:

X XXX 19XX

Relevant facts and circumstances

The company, the trust, A and B (the individuals) are currently co-owners of a XXXm² vacant residential block situated in Australia (the property). The interests are held as tenants in common via one third shares in the property between the company, the trust and the individuals. Collectively, the parties holding the property in this ruling are referred to as the 'interest holders'.

Originally, pre-XXXX, the property was purchased by the trust, the individuals and Z as co-owners for $XXX,000 ($XX,000 each). Z sold their share in 20XX for over $XXX,000 to the company.

The transfer of the interest in the property was effected via sale and transfer of the one-third interest from Z to the company.

The individuals and the trust are not registered for GST. The company is registered for GST because it owns a fully tenanted commercial property elsewhere. The company was only established to acquire the commercial property and not the property the subject of this private ruling. The company holds the commercial property in its own right and not in a trust relationship. The company is required to register for GST as its turnover is greater than $75,000.

From 20XX until present the interest holders have continued to hold the property on the basis of one-third interest each between the company, the trust and the individuals. The interest holders all used it as a family retreat as it had an old residence on it. They did not rent the old residence to tenants at any time. As their families grew up, they ceased using it as a holiday residence and instead, it remained empty and unused for many years.

The residence was built in 19XX and as it fell into disrepair it became uninhabitable. The interest holders discovered it was constructed with asbestos and was a health hazard. As a result, they applied for a demolition permit with the Council. The permit was granted in 20XX to demolish the house, a shed and fencing.

In 20XX the old house was demolished and removed from the land. As the interest holders demolished the house, they did not need a development approval.

Each entity holding the property interests in one-third shares are unrelated. The original land holders were colleagues in the 19XX's.

No interest holder borrowed to purchase their interest in the property.

The participants in the land holding do not have a partnership agreement or any joint venture agreement in place. They simply decided to hold the property together. You do not have a common bank account, but you share the holding costs in accordance with your one-third shareholding. There is no main party amongst the interest holders, no formal or informal rules to follow and decisions to be made are generally unanimously agreed.

In 20XX you subdivided the property into X lots of approximately XXXm².

The interest holders think that they will make a profit on the sale of the subdivided lots as they anticipate the sale proceeds to be more than $XXX,000 on each lot. They expect to settle the sale of one lot before XX XXX XXXX.

The interest holders have decided to sell the property as you are all now advancing in age and want to make sure that your children do not have to deal with it.

The interest holders provided a copy of the transfer form for Z's transfer of their undivided one-third share in fee simple. At that time the description of the land is Lot ZZZ on Plan ZZZ, volume ZZZ and folio ZZZ.

None of the entities involved or any person associated with them, have been involved in property development activities.

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 184-1

A New Tax System (Goods and Services Tax) Act 1999 section 195-1

Income Tax Assessment Act 1997 section 995-1

Taxation Administration Act 1953 schedule 1, section 14-255

Reasons for decision

Issue

GST and the sale of vacant land.

Question 1

Summary

The sale of the property is not a taxable supply where the entity makes a supply of the property in a manner which does not include all of the criteria listed in section 9-5. In this case as not all the criteria are met as the supply was not made in the course of the suppliers' enterprise.

Detailed reasoning

The initial step in this matter is to determine the entity making the supply or supplies of the property. The property has always been held in one third interests between the interest holders.

Entity is defined in subsection 184-1 to mean any of the following:

(a)           an *individual;

(b)           a body corporate;

(c)           a corporation sole;

(d)           a body politic;

(e)           a *partnership;

(f)           any other unincorporated association or body of persons;

(g)           a trust;

(h)           a *superannuation fund.

The company, the trust and the individuals in partnership are all entities in their own right based on the definition of 'entity' above. Based on the facts of the case, the interest holders do not have a trust relationship as no one is holding property on behalf of others.

The term 'partnership' is defined by section 195-1 of the GST Act to have the meaning given by section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997). Section 995-1 defines a partnership to mean:

(a)           an association of persons (other than a company or a limited partnership) carrying on business as partners or in receipt of ordinary income or statutory income jointly; or

(b)           a limited partnership.

The interest holders are not a partnership as they do not meet the definition in that they are not in business together and they are not in receipt of income as they merely hold the property originally for their own enjoyment.

The only remaining entity type they may remotely be considered under is paragraph 184-1(f) 'any other unincorporated association or body of persons. What is required to be this entity type is discussed in Miscellaneous Tax 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).

