Edited version of private ruling

Authorisation Number: 1011635635343

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Ruling

Subject: GST and sale of vacant land

Question

Is the sale of your vacant land subject to Goods and Services Tax (GST)?

Answer

No, the sale of your vacant land will not be subject to GST.

Relevant facts and circumstances

You are registered for GST and is carrying on an enterprise.

You own two properties from which your enterprise is carried out. You are also residing on one. You have held these properties for many years.

A few years ago, you inherited a parcel of land. The land is a vacant block of land. There are no buildings or structures on the land. The land is not fully fenced.

Since inheriting this land you have merely held this land. The land has not been used for any income producing activity. It has not been developed or subdivided and no improvements have been made on the land.

You advised that you have not used this land in your enterprise and had no intention to include this land and use it as part of your business activities.

You have decided to sell the land in its unimproved and undivided state and have engaged a real estate agent and have found a prospective buyer.

The main reason for selling the land is to merely realise it and have funds available which you can use in your current property and to have money for your retirement.

You do not hold any rental properties.

You advised that you have sold a property many years ago. You also sold another property which you bought afterwards and had held for a long length of time, also many years ago. Apart from this you have not bought and sold any property before and do not own any other properties.

Reasons for decision

GST is payable on taxable supplies. The sale of your vacant land is a supply and will be subject to GST if it is a taxable supply.

Section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) states:

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.

All the elements of section 9-5 of the GST Act must be satisfied for a supply to be a taxable supply.

In this case, the sale of your vacant land will be for consideration, the supply will be connected with Australia as the vacant land is in Australia and you are registered for GST. As such, the requirements in paragraphs 9-5(a), 9-5(c) and 9-5(d) of the GST Act will be satisfied.

The issues that remain to be considered are whether the sale of your vacant land will be in the course or furtherance of an enterprise that you carry on and whether the sale will be GST-free or input taxed.

Whether the sale of your vacant land is made in the course or furtherance of an enterprise that you carried on

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

Miscellaneous Taxation Ruling MT 2006/1 (available on our website at www.ato.gov.au) provides guidance on the meaning of 'enterprise' for the purposes of entitlement to an Australian business number. Goods and Services Tax Determination GSTD 2006/6 (also accessible from our website) provides that the guidelines in MT 2006/1 are considered to apply equally to the term 'enterprise' as used in the GST Act and can be relied upon for GST purposes.

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

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 as opposed to the mere realisation of a capital asset.

Paragraph 234 of MT 2006/1 distinguishes between a business and an adventure or concern in the nature of trade. It provides that the term business would encompass trade engaged in, or on a regular or continuous basis. However, it also considers that an adventure or concern in the nature of trade may be an isolated or one-off transaction that does not amount to a business.

Based on the information provided, the sale of your vacant land will be a one-off activity, and is not an activity or series of activities done in the form of a business, or part of a series of property development and/or property trading activities. Therefore, we shall consider whether your sale of the vacant land is an activity done in the form of an adventure or concern in the nature of trade.

Paragraph 244 of MT 2006/1 provides further guidance on adventures and concerns in the nature of trade. It states:

244. 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. Such transactions are of a revenue nature. However, the sale of the family home, car and other private assets are not, in the absence of other factors, adventures or concerns in the nature of trade. The fact that the asset is sold at a profit does not, of itself, result in the activity being commercial in nature.

Paragraph 265 of MT 2006/1 provides that from the cases of Statham & Anor v. Federal Commissioner of Taxation 89 ATC 4070 and Casimaty v FC of T 97 ATC 5135 a list of factors can be ascertained that provide assistance in determining whether activities are a business or an adventure or concern in the nature of trade. 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 the subdivision; and

· buildings have been erected on the land.

In your case, whilst there is a change of purpose for which the vacant land is held, no other factors above are present.

You acquired the land by way of inheritance under a deceased estate not for the purpose of resale for commercial gain. The land is vacant and has no buildings or structures erected on it. There have been no improvements to the land. No development or subdivision activity has been undertaken by you. You will be selling the land merely to realise the asset and in order to have access to funds. The land is being sold in its unimproved state in a single undivided lot. You are not in the business of acquiring, developing and selling land. Furthermore, the land has not been used for an income producing purpose. The character of the land is that of an investment asset as opposed to a trading asset. In this instance, selling the land is not part of a trade of buying, selling and developing land.

Therefore, we consider that the sale of the vacant land is a mere realisation of a capital/private asset which does not amount to the carrying of an enterprise as defined under section 9-20 of the GST Act. The sale does not have a commercial nature and is not an adventure or concern in the nature of trade. The sale does not also fall under any other type of enterprise in the definition in section 9-20 of the GST Act.

You are currently carrying on an enterprise and are registered for GST. However, you advised that you had no intention of using the vacant land in your current business activities for which you are registered for GST and have not used the land in your business activities. Therefore, the sale of the vacant land is not in the course or furtherance of your current business activities for which you are registered for GST.

As you are not carrying on an enterprise in relation to the sale of the vacant land and the sale of the vacant land is not in the course or furtherance of an enterprise that you carry on, the requirement in paragraph 9-5(b) of the GST Act is not satisfied.

Conclusion

As all the requirements of section 9-5 of the GST Act are not met, it is therefore not necessary to consider whether the sale will be GST-free or input taxed.

Therefore, the sale of your vacant land will not be a taxable supply and will not be subject to GST.