Edited version of private ruling

Authorisation Number: 1011741816892

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Ruling

Subject: GST and sale of your principal place of residence

Question

Will the sale of your principal place of residence a taxable supply?

Advice/Answer

No. The sale of your principal place of residence will not be a taxable supply and therefore will not be subject to GST.

Relevant facts

You purchased a property and it contains a residential house. The property has always been, and is currently your principal place of residence. Prior to the purchase of the property, you resided in a rental property for a number of years.

You have decided to demolish your existing house and build two townhouses on the property. You intend to keep one of the new townhouses as a rental investment property and will then live in the other townhouse as your future principal place of residence. You are currently engaging the draftsman and surveyor for the building plans and the application will be submitted to the council in the near future.

You are not registered for GST. You own other residential rental properties and you have never sold any of those investment properties. You are not engaged in the buying and selling of properties and this is your first time to undertake a subdivision and building project. You stated that you do not intend to sell the townhouse that will be used for rental purpose.

You stated that you may need a bigger residence in future. You applied for a ruling as a precaution so that you are aware of your tax obligations if you need to sell your home in future.

Reasons for decision

Section 9-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that you must pay the GST payable on any taxable supply that you make.

Section 9-5 of the GST Act provides that the supply of goods or services that you make is a taxable supply if

a) you make the supply for consideration

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

c) the supply is connected with Australia; and

d) you are registered, or required to be registered for GST.

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

In your case, you have satisfied the requirements in paragraphs 9-5(a) and 9-5(c) of the GST Act as

§ you will receive consideration for the sale of the townhouse

§ the supply is connected with Australia as the townhouse is located in Australia.

Therefore, it must be considered whether the sale of the townhouse that you intend to remain living in once built is made in the course or furtherance of an enterprise that you carry on and whether you are required to be registered for GST.

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

An enterprise is defined under subsection 9-20(1) of the GST Act and 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.

Ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. In your case, we consider the scale of activities leading up to the sale of the townhouse that you will use as your family home may be insufficient to constitute a business. However, it is necessary to determine whether it is done in the form of an adventure or concern in the nature of trade.

An adventure or concern in the nature of trade

An adventure or concern in the nature of trade can be an isolated or one-off transaction and includes any commercial activity that does not amount to a business but which has the characteristics of a business deal.

Relevant characteristics of an adventure or concern in the nature of trade includes factors such as the length of period of ownership, the frequency or number of similar transactions, whether the asset has been improved beyond just preparing it for sale, motive (that is intention at time of acquisition) and whether the asset is an investment asset.

As 'adventures or concerns in the nature of trade' involve trade, it is necessary to consider the meaning of 'trade'.

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of enterprise for the purposes of entitlement to an Australian business number. 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.

In accordance with paragraph 253 of MT 2006/1, trade involves operations of a commercial character. As assets can be sold for reasons other than trade, the circumstances behind the sale need to be considered. For example, a quick resale of an asset may have occurred as a result of sudden financial difficulties, rather than being for reasons of trade. Note that as an asset in such a situation would not be a trading asset. It follows that it would be an investment asset, as all assets are classified as either investment assets or trading assets.

Paragraph 259 of MT 2006/1 states:

259. Examples of investment assets are rental properties, business plant and machinery, the family home, family cars and other private assets. The mere disposal of investment assets does not amount to trade.

Paragraph 244 of MT 2006/1 further 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.

You advised that your intention is to remain living in the townhouse once built. The subsequent sale of this townhouse does not amount to an adventure or concern in the nature of trade as it is the mere realisation of a private asset. Hence, it is not considered to be made in the course of an enterprise. Therefore, the requirement in paragraph 9-5(b) of the GST Act is not satisfied.

As mentioned, for the sale of your residential property to be a taxable supply, all of the requirements in section 9-5 of the GST Act must be met. As the requirement in paragraph 9-5(b) of the GST Act is not met, we do not need to discuss the remaining requirements. Accordingly, the sale of the townhouse that will be occupied by you as your principal place of residence is not a taxable supply.

Accordingly, the sale of the townhouse is not subject to GST.

Please note that this ruling is based on the facts you provided. The decision in this ruling will not apply if the townhouse in question will not be used as your future principal place of residence. For example: you change your intention and decide to sell the townhouse after the construction has been completed or the townhouse will be used as a rental property for a period less than five years since the date construction has been completed. In such cases, you will need to apply for a private ruling to determine your GST liability (if any).