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Edited version of private ruling
Authorisation Number: 1011485471373
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Ruling
Subject: Sale of property
Question:
Is the sale of the Property a taxable supply requiring you to remit 1/11th of the consideration as GST?
Answer
No, the sale of the Property is not a taxable supply and you are not required to remit 1/11th of the consideration as GST.
Relevant facts and circumstances
You are the trustee for a trust.
You became incorporated and the trust was established.
You are not currently registered for the goods and services tax (GST).
As the trustee for the trust, you acquired by way of transfer, a non-residential building (Property) from another trustee company.
The beneficiaries of this trustee company are also the beneficiaries of your trust.
In turn, the beneficiaries of your trust are also the beneficiaries of the other trust.
The other trust acquired the Property from a third party.
The Property was transferred to you later on.
After acquisition and before its eventual sale in the relevant year, you incurred further costs for renovation, maintenance and for land tax amounting to almost the price you paid for the Property in the first place.
The Property was used to store private cars of the beneficiaries of the trust.
The Property was also leased for a period of about three weeks in the relevant year to a third party for commercial use and for a small consideration.
You entered into a contract of sale of the Property in the relevant year for a total consideration of approximately seven times the price you paid for it plus GST if applicable.
You registered for the GST in the relevant year and cancelled that registration a few days after.
You, as an incorporated entity, are not carrying on any activity apart from being the trustee for the trust.
You, as the trustee, are not engaged in any activity other than passively holding the Property for the trust.
The Trust has no other assets other than this Property.
You, as the trustee, do not have (or had) any income other than that which is stated above. However, after the sale of the Property, you expect to derive interest income from the proceeds of the sale placed in a term deposit.
The objective of renovating the Property was to better adapt it for storing the private cars of the beneficiaries of the trust. However, the renovations have not been distinguished from regular maintenance.
You did not receive any consideration for the storage of cars in the premises.
The Property was settled in the relevant year.
You registered for the GST by your agent but without your instructions or authority and in error.
You cancelled the GST registration because, in your view, you were not carrying on an enterprise.
Reasons for decision
Liability for GST arises only where an entity makes a taxable supply.
Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states that:
You make a taxable supply if:
· you make the supply for *consideration; and
· the supply is made in the course or furtherance of an *enterprise that you *carry on; and
· the supply is *connected with Australia; and
· 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.
(Asterisks denote terms defined in section 195-1 of the GST Act)
A supplier makes a taxable supply if all of the above requirements are satisfied. In your case, you made the supply of the Property for consideration and, as it is in Australia, both paragraphs (a) and (c) above were satisfied.
The supply was neither GST-free nor Input Taxed as none of the provisions in Division 38 (which is about GST-free supplies) and Division 40 (which is about input taxed supplies) apply in this case.
Whether you made a taxable supply, therefore, would depend on whether both paragraphs (b) and (d) above were satisfied. That is whether you made the supply in the course or furtherance of an enterprise you were carrying on and, whether you were required to be registered.
Section 9-20 of the A New Tax System (Goods and Services Tax Act) 1999 (GST Act) defines the term enterprise to include an activity or a series of activities done in the form of a business or in the form of an adventure or concern in the nature of trade.
The Tax Office view on the meaning of the term enterprise is explained in Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1). Paragraphs 233 to 261 of MT 2006/1 discusses in detail the term "In the form of an adventure or concern in the nature of trade".
MT 2006/1 explains that in the A New Tax System (Australian Business Number) Act 1999 (ABN Act) there is no definition of the term "in the form of an adventure or concern in the nature of trade" and that the concept should be understood on the basis of Australian revenue law and judicial decisions.
Ordinarily, the term 'business' would encompass trade engaged in on regular or continuous basis. However, an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business but which has the characteristics of a business deal.
A business deal is a profit making undertaking or a scheme. The term 'profit making undertaking or scheme' like the 'an adventure or concern in the nature of trade' captures transactions of a commercial nature which are entered into for profit-making, but are not part of activities of an on-going business.
The relevant facts of this transaction we have considered are as follows:
· the property was acquired without having any particular purpose for its use;
· it was maintained and significantly renovated in the seven years you held it at a huge costs;
· the building was used to store the cars of the beneficiaries of the trust and for a short period leased out to a third entity to conduct an auction;
· the property was eventually sold at a substantial profit; and
· as an incorporated entity, you do not have (and have not carried on) any other activity.
These activities exhibit features which may give the transaction the character of a profit making enterprise. However, based on the characteristics outlined in MT 2006/1, the Tax Office considers that the supply of the Property will not be made in the course or furtherance of an enterprise that you carry on because you do not have or ever had an 'enterprise' in the requisite sense used in the GST Act. The three weeks period when the Property was used as a commercial venture is not significant enough in the overall scheme of things. The Tax Office also considers your GST registration to have been done by mistake.
Therefore, you do not satisfy the definition of an enterprise given in section 9-20 of the GST Act. As the sale of the Property was not done in the course of an enterprise, you do not satisfy paragraph 9-5(b) of the GST Act. It follows that the sale of the Property is not a taxable supply and you would not be required to remit 1/11th as GST.