'Any other unincorporated association or body of persons' is not a defined term and is analysed in MT 2006/1 from paragraph 44 to 67. At 45 the analysis begins with the Shorter Oxford Dictionary definitions:

Association 2. A body of persons associated for a common purpose; the organisation formed to effect their purpose; a society; e.g. the British Association for the Advancement of Science, etc.

Body IV. 2. A society, association, league, fraternity. 4. (loosely) a collective mass of persons

The Macquarie definitions at paragraph 46:

association 1. an organisation of people with a common purpose and having a formal structure.

body 18. a number of things or people taken together: the student body

At paragraph 50 of MT 2006/1 their features, drawn from litigation are:

•                     there are members of the association;

•                     there is a contract binding the members amongst themselves;

•                     there is a constitutional arrangement for meetings of members and for appointing officers;

•                     the members will normally be free to join or leave the association;

•                     the association will normally continue in existence independently of any change to the composition of the association; and

•                     as a matter of history, there will have been a moment in time when a number of persons combined to form the association.

The key point about these features is that they do not all have to be present.

MT 2006/1, at paragraph 51, makes the point that for a group of persons to be an association or body of persons, 'more than a common aim or purpose is required'. Additionally, in Twycross and other v. Potts and another [1928] SC 633 (the Caledonian Employees' Benevolent Society Case) at 635, Lord President Clyde, referring to the Companies (Consolidation) Act 1908, said:

It is not, I think, open to doubt that the fundamental and essential characteristic of the whole class of bodies described in the Act as companies, associations, and partnerships, is that they are bodies constituted by some species of contract of society, and founded on the contractual obligations thus undertaken by the members

As an example of what amounts to a unincorporated association of persons is at example 1 at paragraph 55 of MT 2006/1:

55.          The Newcity Model Train Club is a non-profit association that conducts meetings at weekends. The club has a membership, a committee, a system of rules, and an understanding between the members of their rights, privileges and responsibilities. Members are free to join or leave the association at will and the membership changes over time.

56.          The club is an unincorporated association and an entity because it meets the definition in section 184-1 of the GST Act.

From paragraph 57, an example of what is not an unincorporated association of persons is set out as follows:

57.          Five artists rent and share a studio. They pool enough funds to cover the rent and other property expenses.

58.          The arrangement is an expense sharing arrangement that does not amount to an unincorporated association or body of persons. The five artists are not an entity for ABN purposes.

In the interest holders case, there is a loose association of people but there is no structure and no contractual arrangement between them legally enforceable or otherwise. The parties do share the holding costs of the land and on one occasion a 'member' left and was replaced by another. On that occasion there was no sharing of the product so there was no question of the parties being a joint venture. They are not registered as a GST joint venture. There is no committee, no contract, only the mere sharing of costs. On this basis, the entity or entities holding the property are not an unincorporated association or body of persons.

There are no other relationships evident such as agency. On this basis, the remaining relationship has to be of mere co-owners. Consequently the assessment must be made whether they are each engaged in their own separate enterprises. If they are engaged in an enterprise, the next assessment is whether they are entitled to apply the margin scheme. If they are not engaged in an enterprise, the margin scheme is not an issue as they will not be making a taxable supply of the property when they sell it.

In each case, the facts are common to the interest holders in that they jointly held the property for their own and/or the family of the office holders, trustees and beneficiaries.

The trust and the individuals are not registered for GST. The trust merely holds the property non-commercial reasons outlined in the facts. The analysis whether the trust and the individuals are engaged in an enterprise must commence with the definition of 'enterprise' in section 9-20. That provision states:

Enterprises

(1)           An enterprise is an activity, or series of activities, done:

(a)           in the form of a *business; or

(b)           in the form of an adventure or concern in the nature of trade; or

(c)           on a regular or continuous basis, in the form of a lease, licence or other grant of an interest in property; or

(d)           by the trustee of a fund that is covered by, or by an authority or institution that is covered by, Subdivision 30-B of the *ITAA 1997 and to which deductible gifts can be made; or

(da)        (da) by a trustee of a *complying superannuation fund or, if there is no trustee of the fund, by a person who manages the fund; or

(e)           by a charity; or

(f)           by the Commonwealth, a State or a Territory, or by a body corporate, or corporation sole, established for a public purpose by or under a law of the Commonwealth, a State or a Territory; or

(g)           by a trustee of a fund covered by item 2 of the table in section 30-15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN.

(2)           However, enterprise does not include an activity, or series of activities, done:

(a)           by a person as an employee or in connection with earning *withholding payments covered by subsection (4) (unless the activity or series is done in supplying services as the holder of an office that the person has accepted in the course of or in connection with an activity or series of activities of a kind mentioned in subsection (1)); or

Note: Acts done as mentioned in paragraph (a) will still form part of the activities of the enterprise to which the person provides work or services.

