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Ruling

Subject: GST and sale of vacant land

Question 1

Is GST payable upon your sale of the Property?

Answer

No.

Relevant facts and circumstances

You are a company that was originally registered many years ago and engaged in property acquisition and subdivision for a short time. You have not traded for many years and for that time your only asset has been the Property which is a vacant block of land with a residential zoning. You now wish to sell the Property to enable liquidation and winding up. The Property is the remaining part of a larger block which was subdivided in two, the other block being sold many years ago.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

Reasons for decision

Summary

You are not conducting an enterprise, therefore the supply of the Property is not subject to GST.

Detailed reasoning

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.

A supply is a taxable supply if it meets all the requirements of section 9-5 of the GST Act. This section states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(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 or *required to be registered.

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

(* denotes a term defined in section 195-1 of the GST Act)

In your case, the requirements of paragraphs 9-5(a) and 9-5(c) of the GST Act are satisfied as the sale of the Property will be for consideration and the sale will be connected with Australia as the Property is situated in Australia.

Therefore, what needs to be determined is whether the sale of the Property will be in the course or furtherance of an enterprise that you carry on, whether you are registered or required to be registered for GST and whether the sale is input taxed or GST-free.

Whether the sale of the Property is in the course or furtherance of an enterprise that you carry on

The term 'enterprise' is defined in subsection 9-20(1) of the GST Act to include, amongst other things, an activity or series of activities done:

(a) in the form of a *business; or

(b) in the form of an adventure or concern in the nature of trade; or …

Miscellaneous Taxation Ruling MT 2006/1 considers the meaning of the word 'enterprise' for the purposes of entities' entitlement to an ABN. Goods and Services Tax Determination GSTD 2006/6 confirms that the principles in MT 2006/1 apply equally to the term enterprise for GST purposes.

Paragraph 153 of MT 2006/1 provides that an entity can undertake a wide range of activities with varying degrees of interrelationship. The meaning of the term activity or series of activities for an entity can range from a single undertaking including a single act to groups of related activities or to the entire operations of the entity.

MT 2006/1 provides that ordinarily, the term 'business' would encompass trade engaged in, on a regular or continuous basis. However, an enterprise can incorporate a single undertaking such as the acquisition, development and sale of real property.

Paragraph 244 of MT 2006/1 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 intend to sell the Property. You advised that you had carried out land development activities 15 years previously, but you have not been carrying out any enterprise or activities since then.

We consider that you are not carrying on a business as you are not engaged in developing properties or anything else on a regular or continuous basis. However, it remains to be considered whether the sale of the Property amounts to an isolated transaction that is an enterprise in the form of an adventure or concern in the nature of trade.

Paragraphs 262 to 302 of MT 2006/1 deal with isolated transactions and sales of real property. The ruling provides that often the question of whether an entity is carrying on an enterprise arises where there is a one-off activity or isolated real property transaction. The issue to be decided in such cases is whether the one-off activity is of a revenue nature (an enterprise) or a mere realisation of a capital asset.

Paragraph 270 of MT 2006/1 provides guidance for determining whether the sale of land bought for resale in one form or another is a business or an adventure or concern in the nature of trade as opposed to a mere realisation of a capital asset. It states:

Land bought with the intention of resale

270. 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.

However, MT 2006/1 also provides that in determining whether activities relating to an isolated transaction are an enterprise or are the mere realisation of a capital asset, it is necessary to examine the facts and circumstances of the particular case. In addition to the factors outlined above, there may be other relevant factors that need to be considered in reaching an overall conclusion. 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.

It is important to note that the nature of an asset can change from being a private or capital asset to that of trade and vice versa. Where a property that was not acquired for resale at a profit later becomes the subject of subdivision, it is necessary to consider if the activities have a commercial flavour and whether the nature of the asset changes to one of trade. In your case, it may be argued that the Property was purchased as a trading asset many years ago, but after many years of dormancy it might no longer be considered as a trading asset.

The identification of trading as opposed to capital assets is discussed from paragraphs 247 to 261 of MT 2006/1. 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. Given your previous activities of subdividing and selling land and the history of the Property while in your possession, the intention at purchase is considered to be to treat the Property as a trading asset.

Characteristics of trading assets include:

· a trading asset is generally dealt with or traded within a short time after acquisition;

· trading assets can be identified through frequency of transactions or a number of similar transactions;

· improving property beyond preparing it for sale to gain a better price suggests a trading asset;

· assets can be sold for reasons other than trade, trade involves operations of a commercial character;

· motive is important where the above is indeterminate and can be important where an asset changes character.

The Property was held for a long period of time without trade. You did not conduct any business for 15 years. The Property will not be subject to any improvements prior to sale. The Sale is being brought about due to the winding up of your dormant activities.

After taking into account all factors from the information provided, we accept that the sale of the Property is not part of an enterprise, but is the realisation of a capital asset.

Therefore, the sale of the Property is in not the course or furtherance of an enterprise that you carry on. Consequently, the requirement of paragraph 9-5(b) of the GST Act will not be met.

Whether you are registered or required to be registered for GST

In order to be required to be registered for GST or in order to register for GST voluntarily, an entity is required to be carrying on an enterprise. As explained above, we do not consider that you are carrying on an enterprise in regard to the proposed sale. Consequently the requirement of paragraph 9-5(d) of the GST Act is not met.

Whether the sale of the Property is input taxed or GST-free supplies

The sale of the property is not an input taxed or GST-free supply under any provisions of the GST Act or any other Act.

Conclusion

As the supply of the Property does not meet all the requirements of section 9-5 of the GST Act, the sales are not subject to GST.