| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011795036520
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 on the sale of a property
Question 1
Will the supply of a property (the property) be subject to GST whether in whole or in part?
Answer
No, the supply of the property will not be subject to GST.
Relevant Facts
You have applied for a GST private ruling on the supply of a property which is currently on the market.
The property is owned by a number of family members who are not registered for GST individually or collectively.
The property comprises of a disused commercial building and some shed like structures. There have been no improvements to the property for over 40 years.
The property is zoned residential 1 and has been vacant for more than 15 years. At no stage has it generated income with the only expenses being water rates, council rates and land tax.
The property is on a number of titles, some of which have been owned for the entire period and an adjacent parcel of land was recently purchased from the local Council. At the request of the Council you are in the process of combining the multiple titles into one.
An application to Council to build units on the site after engaging an architect to draw up plans. The application was approved by Council but since then your intent has changed and the property is to be sold as it currently stands as a realisation of a private asset.
Detailed reasoning
A supply is taxable when it satisfies section 9-5 of the GST Act. This section provides that you make a taxable supply if:
(a) the supply is for consideration; and
(b) (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 for required to be registered
However the supply is not a taxable supply to the extent that it is GST free or input taxed.
As you intend to make a supply of property that is located in Australia for consideration, paragraphs 9-5(a) and 9-5(c) of the GST Act will be satisfied. In order to establish if paragraph 9-5(b) of the GST Act is also satisfied, it is necessary to establish if the supply of the property will be in the course or furtherance of an enterprise that you carry on as an individual or in conjunction with the other part owners.
The ATO view on the meaning of an entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number is provided by Miscellaneous Taxation Ruling MT 2006/1.
Goods and Services Tax Determination GSTD 2006/6 explains at paragraph one that A New Tax System (Australian Business Number) Act 1999 (ABN Act) uses the definition of "entity" and "enterprise" that are contained in the GST Act. It goes on to say that the principles in MT 2006/1 apply equally to the terms "entity" and enterprise in the GST Act. Thus MT 2006/1 can be used to discuss your case.
Paragraphs 120 to 139 of MT 2006/1 explain when an enterprise is being carried on for the purposes of the ABN (and GST) Act. Paragraph 120 of MT 2006/1 states in part:
In order to be entitled to an ABN most entities must carry on an enterprise. The term 'carrying on' is defined in section 41.
Paragraphs 121 and 122 of MT 2006/1 further explain that given an identical definition of 'carrying on' an enterprise can be found in section 195-1 of the GST Act which in turns is given meaning by section 9-20 of the GST Act.
As far as your case applies, section 9-20 of the GST Act provides that an enterprise is an activity or series of activities that are done:
(a) in the form of a business or
(b) in the form of an adventure or concern in the nature of trade.
To determine if an activity or series of activities amounts to an enterprise is a question of fact or degree having regard to all the circumstances of the case.
In relation to an isolated transaction such as the sale of real property, the issue to decide is whether that activity is an enterprise in the form of a business or in the nature of trade as opposed to the mere realisation of an asset.
In your case the relevant activities are:
(a) an additional small piece of land has been acquired to provide access to a long held family property;
(b) at the request of the local council, an application has been lodged to merge multiple titles into one;
(c) an application was made to Council to build units on the property but since then a decision was made not to proceed with that project.
(d) a real estate agent is to be engaged to assist with the sale of the property
The property has been held by family members long before 1 July 2000 and has been vacant for the last 15 years. The disused building while commercial in nature, it has not been used to generate income. While an application was made to Council for the approval of a development project, it is the character of the property at the time of settlement that is relevant when considering its GST treatment. As there is no development taking place on the site, the property cannot be considered to be trading stock and is best described as a private asset.
While additional land was recently acquired to form part of a new title (once merged with the others) we do not consider the minimal series of activities being undertaken amounts to the carrying on of an enterprise and note that there has been no change in the purpose for which the property is held.
Given the above factors, the eventual sale of the property under the new title will be a realisation of a private asset and will not be in the course of an enterprise that you carry on either as an individual or in conjunction with the other parties. As no enterprise is being carried on, paragraph 9-5(b) of the GST Act will not be satisfied. This means that the supply of the property will not be subject to GST.