(b)           as a private recreational pursuit or hobby; or

(c)           by an individual (other than a trustee of a charitable fund, or of a fund covered by item 2 of the table in section 30 - 15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN), or a *partnership (all or most of the members of which are individuals), without a reasonable expectation of profit or gain; or

(d)           as a member of a local governing body established by or under a *State law or *Territory law (except a local governing body to which paragraph 12-45(1)(e) in Schedule 1 to the Taxation Administration Act 1953 applies).

The trust and individuals as a business

For the individuals and the trust to be engaged in an enterprise they must be doing an activity or activities in the form of a business or in the form of an adventure in the nature of trade under paragraphs 9-20(a) and (b), because only these two provisions can apply. Taking into account 'in the form of' broadens the term 'business' and 'adventure in the nature of trade', consideration of what amounts to a business and 'adventure in the nature of trade is required. Generally, the indicators of a business are considered to be those set out in Taxation Ruling TR 97/11 Income tax: am I carrying on a business of primary production and reproduced at paragraph 178 of MT 2006/1:

•                     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 businesses in the same or similar trade;

•                     activity is systematic, organised and carried on in a businesslike manner 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 or skill.

Applying these factors, they have not engaged in significant commercial activity as their turnover is currently nil. Their purpose and intention was originally to hold the property for personal enjoyment of themselves and their family via vacations. There has been no intention to make a profit, although the property sales if and when they occur will probably realise a profit. They are not operating in a manner that is consistent with a business. There is no systematic activity and it is not operated in a particularly organised way. There are no particular rules or records. The property held is approximately XXXXm² and was subdivided into X lots of XXXm² each so the scale of the activity is quite small. The trust and the individual do not have the skills of a property developer undertaking a subdivision business and they have no business plan.

The trust and individuals as an adventure or concern in the nature of trade

The features of an adventure or concern in the nature of trade do not have to amount to a business and are usually more one-off in nature. However, the term requires 'the features of a business deal': see MT 2006/1 at paragraph 237 and could be regarded as 'an isolated business venture'. Commonly, cases of this type involve the purchase and resale of something at a profit. Where a thing is acquired and instead of being held for use, are quickly resold at a profit, it is more likely an adventure or concern in the nature of trade. In the interest holders case, they have held the interest in the property since before 2000. This is a factor pointing away from the sale of the property as an adventure or concern in the nature of trade.

Additionally, an adventure or concern in the nature of trade has to have some indication of commercial trade. Transactions involving assets held for a personal nature are not 'commercial'. Commercial transactions are of a commercial nature, rather than things such as 'the family home, car, and other private assets': MT 2006/1 paragraph 244. In this case, the asset has been held for personal reasons for nearly XX years and the fact that that it may be sold at a profit will not change these facts as significant indicators there is no one-off venture in the nature of a business deal.

On this basis, we consider the definition of enterprise is not met by the trust and the individual and any sale of the property will not be in the course of an enterprise.

The company

The company could be said to be operating under the same factual matrix as the trust and the individual but it is in a different position because it is already registered for GST as it is engaged in the enterprise of leasing commercial property. The issue is whether the company is making a taxable supply of its one-third interest when they sell the property. A taxable supply occurs when the conditions of section 9-5 are met.

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.

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

There is no doubt that the company will make the supply for consideration and the property is in the indirect tax zone (Australia) and it is registered for GST.

The analysis above concludes that on the facts applying to each the trust or the individuals, neither entity made a supply in the course of an enterprise they carry on. The assessment to be made in relation to the company is whether it made a supply in the course of any particular enterprise it carries on pursuant to paragraph 9-5(b).

As the company has held its interest in the property since 20 in the same manner as the trust and the individuals. That is, it holds the asset as a thing that is clearly not used or supplied in the course of an enterprise; the conclusion must be that paragraph 9-5(b) is not met. As such, the supply is not made in the course or furtherance of the company's enterprise.

Conclusion

In the case of each interest holder of the property, the interest held is not being supplied in the course or furtherance of any enterprise. The result is that the supply by any interest holder will not be a taxable supply. The implication of this decision is that the interest holders as vendors will not be required to notify any purchaser(s) that they will need to withhold GST at settlement under section 14-255, Schedule 1, of the Taxation Administration Act 1953.

Question 2

As the property will not be a taxable supply under question one, the margin scheme will not apply.

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