Edited version of private ruling

Authorisation Number: 1011766782780

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 goods and services tax (GST) payable on the sale of your property?

Advice/Answers:

No, GST is not payable on the sale of your property.

Relevant facts:

You are the registered proprietors of the property for many years.

There are two primary structures situated on the property: a residential house and an external building.

The house has been used by you as your family home for many years.

The external building has been used by your family for domestic purposes.

The property was not acquired for purposes of redevelopment or residential subdivision.

As a result of the recent rezoning of the property the market value of the property has increased substantially in recent times.

In light of this increase in value, and for other personal reasons, you have decided to sell the property.

You have entered into a contract for the sale of the property.

According to your statement to the purchaser, you have not applied for any building approval in the past number of years.

You carry on an enterprise in partnership and that enterprise was registered for GST with effect from 2000. Your enterprise is primarily undertaken by you away from the property. You have operated your enterprise from a room in the house (a home office arrangement). Whilst the external building was not necessary for you to carry on your enterprise, you have used it in relation to your enterprise from time to time. Such usage has been incidental and in no way regular or systematic. The external building has primarily been used for domestic purposes.

The property was not purchased for purposes of use in your enterprise. It has never been recorded in the business accounts of your enterprise as an asset of the enterprise

Reasons for decision

Subsection 7-1(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) provides that GST is payable on taxable supplies.

Section 9-5 of the GST Act provides 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.

Subsection 9-10(1) of the GST Act states:

A supply is any form of supply whatsoever.

Paragraph 9-10(2)(d) of the GST Act provides that supply includes a grant, assignment or surrender of real property.

Therefore the sale of the property is a supply for GST purposes. To be a taxable supply, it is therefore important to consider in the first instance whether the sale of the property is made in the course or furtherance of an enterprise that you carry on as per the requirement in section 9-5 of the GST Act.

In the course or furtherance of an enterprise

Subsection 9-20(1) of the GST Act defines the term enterprise and includes as an enterprise an activity, or series of activities, done in the form of an adventure or concern in the nature of trade. An enterprise can therefore include a single activity such as the sale of real property such as residential premises.

It is therefore necessary to determine if the sale of the property under the present circumstances constitutes an activity done in the form of an adventure or concern in the nature of trade and hence an enterprise under subsection 9-20(1) of the GST Act.

Miscellaneous Taxation Ruling MT 2006/1 provides the Tax Office view on whether or not an activity constitutes an enterprise for the A New Tax System (Australian Business Number) Act 1999.

Goods and Services Tax Determination GSTD 2006/6 states that the Tax Office view given in MT 2006/1, can be applied equally to the term enterprise as used in the GST Act.

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

Paragraphs 244, 258 and 263 of MT 2006/1 provide direction as to whether the sale of the property can be considered an enterprise. They state:

244. … 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.

258. … Assets purchased with the intention of holding them for a reasonable period of time, to be held as income producing assets or to be held for the pleasure or enjoyment of the person, are more likely not to be purchased for trading purposes.

263. 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. …

In your case, the property has been used as a principal place of residence for many years; one of the rooms in the house has been used as the home office for your enterprise and the external building has been used incidentally for your enterprise from time to time.

The property has never been recorded as part of the business asset of your enterprise.

You have not applied for any building approval in the past number of years according to your statement to the purchaser.

Consequently, given the way the property was acquired and used, we consider that the sale of the property is not commercial in nature, that is, its sale was not a profit making undertaking but rather it is the sale of your private asset. Therefore, for the purposes of the GST Act, the sale is not in the course or furtherance of an enterprise that you carry on, when you sell the property.

As all the requirements of section 9-5 of the GST Act will not be met when you sell the property, the sale of your property will not be a taxable supply. As such, GST will not be payable on the sale of the property.