Edited version of private ruling

Authorisation Number: 1011674044813

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Ruling

Subject: Sale of land

Question

Is the sale of the property a taxable supply?

Answer:

No

Relevant facts:

You do not have an Australian Business Number (ABN) and is not registered for the goods and services tax (GST).

Your income is salary and wages.

You advised that you are not in the business of buying and selling properties.

You purchased a property (Property) before 1 July 2000.

The Property is zoned for rural use.

There is no building structure on the Property.

You have not conducted any income producing activities on the Property and have only used the Property for private and personal purposes.

You have not claimed deductions in your income tax return for any expenses relating to the Property.

Summary

GST is payable where you make a taxable supply. Under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), you make a taxable supply if:

· you make the supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on

· 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.

Enterprise may comprise activities carried out in the form of an adventure or concern in the nature of trade (for example, an isolated or one-off transaction) which does not amount to a business but has the characteristics of a business deal. However where the activities do not amount to an enterprise, then these activities may be a mere realisation of a capital asset.

Based on the information provided the intended sale of the Property is a mere realisation of capital asset and not made in the course of an enterprise. Therefore the sale of the Property is not a taxable supply under section 9-5 of the GST Act.

Detailed reasoning

GST is payable where you make a taxable supply. Under section 9-5 of the GST Act, you make a taxable supply if:

· you make the supply for consideration

· the supply is made in the course or furtherance of an enterprise that you carry on

· 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.

You will be selling the Property for consideration and the Property is located in Australia. You are not registered for an ABN or GST and your income source is salary and wages. We therefore need to consider is whether the intended sale is in the course or furtherance of an enterprise.

Enterprise

· The definition of an enterprise in section 9-20 of the GST Act includes (amongst other things) an activity or series of activities, done:

· in the form of a business

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

· on a regular or continuous basis, in the form of a lease, license or other grant of an interest in property.

The meaning of enterprise for GST purposes is considered in Goods and Services Tax Determination GSTD 2006/6 and is explained further in Miscellaneous Taxation Ruling MT 2006/1. Copies of these rulings have been provided.

Paragraph 11 of GSTD 2006/6 states:

An enterprise includes an activity, or series of activities, done in the form of a business. The phrase 'in the form of a business' is broad and has as its foundation the longstanding concept of a business...

Paragraphs 170 to 246 of MT 2006/1 provide an explanation of activities carried out "in the form of a business". Paragraph 178 of MT 2006/1 lists the main indicators where activities may be carried out in the form of a business.

Generally, the term "business" would ordinarily encompass a trade that is engaged in, on a regular or continuous basis. However enterprise may also be an activity carried out in the form of an adventure or concern in the nature of trade (for example, an isolated or one-off transaction) which does not amount to a business but has the characteristics of a business deal

You have advised that you are not and have never been in the business of buying and selling property before and you have no intention of doing so in the near future. This is a one off sale. Therefore we need to consider whether the sale of the Property, which is a one off transaction, is done in the form of a trade (that is, has the characteristics of a business deal) and therefore is made in the course or furtherance of an enterprise.

One off transaction

Paragraphs 262 to 302 of MT 2006/1 specifically consider isolated transactions of sales of real property. Paragraph 263 of MT 2006/1 provides that the issue to be decided is whether these activities are of a revenue nature (that is, have the characteristics of a business deal) and therefore an enterprise. Where they are not of a revenue nature, then the transaction could be a mere realisation of a capital asset. The activities which are a mere realisation of a capital/investment asset are not a business or an adventure or concern in the nature of trade and therefore no enterprise is being carried out.

Paragraph 265 of MT 2006/1 outlines some factors which could determine whether or not the activity is done in the form of a business or in the form of an adventure or concern in the nature of trade. They are:

· purpose for which the land is held

· whether additional land is acquired

· land is brought into account as a business asset

· a coherent plan for the subdivision of the land or carrying of a business or trade

· whether there is a business organisation

· financed of the acquisition or subdivision through business loans

· interest on loans claimed as a business expense

· development of the land, and

· buildings or structures erected on the land.

In determining whether activities relating to isolated transactions are an enterprise or the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of each case. 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.

Paragraphs 247 to 261 of MT 2006/1 outline some factors to determine whether the sale of an asset could be considered as a mere realisation of a capital or investment asset. The factors are:

· length of period of ownership

· frequency or number of similar transactions

· supplementary work on or in connection with the property

· circumstance that were responsible for the realisation, and

· motive

The mere disposal of an investment or private assets on its own does not amount to an adventure or concern in the nature of trade. These assets are purchased with the intention to hold for a reasonable period of time, as income-producing assets or for the pleasure or enjoyment of the person.

In your case, based on the factors listed in paragraph 265 of MT 2006/1 the sale of the Property does not amount to an adventure or concern in the nature of trade, as you:

· purchased the Property some time ago as an investment and have held the Property a reasonable period of time

· have not conducted any income producing activities or have built any structures on the Property have not claimed deductions on expenses relating to the Property, and

· have only used the Property for private and domestic purposes.

However, paragraph 170 of the MT 2006/1 states:

In isolated transactions, where land is sold that was purchased with the intention of resale at a profit (which would be ordinary income) the Commissioner considers these activities to be an enterprise. This would be so whether the land was sold as it was when it was purchased or whether it was subdivided before sale. An enterprise would be carried on in this situation because the activities are business activities or activities in the conduct of a profit making undertaking or scheme and therefore an adventure or concern in the nature of trade

You acquired the Property as an investment and have had ownership of the Property for a reasonable period of time and your income source is salary and wages. We therefore consider paragraph 170 of MT 2006/1 does not apply to the sale because there is no evidence to indicate that you are in the business of buying and selling land for profit.

Therefore the intended sale of the Property will be a mere realisation of capital asset.

As you are not carrying on an enterprise for ABN purposes and your income source is salary and wages, you cannot register for an ABN or GST. The intended sale of the Property is not in the course or furtherance of an enterprise and therefore not a taxable supply under section 9-5 of the GST Act.