Edited version of private ruling

Authorisation Number: 1011504444185

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: GST and sale of property

Question

Is the sale of the residential property of a deceased estate with a development approval for subdivision, subject to goods and services tax (GST)?

Answer

No, the sale of the residential property of a deceased estate, sold with development approval for subdivision, is not subject to GST

Relevant facts and circumstances

You were granted probate of your reletive's will.

The only real estate owned by your relative was a residence.

You obtained development approval from the local council for subdivision of the property.

You do not intend to subdivide the property, but will offer the property for sale with development approval as part of the contract of sale.

You, as executor for the estate, are not currently registered for GST.

Reasons for decision

GST is payable on any taxable supply you make. Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) 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 Australia; 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

(*denotes a term defined in section 195-1 of the GST Act)

If all the elements of section 9-5 of the GST Act are satisfied, an entity will be making a taxable supply.

Based on the facts of your case, the proposed sale will satisfy the requirements of paragraphs 9-5 (a) and (c) of the GST Act. Therefore, we must determine if the sale of the property will satisfy subsections 9-5(b) and (d) of the GST Act. That is whether you will be making the supply in the course or furtherance of an enterprise and whether you are required to be registered.

The term, 'enterprise' is defined in section 9-20 of the GST Act. It includes, amongst other things, an activity, or series of activities done:

· in the form of a business; or

· in the form of an adventure or concern in the nature of trade.

Miscellaneous Taxation Ruling MT 2006/1 (MT 2006/1) provides guidance on the meaning of the 'entity carrying on an enterprise' for the purposes of entitlement to an Australian Business Number.

Paragraph 1 of Goods and Services Tax Determination GSTD 2006/6 provides that the guidelines in MT 2006/1 are to apply to the meaning of the terms 'entity' and 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

Paragraph 159 of MT 2006/1 states that whether or not an activity constitutes an enterprise is a question of fact and degree depending on the circumstances of each individual case.

As stated in section 9-20 of the GST Act, an enterprise includes an activity or series of activities, done in the form of a business. Further, an adventure or concern in the nature of trade includes a commercial activity that does not amount to a business, but which has the characteristics of a business deal. However, it does not extend to the mere realisation of investment or private assets such as the family home and private cars.

This means that an asset sold at a profit, does not, of itself, result in the activity being commercial in nature. Therefore, we need to determine whether the sale of a property constitutes an activity (solely or partly) in the course of an enterprise.

Paragraph 234 of MT 2006/1 distinguishes between activities done in the form of a business and those done in the form of an adventure or concern in the nature of trade. A business encompasses trade engaged in on a regular basis. An adventure or concern in the nature of trade includes an isolated or one-off transaction that does not amount to a business, but which has the characteristics of a business deal.

Paragraph 263.of MT 2006/1 states that the issue to be decided is whether the activities are an enterprise in that they are of a revenue nature as they are considered to be activities of carrying on a business or an adventure or concern in the nature of trade (profit making undertaking or scheme) as opposed to the mere realisation of a capital asset.

Paragraph 265 of MT 2006/1 lists a number of factors which can be used to determine whether activities in relation to a sale of property are done under a profit-making undertaking or scheme. If several of these factors are present it may be an indication that a business or an adventure or concern in the nature of trade is being carried on.

These factors are as follows:

· there is a change of purpose for which the land is held;

· additional land is acquired to be added to the original parcel of land;

· the parcel of land is brought into account as a business asset;

· there is a coherent plan for the subdivision of the land;

· there is a business organisation (for example, a manager, office and letterhead);

· borrowed funds financed the acquisition or subdivision;

· interest on money borrowed to defray subdivisional costs was claimed as a business expense;

· there is a level of development of the land beyond that necessary to secure council approval for subdivision; and

· buildings have been erected on the land.

In determining whether activities relating to isolated transaction are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each particular case. This may require a consideration of the factors outlined above. However, there may also be other relevant factors that need to be weighed up as part of the process of reaching an overall conclusion. No single factor will be determinative. Rather, it will be a combination of factors that will lead to a conclusion as to the character of the activities.

In applying the above factors to your case we find that:

· there has been no change of purpose for which the land was held

· no additional land was acquired and added to the original parcel of land

· the parcel of land was not brought into account as a business asset.

· there is no coherent plan on your part to subdivide the property.

· there is no business organisation (for example, a manager, office and letterhead).

· the property was not purchased, but was part of a deceased estate.

· you did not carry out any development of the land in your role as executor of the estate

· no new buildings have been erected on the land

In your case, you obtained approval for subdivision of the property, but have not carried out any subdivision activities. The development approval was added to increase the selling potential of the property.

Having considered the above factors, we are of the view that the activity of subdividing and selling the property with a development approval is the realisation of a capital asset, and not the carrying on of an enterprise. The requirements of paragraph 9-5 (b) of the GST Act are not satisfied.

In regard to paragraph 9-5(d) of the GST Act you are not registered, and as you are not carrying on an enterprise, you are not required to be registered. Paragraph 9-5(d) of the GST Act is also not satisfied. You are therefore not making a taxable supply when you sell the property and the sale is not subject to GST.